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

4.20  ·  Rating details ·  23,687 ratings  ·  678 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 of key
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Paperback, 264 pages
Published October 9th 2001 by Random House Trade Paperbacks (first published January 1st 2000)
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Ashwin Karthik the greed gets to your head, eventually if you arent humble enough like buffet you dont make it in this game.
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Duffy Pratt
Feb 11, 2011 rated it really liked it
Shelves: journalism, trading
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." ...more
Robert
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
...more
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
...more
Brian
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
...more
Zak
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
Donald
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
Kate
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
Sunil
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.
Th
...more
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
...more
Dipanshu Gupta
Nov 12, 2020 rated it it was amazing
Absolutely riveting writing! Lowenstein writes about financial stories like Dan Brown writes his thrillers.

The book is on Long Term Capital Management, containing a bunch of math, computer and financial wizards who wanted to tame the market using statuses and probability. Add in two noble prize winners, champion traders and an ex-Federal Banker, and you have one of the most illustrious funds.

They strong armed everyone on the market, got the best deals, made a stunning portfolio and for the fir
...more
Quinn Rhodes
Dec 26, 2020 rated it it was amazing
Surprisingly read this book in 36 hours. Couldn’t put it down - the folly of over leveraged bond market trading was just too interesting for me to handle.
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
...more
Jaak Ennuste
Apr 12, 2020 rated it really liked it
Everyone has their own opinion on what should be under compulsory literature at school. Here's mine: finance students should all read When Genius Failed. I was taught in university about the Bell curve, Black-Scholes option pricing formula, and all other various ways on how to assess risk and return. It is human nature to seek certainty, or the ability to assess probabilities. In financial markets this has been so for decades, but we do not seem to be any closer to the answer today than we were ...more
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. ...more
Margaux
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.

LTCM
...more
Tõnu Vahtra
Oct 22, 2020 rated it really liked it
"The efficient market hypothesis is the most remarkable error in the history of economic theory.”
When you believe that you have achieved the impossible (AKA believing you can manage complexity) and become blind to any of the factors that don't fit or conflict with your statistical model and then also manage to convince the mob (Wall Street) of the lie let greed to amplify it almost without limit until you are about to collapse the world economy as a whole... When reading about the development of
...more
Deniss Ojastu
Apr 04, 2017 rated it it was amazing
Shelves: history, finance
At first, the book did not feel that easy to read: price-to-equity ratios, risk multipliers, derivatives, swap contracts... But the more I read the more it felt like a financial thriller, only more captivating and eye-opening.

The book tells the story of a darling of the Wall Street in the 1990s, the firm that attracted awe of investors, financial regulators, academia and business leaders in general. The firm which was called Long-Term Capital Management was established and ran by the cream of th
...more
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
Lobstergirl
Jan 15, 2009 rated it really liked it
Shelves: business-finance
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
Sheil
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
...more
Juhi
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.
C
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.
Julian Dunn
Aug 30, 2020 rated it really liked it  ·  review of another edition
Lowenstein's book, written shortly after the failure of Long-Term Capital Management (LTCM), reads as foreshadowing of the 2007-2008 financial crisis. It's too bad many Americans had and still have never heard of this hedge fund, whose strange name did not preclude it from imploding within 5 years, sunk by a complex web of derivatives transactions and excessive leverage, all fueled by, of course, a healthy dose of Wall Street broker hubris. In 1998, the derivatives that sank LTCM were "equity vo ...more
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
Brahm
Aug 24, 2020 rated it really liked it
Shelves: finance
This is the story of a hedge fund that operated from ~1994-1998 and nearly blew up the markets until it was bailed out by an unwilling consortium of big Wall Street banks. If you like white collar crime (here's a good list) you'll probably enjoy this book. (technically no one was charged with a crime, but it feels like the same genre)

If you've read any Nassim Nicholas Taleb this book will click: it's the story of a financial model developed in Mediocristan being deployed in Extremistan; a model
...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
...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

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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
“As Keyes noted, one bet soundly considered is preferable to many poorly understood.” 1 likes
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