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

by Roger Lowenstein

Typical of Meriwether, he made gambling an intimate part of the group’s shared life. The arbitrageurs devised elaborate betting pools over golf weekends; they bet on horses; they took day trips to Atlantic City together. They bet on elections. They bet on anything that aroused their passion for odds. When they talked sports, it wasn’t about the game; it was about the point spread. Meriwether loved for his traders to play liar’s poker, a game that involves making poker hands from the serial numbers on dollar bills. He liked to test his traders; he thought the game honed their instincts, and he would get churlish and threaten to quit when they played poorly. It started as fun, but then it got serious; the traders would play for hours, occasionally for stakes in the tens of thousands of dollars. Rosenfeld kept an envelope stuffed with hundreds of single bills in his desk. Then, when it seemed that certain bills were cropping up too often, they did away with bills and got a computer to generate random lists of numbers. The Arbitrage boys seemed addicted to gambling: “You could never go out to dinner with J.M.’s guys without playing liar’s poker to see who would pick up the check,” Gerald Rosenfeld, Salomon’s chief financial officer, recalled.