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

4.12 of 5 stars 4.12  ·  rating details  ·  11,506 ratings  ·  348 reviews
With a new Afterword addressing today's financial crisis
A" BUSINESS WEEK "BEST BOOK OF THE YEAR
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 o
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Paperback, 236 pages
Published October 9th 2001 by Random House Trade (first published January 1st 2000)
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Community Reviews

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Duffy Pratt
Long Term Capital Management was a hedge fund made up of a group of former hotshot bond traders from Solomon Bros., together with some high powered financial academics (including two Nobel prize winners), and one former central banker. They were the biggest stars in the business, and they had all the arrogance and greed that you could possibly imagine. They also seemed to be as good as they thought themselves. In five years, they turned a billion dollars into 4.5 billion dollars. Then they lost ...more
Robert
As a student of the efficient market idea I has always wondered what these guys were up to in more detail even after seeing the Nova program about the meltdown of Long Term Capital Management in 1998. This is an excellent book that explains as well as can be in a general work of literature less than 300 pages.

There are several lessons here, that apparently will not be learned.

Mathematical models are based on very good math with very many assumptions required to make the computations workable. T
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Kate
I started reading this book in summer of 2007 and then picked it up again this fall. In 1997 I was blithely running around France checking out art while this country's financial system nearly came to a halt, the Fed had to step in and major banks suffered huge losses as a result of hubris and lack of understanding the true risks they were taking. Lowenstein brilliantly takes us behind this scenes to unravel how real geniuses-- Long-Term's marketing strategy was touting the number of Nobel prize- ...more
Sagar Jethani
Lowenstein crafts a superb narrative around the failure of the immense hedge fund, Long Term Capital Management. The details of the failure are complex, but I found myself returning to the fact that so many factors cited as contributing to the near-collapse of the financial system in 2008 were evident ten years earlier with the demise of LTMC:

* Unregulated shadow banks
* Spiraling complexity of derivatives which few understood
* Over-reliance upon computer models which failed to account for the fa
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Kara Lane
Roger Lowenstein's book is a captivating look at what happens when even brilliant people rely on models and ignore the human element in investing. Their models did not take into consideration that when people are motivated by fear and greed, they are capable of extreme behavior. And as John Maynard Keynes is quoted as saying in the book, "Markets can remain irrational longer than you can remain solvent." LTCM discovered the truth of that statement too late.

LTCM earned great returns in the early
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Matthew Richman
It's easy to see why this book is a finance classic. Lowenstein does a great job, both on the technical and narrative sides. He explains LTCM's complicated trade structures and academic ideas which backed them up. He also is a great writer, and tells a readable and engaging story - even though most readers will know how the book ends, Lowensteins grip on the narrative makes you believe briefly that it could turn out differently.

Another piece of interest in this book is Lowenstein's meditation LT
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Lobstergirl
Grrrrrr. The details almost don't matter. The outlines of the story will almost always be the same. Greed and hubris. Alan Greenspan bemoaning excess regulation, even as, and after, things go very wrong because there was little regulation. People paying lip service to ideas of risk. In this particular case, abnormal levels of secrecy because these fellows thought they were extra smart (they were - two of them won the Nobel prize shortly before the fund imploded) and their secret formulas and por ...more
Sunil
Too big to fail.... LTCM might have not been the first to be bailed out. It wasn't the last. However, it might have the dubious distinction of being possibly the only firm who had a lion’s share to play in what eventually turned into a global contagion. Read and re-read. Save for posterity.
The fund boys: Meriwether, the leader, Victor Haghani & Larry Hilibrand, the overbearing maverick traders, Profs Merton and Scholes, the Nobel laureates and tutors to the rest of the street and many other
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Aaron Arnold
There's a graph at the very beginning of this book that's got to be one of the funniest displays of financial information I've seen in a while. It's very simple - a line showing the notional value of a dollar invested in Long-Term Capital Management over the firm's all-too-brief lifespan. The line climbs slowly from its beginning in March 1994, picks up speed through the intervening years, peaks at a bit over $4 in April 1998, and then drops off a cliff Wile E. Coyote-style to about 25 cents ove ...more
Rishi Prakash
There are lot of incidents which happen on Wall Street which are no less than the best Hollywood's thrillers. This story of "Long Term Capital Management" must be right up there among all time greatest folklore of Wall Street. The rise of this Arbitrage Company did surprise few people initially in 1994 when it managed to raise $1.25 billion(largest start-up ever)but its fall ended up flabbergasting many if not all on the Wall Street. This was a group which broke away from one of the Wall Street' ...more
Mirek Kukla
NOTE: this "review" is less about what I thought of the book, and more about what the book itself is about. So - spoiler alert?

It's All About the Fund
As the title suggests, "When Genius Fails" is about the "Rise and Fall of Long-Term Capital Management." Don't expect to learn why the economy itself went to shit, causing LTCM to lose ungodly sums of money. The main character of this tale is the fund itself, and Lowenstein does a fine job of documenting its meteoric rise and catastrophic fall.

LTCM
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Sheil
Mar 03, 2010 Sheil rated it 5 of 5 stars
Recommends it for: Those interested in business and finance
This book was rated a four... and then came the epilogue. Roger Lowenstein did a great job summarizing what was a monumental collapse by Long Term Capital Management, and the epilogue really drove the point home. It makes me wonder why, having graduated college just last May, we finance majors are taught the efficient market theory over and over again, but we never hear about behavioral finance until we read books like this. How many times do we need to be shown that markets simply are not ratio ...more
Wayne
This is a good account of the crisis that hit Long Term Capital Management (LTCM) in 1998. It's also really interesting reading this book when the last crisis (the subprime mortgage crash) is still in the recovery stage. There are a lot of analagies to draw between the two.

It's essentially an example story of what can happen when some very smart economists model what they expect to be a very lucrative business, but fail to take into account the human factor and how in times of crisis everyone he
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Mac
Lowenstein does a workmanlike job of crafting a clear narrative and spelling out the technical details of the financial markets. The rise and then fall of Long Term Capital Management is clearly presented from beginning to end. Though the story never soars, it never lags or gets lost in the weeds so overall I enjoyed the book and learned something as well. As an outsider to the hedge fund world, I appreciated Lowenstein's frequent stops to explain a particular trade or strategy, and I liked his ...more
Ying
This review has been hidden because it contains spoilers. To view it, click here.
Preston Kutney
Great finance book - definitely on par with "The Big Short" and "Liar's Poker". Obviously very satisfying to read about brash Wall Street "geniuses" whose overconfidence precipitated their spectacular crash.

There were a lot of very fascinating takeaways about markets:

- "Markets conspire against the weak". Once the fund started to lose money, a number of fatal processes were kickstarted that accelerated the fall. First, LTCM was so massive in its positions that any move it made would move the ma
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Danielle
Like American Icon which I read a couple weeks ago, another absolutely phenomenal piece of journalism. I was so impressed with Lowenstein's writing and found the story of Long Term Capital Management's rise and fall to be a gripping--albeit horrifying--ride. Though I thought this book was just fantastic, I would not recommend to those who have no (or limited) familiarity with Wall Street and/or don't have a fairly solid understanding of the mechanisms of basic financial instruments (like bonds) ...more
Brian G. Murphy
It works until it doesn't. Hard to believe that after LTCM's fall John Meriwether went on to found a new firm, JWM Partners, which, not surprisingly, blew up in the 2008-2009 downturn. What is surprising? In 2010, he founded a third firm, JM Advisors Management; so much for high-water marks.
Julia Matoshchuk
Must read it one more time. I am finding it absolutely brilliant and I am in total love with this book. But "technical part" was a real challenge. I should definitely go thoroughly over financial theory of derivatives and arbitrage before returning to this book one more time.
Mark Geise
This is a great account of the meteoric rise and fall of Long-Term Capital Management, a highly leveraged hedge fund run by several huge names in finance including John Meriweather, Robert Merton, Myron Scholes, and David Mullins. LTCM specialized in arbitrage trades; it generally bet that spreads on riskier assets and less-risky assets would narrow. They were able to capitalize while others fled to safety due to liquidity issues and were able to capitalize on developing, less efficient derivati ...more
Alison T
This book was a little dense and didn't do a great job of explaining some of the details involved in the demise of LTCM, but overall it was a good read and got the main points across. I wish Lowenstein had spent a little more time discussing the actual trades and their structures, since those were ultimately what brought the firm down, but the reader does get the gist of it. I think reading this after Sorkin and Lewis makes it slightly tougher to slog through since those two are both so good at ...more
Munro Richardson
Fantastic account of the rise and fall of Long Term Capital Management. In hindsight the seeds of the 2007/2008 financial crisis were evident in the fall of 1998. (Arguable, we can find even earlier evidence in the accounts of Black Monday in October 1987.) The irony of Bear Stearns refusing to come to the aid of LTCM was incredible knowing what would transpire 10 years later.

Mark Twain supposedly said that history doesn't repeat itself, but it does rhyme. It appears to have rhymed a decade lat
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Amrita
This is a great book detailing one of the biggest debacles in financial history, LTCM fall. I had the case study on this before, but background and involvement of pretty much investment bank gets clear from this book. Some of the details about how the fund was floated are a tad boring. Overall it unfolds like a crime novel and keeps oen interested. As someone in financial services industry, I would recommend it to people interested in the field. A lot of current risk management practices stem fr ...more
Peter
A concise summary of the problem that we see played out over and over (and over). Apt alternative titles would include: "When Genius Failed, Again" "When Genius Drank its Own Kool-Aid" "Genius Failed Again, Duh" "When Ego Kicked Genius' Ass" "Hey, Genius!" and "Rich Dad, Shithead."

One could say it was Goldman, and other traders sensing blood in the water, who took them down, and it was not merely their own egos. This blends into the chicken versus egg question. The writer offers some observation
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Dan Ragsdale
Mar 01, 2010 Dan Ragsdale rated it 4 of 5 stars
Recommends it for: roy ragsdale
This review has been hidden because it contains spoilers. To view it, click here.
Cramer Williams
Oct 23, 2009 Cramer Williams rated it 4 of 5 stars
Recommends it for: Everyone
This is one of the most interesting non-fictional stories that I have ever read. It appears as though the entire thing was created for a movie. It explains the story of Jon Meriwether's hedge fund, Long Term Capital Management(LTCM), and how it almost single-handedly (although it includes the carelessness and hubris of the major banks) brought the financial markets to a halt. It appears that LTCM was about 9 years ahead of their time as their bets with international arbitrage started to go bad, ...more
Nicola
This is a great tale about how greed and ego caused the collapse of a hedge fund that boasted profits that turned out to be too good to be true. Lowenstein, who covered the story about Long Term Capital Management as a reporter at the Wall Street Journal and the New York Times, gives an insider's look into the personalities of the managers who worked to turn millions into billions, the Nobel prize winning economists who thought their fancy models were foolproof and the Wall Street bankers who de ...more
Marc
For better formatting and a full review

Rating: 7/10

This book was quite technical (though the author did a good job of explaining terms overall), and a bit tough to wade through. But the subject is crucial, hence the high rating. Lowenstein takes a look at an elite firm (Long-Term Capital Management) and shows how their hubris, greed, and detachment led not only to their own downfall, but threatened to exasperate an economic crisis in 1998. What’s really revealed, however, is that LTCM is merely
...more
Phillip
What happens when you cull twenty-five Phds, two Nobel Laureates, hundreds of years of cumulative experience? the result is a loss of virtually all of your capital!

I think far too many people commit the argumentum ad verecundiam fallacy (appeal to authority). Just the other night, a friend of mine referred to a strategy and added it was created by a Nobel prize winning economist. I think one should have to argue why a particular idea has merit than merely cite the fact it was accorded a Nobel p
...more
Jennifer
Wow I just finished reading this book (it's about 3 am here) and I can just feel the heaviness of the entire debacle and its lessons weigh upon my shoulders, but it's a good feeling. It's always wonderful to learn and to enjoy the entire process.

What a fantastic read! Lowenstein is quite masterful in explaining both the detailed financial concepts necessary to understand what happened and all the little human errors of sorts that lead to the mess now known as LTCM.

Several times in the midst of
...more
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Roger Lowenstein has reported for the Wall Street Journal for more than a decade and is a frequent contributor to The New York Times and The New Republic. He is the author of Buffet: the Making of an American Capitalist

-HarperCollins
More about Roger Lowenstein...
Buffett: The Making of an American Capitalist The End of Wall Street Warren Buffett (Duckworth) While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis Origins of the Crash: The Great Bubble and Its Undoing

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