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

4.20  ·  Rating details ·  22,783 ratings  ·  640 reviews
With a new Afterword addressing today’s financial crisis


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
Paperback, 264 pages
Published October 9th 2001 by Random House Trade Paperbacks (first published January 1st 2000)
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Wen Jun Ong ++ on Patrick, Speculating on derivatives with extremely high leverage. Basically leveraging on leverage.
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Duffy Pratt
Feb 11, 2011 rated it really liked it
Shelves: trading, journalism
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
Jim Rossi
Apr 02, 2015 rated it it was amazing
Lowenstein displays remarkable prescience. Not only is "When Genius Failed" a great read, it accurately foreshadows the "weapons of mass destruction" risks, to quote Warren Buffett, that would lead to the subprime meltdown and Great Recession. Reading this book, along with Kindleberger's "Manias, Panics, and Crashes" allowed me to foresee the Great Recession, steer clear, and avoid damage. It also helped me to better understand booms and busts in my own upcoming book "Cleantech Con Artists."
Jan 25, 2009 rated it it was amazing
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
Michael Perkins
Jan 27, 2019 rated it really liked it
Less a Science than Blind Faith

In 1999, the year before this book was published, my brother and I published a similar book, “The Internet Bubble” (HarperCollins). It was a Business Week bestseller for six months.

But that financial bubble and the crisis that followed was certainly not on the level of LTCM.

When our book was in the publishing pipeline word got back to me from an editor at Fortune magazine that the author of this book had started a book about the tech bubble, but changed course when
Mar 16, 2011 rated it liked it  ·  review of another edition
(3.5) Eerily similar to a crisis almost exactly 10 years later

An interesting, well-told if brief account of the rise and fall of Long-Term Capital Management (you remember that one, don't you?). When things get heated it was along the lines of Sorkin's Too Big to Fail, but otherwise a decent treatment of the significant events in the life and death of LTCM.

Don't have too much more to share other than how prescient the following quotation (the book was written in 2000) was (or, perhaps how Wall S
Aug 13, 2018 rated it it was amazing
Shelves: non-fiction
Imagine losing US$5 billion in 5 weeks. This is the real-life account of how Long Term Capital Management, run by a bunch of the (supposedly) smartest guys in the world, including two Nobel laureates, went bust. It is a tale of recklessness and arrogance and most of all, lack of experience in real markets. It's also a good reminder to turn away and run whenever an academic tries to lecture you on how to trade the markets. The amazing thing is, some of these guys managed to "return from the dead" ...more
Sep 10, 2018 rated it it was amazing
Shelves: business
"They had forgotten the human factor." Sometimes 'vulgar Marxist' accounts of economics can be eerily similar to efficient markets theory because they assume a sort of natural outcome of exploitation and trading. This allows them to make simple predictions about the future. Yet people in markets continuously do things that aren't even in their narrow self-interest. And they do these things because of their personalities and prejudices. They are arrogant or bold or timid. You can't understand fin ...more
Dec 13, 2008 rated it it was amazing
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
Mar 08, 2012 rated it it was amazing
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 others.
Owen Tuleja
Jun 02, 2018 rated it liked it
This books gets three stars because it is a serviceable summary of its topic but is in now way outstanding. If you like finance, specifically statistical modeling and hedging strategies, you will find this tale of Nobel Prize hubris gone wrong because "muh models" didn't predict multiple standard deviation events intriguing. If you like reading about bad actors using arms of the federal government to engineer golden parachutes for them, you'll REALLY like this book.

What is tough about this book
Kara Lane
Aug 20, 2014 rated it really liked it
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
Brian G. Murphy
Nov 03, 2012 rated it really liked it
Shelves: finance
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.
Apr 01, 2020 rated it really liked it
Can’t believe this is my first book for 2020😂
Mirek Kukla
May 01, 2012 rated it really liked it
Shelves: business
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.

Harsha Varma
Thrilling! Hard to put down. It is a sober reminder that not even the giants of modern finance, the ones whose equations we encounter in textbooks, are infallible. It shows how difficult it is to measure and quantify risk. For a long time, volatility was a proxy for risk. Long term's typical strategies hinged on how markets became efficient over time which in turn led to lower volatilities and shorter spreads between treasuries and other riskier bonds. So, Long Term was typically short treasurie ...more
Feb 16, 2010 rated it it was amazing
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
Sagar Jethani
Feb 24, 2010 rated it really liked it
Shelves: finance
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
Jun 20, 2015 rated it really liked it
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
Julio Loo
Dec 28, 2015 rated it it was amazing
Even complex mathematical models fails to take into account the irrational nature of human beings. These models are based on countless amount of assumptions, and they followed it blindly. Arrogance, greed and flawed models obliterated LCTM.
May 08, 2016 rated it really liked it
I read to understand how they lost half of my money. A terrific read for your inner finance nerd.
Lokesh Dhaker
Aug 18, 2015 rated it it was amazing
Seductive theory of efficient market and Rational Economic Man (REM) is proven wrong. The assumptions of Modern Quantitative Finance used by LTCM were too optimistic and clad with an aura of invincibility. Greed was one of the driving factor behind large speculative positions. Oh! but they weren't speculative for LTCM's point of view. They were foolishly confident of predicting future. They thought they were right and market was wrong, therefore, paid heavy price. An interesting and eye opener t ...more
Prasad BSRK
Apr 09, 2018 rated it really liked it
Detailed, eye-opening revelations!
This book covers the spectacular rise and the stunning fall of LTCM, the hedge fund set up by the whos-who of the industry including Nobel Laureates. They earned more than 300% profits over 4 years to grow by $3.5+ billions and lost it all in nearly 2 months! The assumptions in models, the disproportionate leverage, their lack of attention to intuitive reason, and their superlative egos which paved way for their failure are very hard to miss. Makes for a great r
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
Aug 03, 2019 rated it really liked it
A cautionary tale that I plowed through as part of my ongoing effort to understand the institutions (and people) that so influence our economy. Think this one would push anyone in the direction of Elizabeth Warren.
Samridhi Khurana
Apr 26, 2018 rated it really liked it
Roger Lowenstein gives a detailed account of the unprecedented success and abrupt collapse of Long Term Capital Management. LTMC was founded by John Meriwether, ex bond trader at Salomon Brothers in 1994, and the fund mostly relied on convergence trading. The returns were astonishing in its early days, but the exorbitantly high leverage coupled with the financial meltdown in Asia and Russia forced the Fed to mediate a bailout of the fund in 1998.
Rishi Prakash
Mar 30, 2012 rated it it was amazing
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
Jul 28, 2014 rated it it was amazing
This review has been hidden because it contains spoilers. To view it, click here.
Preston Kutney
Jul 07, 2015 rated it really liked it
Shelves: business
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
Mark Geise
Apr 26, 2015 rated it really liked it
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
Oct 17, 2014 rated it really liked it
I had this book on my reading list for a while. I wished I had read it earlier. To me this is a book about the dangerous seductive effects of excessive confidence. When you see it, learn to be sceptical. LTCM was a debutant on prom night and all the banks and wallstreet wanted to dance. I didnt know Seth Klarman had refused to take a stake in LTCM. He looks even greater now in my eyes. Investing is about being able to stand past the 100 year storm. At LTCM 2 simple small mistakes could wipe you ...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


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“If Wall Street is to learn just one lesson from the Long-Term debacle, it should be that. The next time a Merton proposes an elegant model to manage risks and foretell odds, the next time a computer with a perfect memory of the past is said to quantify risks in the future, investors should run—and quickly—the other way. On Wall Street, though, few lessons remain learned.” 2 likes
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