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

Product Information

Essentially, this meant taking the risk out of trading, which essentially meant that banks were fighting each other on who is going to lend LTCM more money .

The fear was that there would be a chain reaction as the company liquidated its securities to cover its debt, leading to a drop in prices, which would force other companies to liquidate their own debt in a vicious cycle.Because of the loosening of the law, hedge funds become a hot but also dangerous and risky bait in the eyes of investors. Therefore, investors in hedge funds must be highly qualified, professional, with a thorough understanding of the market and trading.

This famous fable on the dangers of hubris can be easily applied to the story of Long-Term Capital Management, a huge hedge fund which dominated the financial markets in the 1990s. Like Icarus, they found themselves riding high, with profits through the roof, and yet they also went too far.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 the Greenwich, Ct. hedge fund, 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.

You can overintellectualize these Greek letters,” Pflug reflected, referring to the alphas, betas, and gammas in the option trader’s argot. “One Greek word that ought to be in there is hubris.”

Become a Member

a b A financial History of the United States Volume II: 1970–2001, Jerry W. Markham, Chapter 5: "Bank Consolidation", M. E. Sharpe, Inc., 2002

into being, had long tried to establish a profitable, mutually rewarding relationship with the fund. So had many other banks. But Long-Term had spurned them. The professors had been willing to trade on their terms and onlyhundred investors, it employed not quite two hundred people, and surely not one American in a hundred had ever heard of it. Indeed, five years earlier, LTCM had not even existed. When Genius Failed” doesn’t say anything new – the market is volatile, and there are no mathematical models which can circumvent this – but it relays this by means of the emblematic didactic story and in such a compelling manner that this book reads more like a thriller than a financial analysis. Not a few people believe that there is always a gap between superior academic insights and real-world situations.