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

Lowenstein, Roger

Softcover

ISBN 10: 1841155047 ISBN 13: 9781841155043

Publisher: Fourth Estate, 2002

Synopsis

Picking up where Liar’s Poker left off (literally, in the bond dealer’s desks of Salomon Brothers) the story of Long-Term Capital Management is of a group of elite investors who believed they could beat the market and, like alchemists, create limitless wealth for themselves and their partners.

Founded by John Meriweather, a notoriously confident bond dealer, along with two Nobel prize winners and a floor of Wall Street’s brightest and best, Long-Term Captial Management was from the beginning hailed as a new gold standard in investing. It was to be the hedge fund to end all other hedge funds: a discreet private investment club limited to those rich enough to pony up millions.

It became the banks’ own favourite fund and from its inception achieved a run of dizzyingly spectacular returns. New investors barged each other aside to get their investment money into LTCM’s hands. But as competitors began to mimic Meriweather’s fund, he altered strategy to maintain the fund’s performance, leveraging capital with credit on a scale not fully understood and never seen before.

When the markets in Indonesia, South America and Russia crashed in 1998 LCTM’s investments crashed with them and mountainous debts accumulated. The fund was in melt-down, and threatening to bring down into its trillion-dollar black hole a host of financial instiutions from New York to Switzerland. It’s a tale of vivid characters, overwheening ambition, and perilous drama told, in Roger Lowenstein’s hands, with brilliant style and panache.

About this title

Review:

On September 23, 1998, the boardroom of the New York Fed was a tense place. Around the table sat the heads of every major Wall Street bank, the chairman of the New York Stock Exchange, and representatives from numerous European banks, each of whom had been summoned by the Fed to discuss the highly unusual prospect of rescuing what had, until then, been the envy of them all, the extraordinarily successful bond-trading firm of Long-Term Capital Management. Roger Lowenstein's When Genius Failed is the gripping story behind the Fed's unprecedented move, the incredible heights reached by LTCM, and its eventual dramatic demise.

Lowenstein, a financial journalist and author of Buffet: The Making of an American Capitalist, uncovers and examines the personalities, academic expertise, professional relationships, and layers of numbers behind LTCM's roller-coaster ride with the precision and knowledge of a skilled surgeon. The fund's enigmatic founder, John Meriwether, spent almost 20 years at Salomon Brothers, where he formed its renowned Arbitrage Group by hiring academia's top financial economists. Though Meriwether left Salomon under a cloud of the SEC's wrath, he leapt into his next venture with ease, and enticed most of his former Salomon hires--and eventually even David Mullins, the former vice-chairman of the US Federal Reserve--to join him in starting a hedge fund that would beat all hedge funds.

LTCM began trading in February 1994, after completing a road show that, despite the Ph.D.-touting partners' lack of social skills and their disdainful condescension of potential investors who couldn't rise to their intellectual level, netted a whopping 1.25 billion dollars. The fund would seek to earn a tiny spread on thousands of trades, "as if it were vacuuming nickels that others couldn't see," in the words of one of its Nobel laureate partners, Myron Scholes. And nickels it found. In its first two years, LTCM earned 1.6 billion dollars, profits that exceeded forty percent even after the partners' hefty cuts. By the spring of 1996 it was holding $140 billion in assets. But the end was soon in sight, and Lowenstein's detailed account of each successively worse month of 1998, culminating in a disastrous August and the partners' subsequent panicked moves, is riveting.

The arbitrageur's world is a complicated one, and it might have served Lowenstein well to slow down at the start and explain in greater detail the complex terms of the more exotic species of investment flora that cram the book's pages. However, much of the intrigue of the Long-Term story lies in its dizzying pace (not to mention the dizzying amounts of money won and lost in the fund's short lifespan), and Lowenstein's smooth, conversational, but equally urgent tone carries it along well. The book is a compelling read for those who've always wondered what lay behind the Fed's controversial involvement with the LTCM hedge-fund debacle. --S. Ketchum

Review:

'A must-read thriller for anyone who works, or invests in markets. It is a story of how arrogance can drive greed and fear to extremes.' Scotsman

'Richly textured and lucid...A riveting account that reaches beyond the market landscape to say something universal about risk and triumph, about hubris and failure.' New York Times

'Lowenstein has written a squalid and fascinating tale of world-class greed and, above all, hubris.' Business Week

'This book is story-telling journalism at its best' The Economist

About this edition

• Publisher: Fourth Estate
• Publication date: 2002
• ISBN 10: 1841155047
• ISBN 13: 9781841155043
• Binding: Paperback
• Number of pages: 288