The Rise and Fall of Long-Term Capital Management

It's all there. The Bankers should be jailed, the key thrown away, and the system reworked. RL does a fine job of showing just how selfish and untrustworthy these modern day pirates in silk suits really are.

This was a well written and very interesting read. Reading this book after several subsequent financial crises definitely generated a lot of provocative thought about how the markets can be repeatedly stressed time and time again by people trying to exploit the inefficiencies of the financial system.

After reading other books that chronicle financial "drama" like Liar's Poker and Barbarians at the Gate: The Fall of RJR Nabisco, it's also interesting to see how the same characters appear over and over again. I use the word "characters", but these are in fact real people, not fictional characters... The happenings in this book are so incredible, that you just can't make this stuff up.

I really appreciated the author's ability to explain to the layman how the complex financial transactions were used and how they eventually led to disaster. This clarity helps the reader appreciate the cleverness of the participants as well as the hubris and shortsightedness.

An amazing story very well told by Lowenstein. I've read it 3-4 times now, and I love it. It cuts to the heart of many of the problems plaguing the markets and economics an academic discipline, and most of all the intersection between the two. Enjoy.

This financial "Thriller" would be scary and exciting if it were fictional. The fact that the story is true makes this a compelling must-read account of how wall st. greed develops to extremes. Lowenstein brings forward the emotions of all the actors in this play - something you won't read in any news account of the day.

you realise that intelligence people let their greed and ego influence their decision-making ability and ruin a good thing by forgetting risk management and ignoring their own rules.

great read and required reading for all investors.

Although the book describes an interesting history of how LTCM was founded and managed and eventually failed, I believe the main conclusion about too much leverage and illiquid markets is somewhat repetitive. It would be a more complete and balanced history if the participants take on why and how LTCM came to fail would have been included in the story.

This is a book that makes finance exciting. I was assigned this book for a Finance class and was surprised to find it so interesting. I recommend it for anyone with an interest in the behind-the-scenes goings-on on Wall Street. My only negative criticism of this book is that the author seems to rely on simple moral judgements to explain why this happened (ie They were greedy! Those narrow-minded academics relied too heavily on their belief in their own infallability!). But a good read nonetheless!

Great read! Exciting story of the latter stage of the evolution of financial hedging and its entry into the mainstream. The book presents a wonderful history and background of the characters and financial/economic environment underlying the events. The narrative is so good you almost forget that those are real people in real situations!

Its both an interesting and illuminating read as a stand alone. However, in comparison to similar books like Barbarians at the Gate, Smartest Guys in the Room or too Big to Fail, it just isn't as rich.

Compelling novel. Great if your interested in the world of business and finance as a whole. The epilogue and back explanations of the tools and theories which were applied by Long Term Capital Management really help you to grasp what was going on during this time.

This is a very well written book. Factually correct. It is a must reading for someone who who is day trading in options or hedge fund s investors and thinks of himself a genius. Must wakeup and smell the coffee.

A fascinating and well-told account of what happened with Long-Term Capital Management - and how close the entire financial system came to collapse because of a greedy group that believed they could do no wrong and that they were invincible.

Its hard to believe that after this happened the financail meltdown of 2007-present happened. Obviously, we didn't learn from the past about how models can breakdown and how not to misuse statistics. I would recommend reading the Black Swan first then read When Genius Failed. The Black Swan is an important book, but not the easiest read out there due to the writing style and the writer's ego. However, its thesis is perfectly illustrated in When Genius Failed, which will help crystallize why you can't assume the Normal Distribution exists in financial markets.

when genius failed is an impressive narrative of how some of the greatest minds at wallstreet assembled together to create one of the greatest fiascos in the financial hostory. it is also a tale of the culture of hubris and greed at wallstreet. throughly enjoyed reading this one!

This is a behind the scenes look at what happened to LTM and why. It explores the principals and the arrogance which permeated the entire operation which was built of a false premise and was just an accent waiting to happen. At least then, the government didn't make the taxpayers be on the hook. The government has obviously gotten smarter!

Pretty entretaining book and pretty interesting episode to read about. Well written but the author engages in some grandious explanations of the fundamental causes of the crisis that I don't think he can convincigly justify. Plus he treats some of the guys involved as missing some pretty obvious points which also seems implausible. But this stuff is not too prevalent in the book and can be easily read and move on.

By now Long-Term Capital Management's tale is well known. A group of hot bond arbitrage traders joined forces with a pair of future Nobel Prize winning academics to form a hedge fund that promised it had conquered the ogre of risk. As profits grew, greedy bankers and brokers stood in line to provide financing on the finest of terms. Yet, like other speculators before them, they failed.
The markets, as G. K. Chesterton wrote, lay "a trap for logicians . . .. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait."
While the hedge fund's history is familiar, Lowenstein's conclusions are worthy of examination by both historians and investors.
1. Long-Term Capital Management's (LTCM) profits look less impressive in light of the losses that followed. The "profits" used by bankers and brokers to justify their loans and investments in the fund were not "earned", merely borrowed against the day the tide turned.
2. LTCM saw the cycle was turning, yet refused to limit its exposure. As spreads markets withered, the partners opted to increase their leverage to maintain returns.
3. The fund had faith in diversification. Its history serves as ample notification that eggs in different baskets can and do all break at the same time.
4. One can be big - read illiquid; one can be leveraged, but to be both is begging for trouble. No one can be right every trading day.
5. Traders are not computer chips. They are motivated by emotions; they run in herds, they retreat in hordes. Uncertainty will never conform itself to a numeric straitjacket despite the risk defining desires of the academic community.
This book tells a timeless tale. Markets are cunning animals, there to exploit investors' mistakes and hubris.

Were the individuals who initiated and ran Long Term Capital Management geniuses, as the title of this book indicates? When reading the book, the reader is led to believe, via their quoted statements, that they themselves thought they were geniuses. Did the eventual behavior of the markets convince them otherwise? Did the downfall of LTCM inject them with an overwhelming dose of humility? Without knowing them this would be hard to say. But one can say with a large degree of confidence that no amount of intellectual ability will negate the fact that the financial markets are a collective, emergent entity. The markets do not care about the accolades or credentials of the traders that invest in them. The only reason for displaying these credentials is to convince investors to take part in a financial scheme, whether it is a private investment group, a new business, or some other entity that requires expertise in finance. When reading this book, it is apparent that the prospective investors in LTCM viewed its proprietors with an uncritical adulation, and did not ask the probing questions that they should have before they made the decision to invest. They should have ignored the fact that a few of these proprietors were their former professors or tutors, and concentrated instead on the content of their proposals, for it is only this that is relevant. If indeed the investors were overly impressed by the titles and awards possessed by the members of LTCM, then they clearly made a mistake. They should have only been concerned with the content of the proposals made by LTCM. If they did not have the mathematical knowledge to understand the proposals, they should have either obtained it on their own or have withdrawn their investment. The list of investors is quite amazing when viewed in retrospect: Sumitomo Bank, Dresdner Bank, Liechtenstein Global Trust, Julius Baer, Republic New York Corporation, Banco Garantia, Michael Ovitz, Phil Knight, Robert Belfer, James Cayne, St. John's University, Yeshiva University, University of Pittsburgh, Paragon Advisors, PaineWebber, Donald Marron, Black & Decker, Continental Insurance of New York, and Presidential Life Corporation are examples. The interest of these institutions and investors is fascinating given that derivatives trading and sophisticated mathematical modeling was relatively new at the time. Their decision to invest therefore had weak historical precedent, and therefore it is easy to believe the author's contention that this decision was based on their uncritical adulation of the LTCM members. The "mystique" of these members was taken "to a very high extreme", writes the author.

The author attempts to give the reader insight into the personalities of the LTCM members, and his descriptions of them work to a certain degree. Such insight is necessary to gain a proper understanding of their behavior. But a description of their overt behavior and demeanor still leaves the reader wanting as to whether their appearance, i.e. the way they portrayed themselves to others, did reflect what they truly believed inside. Was their behavior part of their salesmanship, a conscious strategy to portray themselves as savvy business people who had great insight into the workings of the financial markets, masking their hidden insecurities on these workings? Or was their behavior reflective of what they truly were, i.e. individuals who through their training in finance and mathematics, were confident in themselves and in the concept of LTCM. For example, was John Meriwether indeed a quiet, private individual with a "steel-trapped" mind as the author portrays him, or was this merely a facade that Meriwether thought would give him a sphinx-like aura of mystery? And if the latter is true, why did Meriwether think that such behavior was necessary? What historical precedent did he follow in this regard? Does such behavior result in better financial contracts? A better understand of the markets? The markets of course do not care about the personalities of the traders that participate in them. The markets do not hold any special affection for a James McEntee, who "traded from his gut." Nor do they care about the commentary of a Seth Klarman, who accused the mathematical models of LTCM as being blind to "outlier events." And they certainly do not respect the boasting of a Greg Hawkins, who proclaimed that LTCM made more money because its members "were smarter."

The book is interesting even from a contemporary perspective, in that it brings out the still ongoing tension between those who prefer a more mathematical/scientific approach to trading and those who "trade from the gut." The financial modelers still refer to the latter as "uniformed speculators", "noise traders", or "nonscientific, old-fashioned gamblers." The gut-traders still scold the modelers as a "dressed-up form of gambling" or as "pure academics" and "not applicable to the real world." The debate between these two groups though is evolving, due in part to the rapid automation of the financial markets. More trust is being given to machines that can not only crunch the numbers but can also exercise the "intuitive judgment" that some traders still insist is the way to go in trading. It will be interesting to see if these machines can deal with the markets in a manner that is superior to what humans have done for centuries. Genius arising from silicon will compete with genius arising from carbon. But one thing is certain: if machine trading results in instabilities in the markets, with huge losses to the institutions that own them, there is little doubt that these failures will be protected by the same boards of governance that rescued LTCM. To paraphrase the author, high finance rewards success, but in the twenty-first century, failure will be protected as well.

As Lowenstein says at the outset, it's an unauthorized account of the LTCM story. A story of human failure across the board including banks and regulators. Really good read - consequences of extreme financial leverage and brilliance dead set on reducing an uncertain world to precise odds and placing massive bets on ill-derived conclusions with no thought of failure. Life is full of fat tails...

Although a bit dry, this is a very informative book. I would recommend it to anyone with investments, as it describes what really happens behind closed doors. Further, it gives insight into the delicate nature of our financial system.