I read The Grapes of Wrath about 40 years ago, and I remember the John Ford movie much better than I remember the book. The sketches in these seven arI read The Grapes of Wrath about 40 years ago, and I remember the John Ford movie much better than I remember the book. The sketches in these seven articles are harrowing, more so than anything I remember from the book. Basically, this small series of articles carries all the political weight of the novel in about 1/20th the space, and even as short as they are, these articles are still redundant. But they are powerfully written. I was especially impressed at his sketch of three families in three different levels of despair, from determined, to cursed, to hopeless.
The other thing I found striking here is the number of times Steinbeck made reference to women who were unable to feed their newborns, because they did not have the nutrition to make milk. This didn't square well with my recollection of the ending of the book, with Rose o'Sharon (no idea how to spell that). And, to some extent at least, it confirms my suspicion that the novel was not quite as brutal as the picture painted by these articles. I liked these articles, but I had hoped they might inspire me to re-read the book. But I'm just not feeling it....more
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 fiLong 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 it all in just a few months and came close to bringing down the financial sector in the process.
It's a great story, and Lowenstein tells it well. He makes the complicated trading structures fairly easy to understand. For example, he does a good job of explaining how a fund could go long or short on volatility in equities. And I'm not going to try to repeat that here.
There are two main themes here: first, is the arrogance and greed involved. This led LTCM to trade at leverage of 30:1, and even greater as they started to collapse. That means they were controlling about 120 billion dollars in assets when they had 4 billion in equity in the fund. And that didn't include their risks in more complicated derivatives. I'm not sure anyone knows what their exposure was there. The second main theme is the over-reliance on mathematical models. Here the models derive from the Black-Scholes method for pricing options (indeed, Scholes was a partner in LTCM). And these, in turn, stem from the efficient market hypothesis, and the random walk theory that goes along with it. In a nutshell, these theories are that the current price always reflects everything that is known, and that future moves in price are randomly distributed according to a bell curve.
There are a few ironies here. LTCM, who believed so firmly in the efficient market, did everything it possibly could to cut better deals with the banks who gave them financing, and with their clearing bank. In other words, they didn't simply go with the price that was better. One tactic they used was to cozy up to these people by inviting them to a posh golf club in Ireland owned by one of the partners. When dealing with their bankers, at least, they felt there was some room for market inefficiency.
Worse, for the first four years, the fund did unbelievably well. In all that time, the worst month they had was down 2.9%. The partners saw this as a pure confirmation of their method, and of their own genius. And they took this success as a justification for adding on even more leverage. But no-one, not even the book, seems to get that the early success was already a red flag that their models didn't work. The success they had was not something that their models would predict. The event that wiped out the company, according to their own models, was a 10 sigma event: it was something that might happen once in several lifetimes of the universe, but probably not. (It's worth noting that this 10 sigma event happened a second time the year after the company collapsed. So instead of once in forever, the event happened twice in just over a year.) But no-one has said how unlikely their success was according to their own models. It may not have been as unlikely as the collapse, but it was far from what anyone, including the partners, expected from the outset. In short, the firm lived through two black swan events. The first worked in their favor, as volatility shrank and shrank without so much as a hiccup for four years. And the second blew up the firm. My point is that they should have been paying attention to the first black swan event as well....more