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

by Roger Lowenstein

In any case, J.M. wanted more cachet than Gutfreund or even his talented but unheralded young arbitrageurs could deliver. He needed an edge—something to justify his bold plans with investors. He had to recast his group, to showcase them as not just a bunch of bond traders but as a grander experiment in finance. This time, it would not do to recruit an unknown assistant professor—not if he wanted to raise $2.5 billion. This time, Meriwether went to the very top of academia. Harvard’s Robert C. Merton was the leading scholar in finance, considered a genius by many in his field. He had trained several generations of Wall Street traders, including Eric Rosenfeld. In the 1980s, Rosenfeld had persuaded Merton to become a consultant to Salomon, so Merton was already friendly with the Arbitrage Group. More important, Merton’s was a name that would instantly open doors, not only in America but also in Europe and Asia.