When Genius Failed Quotes

“Prophesy as much as you like, but always hedge. - Oliver Wendell Holmes, 1861”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“Merton ... humbly warned, however, "It's a wrong perception to believe that you can eliminate risk just because you can measure it.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“As Fama put it, “Life always has a fat tail.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“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.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“As the English essayist G. K. Chesterton wrote, life is "a trap for logicians" because it is almost reasonable but not quite; it is usually sensible but occasionally otherwise: "It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“Investors long for steady waters, but paradoxically, the opportunities are richest when markets turn turbulent.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“You can overintellectualize these Greek letters,” Pflug reflected, referring to the alphas, betas, and gammas in the option trader’s argot. “One Greek word that ought to be in there is hubris.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“As Keyes noted, one bet soundly considered is preferable to many poorly understood.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“When you need money, Wall Street is a heartless place.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“For men who prided themselves on being disciples of reason, their drive to live on the edge seemd inexplicable, unless they believed that becoming the richest would certify them as also being the smartest.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“Markets can remain irrational longer than you can remain solvent.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“Once a typhoon breaks loose in markets, there is no telling where it will go.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“As Peter Bernstein has written, nature's pattern emerges only from the chaotic disorder of many random events.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“The real culprit in 1994 was leverage. If you aren’t in debt, you can’t go broke and can’t be made to sell, in which case “liquidity” is irrelevant. But a leveraged firm may be forced to sell, lest fast-accumulating losses put it out of business. Leverage always gives rise to this same brutal dynamic, and its dangers cannot be stressed”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“As Keynes observed, there cannot be “liquidity” for the community as a whole.6”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“When losses mount, leveraged investors such as Long-Term are forced to sell, lest their losses overwhelm them. When a firm has to sell in a market without buyers, prices run to the extremes beyond the bell curve.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“This verity is well worth remembering: the securities might be unrelated, but the same investors owned them, implicitly linking them in times of stress. And when armies of financial soldiers were involved in the same securities, borders shrank. The very concept of safety through diversification—the basis of Long-Term’s own security—would merit rethinking.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“If you aren’t in debt, you can’t go broke and can’t be made to sell, in which case “liquidity” is irrelevant.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long Term Capital Management

“As Keynes observed, there cannot be “liquidity” for the community as a whole.6 The mistake is in thinking that markets have a duty to stay liquid or that buyers will always be present to accommodate sellers.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long Term Capital Management

“If you aren’t in debt, you can’t go broke and can’t be made to sell, in which case “liquidity” is irrelevant. But a leveraged firm may be forced to sell, lest fast-accumulating losses put it out of business. Leverage always gives rise to this same brutal dynamic, and its dangers cannot be stressed too often.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“This is the true lesson of Long-Term’s demise. No matter what the models say, traders are not machines guided by silicon chips; they are impressionable and imitative; they run in flocks and retreat in hordes.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“Markets can remain irrational longer than you can remain solvent. —JOHN MAYNARD KEYNES”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“The risk models developed by private firms, whether hedge funds, rating agencies, or banks, are not reliable guides to the future. Even when these models are applied by government regulators, their application is flawed, because they look to past market history as received truth. But markets, we must emphasize, are imperfect; they are the agglomeration of myriad investors, most of whom usually act rationally - usually, as history has shown, but not always. Even perfectly logical investors will panic, as will theatergoers at the mere possibility of fire, so as not to be last to the exit; this threat of contagion renders financial markets inherently unstable.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“The professors' conceit was to think that models could forecast the limits of behavior. In fact, the models could tell them what was reasonable or what was predictable based on the past. The professors overlooked the fact that people, traders included, are not always reasonable. This is the true lesson of Long-Term's demise. No matter what the models say, traders are not machines guided by silicon chips; they are impressionable and imitative; they run in flocks and retreat in hordes.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“No stigma was attached; second acts on Wall Street are as common as they are in politics. Perhaps one cycle, be it an election cycle or an economic cycle, is the extent of the public's memory.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“A regulator is part protector, part godfather. He dislikes a public spectacle; he is most effective when he can wield his power discreetly, by merely threatening to act or by cajoling others to do his bidding.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“Finance is often poetically just; it punishes the reckless with special fervor.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“And in the late summer of 1998, the bond-trading crowd was extremely fearful, especially of risky credits. The professors hadn't modeled this. They had programmed the market for a cold predictability that it had never had; they had forgotten the predatory, acquisitive, and overwhelming protective instincts that govern real-life traders. They had forgotten the human factor.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“But after Kapor took Merton's finance course, he decided that quantitative finance was less a science than a faith - a doctrine for ideologues "blinded by the power of the model." It appealed to intellectuals who craved a sense of order but could lead them disastrously astray if markets moved outside the model.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management

“Lawrence Summers, now the U.S. Treasury secretary , told The Wall Street Journal after the crash, "The efficient market hypothesis is the most remarkable error in the history of economic theory.”
― Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management