When Genius Failed - The Rise and Fall of Long-Term Capital Management

Roger Lowenstein

Physical

In Circulation

In this business classic—now with a new Afterword in which the author draws parallels to the recent financial crisis—Roger Lowenstein captures the gripping roller-coaster ride of Long-Term Capital Management. Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein explains not just how the fund made and lost its money but also how the personalities of Long-Term’s partners, the arrogance of their mathematical certainties, and the culture of Wall Street itself contributed to both their rise and their fall.

When it was founded in 1993, Long-Term was hailed as the most impressive hedge fund in history. But after four years in which the firm dazzled Wall Street as a $100 billion moneymaking juggernaut, it suddenly suffered catastrophic losses that jeopardized not only the biggest banks on Wall Street but the stability of the financial system itself. The dramatic story of Long-Term’s fall is now a chilling harbinger of the crisis that would strike all of Wall Street, from Lehman Brothers to AIG, a decade later. In his new Afterword, Lowenstein shows that LTCM’s implosion should be seen not as a one-off drama but as a template for market meltdowns in an age of instability—and as a wake-up call that Wall Street and government alike tragically ignored.

What will you learn from this book

  1. LTCM's Genesis: The book provides insights into the creation of LTCM by Nobel laureates and renowned financial experts, showcasing their sophisticated models and strategies.

  2. Quantitative Models and Risk Management: It explores LTCM's complex mathematical models and their approach to risk management, which were considered cutting-edge in finance at the time.

  3. Leverage and Overconfidence: The book highlights how LTCM used substantial leverage, assuming their strategies were almost foolproof due to their founders' exceptional expertise and success.

  4. Financial Crisis of 1998: It details the events leading up to the 1998 financial crisis, triggered by Russia's default and the subsequent unraveling of LTCM's highly leveraged positions.

  5. Systemic Risk and Intervention: The book delves into the systemic risk LTCM's collapse posed to the global financial system, leading to coordinated intervention by major financial institutions and the Federal Reserve.

  6. Lessons on Hubris and Risk: "When Genius Failed" underscores the dangers of overconfidence and the limitations of even the most sophisticated financial models, emphasizing the importance of risk assessment and diversification.

  7. Regulatory and Market Impact: It discusses the regulatory and market implications arising from LTCM's collapse, prompting discussions on risk management practices and the need for increased oversight.

  8. Human Element in Finance: The book portrays the human side of finance, showcasing the personalities, egos, and interpersonal dynamics that played a role in LTCM's rise and fall.

  9. Lessons Learned: Lowenstein draws lessons from LTCM's demise, emphasizing the need for humility, diversification, and robust risk management practices in finance.

  10. Financial Industry Reflections: The collapse of LTCM sparked discussions and reflections within the financial industry, prompting reevaluation of investment strategies and risk management methodologies.

Language English
ISBN-10 0-375-75825-9
No of pages 264
Font Size Medium
Book Publisher RHUS
Published Date 09 Oct 2001

About Author

Author : Roger Lowenstein

7 Books

Related Books