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

by Roger Lowenstein

During the second week of August, Russia’s markets snapped. On August 13, with dollars fleeing the country, its reserves dwindling, its budget overtapped, and the price of oil, its chief commodity, down 33 percent, the government imposed controls on the ruble. The banking system froze for lack of reliable and solvent banks. The Moscow stock market briefly halted trading. It ended the day down 6 percent—and down 75 percent for the year. Short-term interest rates surged to almost 200 percent. Long-term Russian bonds fell to half their price of only two months earlier, when Goldman had happily floated them. As the world waited for a ruble devaluation, which the government still insisted would not occur, the Communist-dominated Duma, the lower house of Parliament, rejected reform measures urged on it by the IMF. Then the members went on vacation. When the government begged the Duma to reconvene, the members refused—but by then many government leaders, including President Boris Yeltsin, were also at seaside dachas, leaving the country to sort out its misery. It was a hard thing to model.