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

On the other hand, this book does have its limitations. For people who are not familiar with the modern financial derivatives and "risk management" techniques, Lowenstein gave a comprehensible, but rather incomplete explanation. This won't hurt the book's readability, but readers certainly won't understand any better about options and swaps after reading this book, either. The "leverage" used by LTCM, central to both its success and downfall, is mainly due to the use these derivatives than simply saving the "haircut" as described in the book. There are also some incorrect statements, though relatively minor, such as Merton's insistence of "continuous time" model without any sudden price jumps. Just for the record, it was exactly Merton himself who first proposed a "jump" model for pricing financial assets in 1976. You can find this in most derivatives textbooks.

Derivatives regularly get a bad rap for causing financial disasters, and LTCM is just the latest in a string of headline news over the years. This is quite unfortunate. Americans probably don't realize that many, many mutual funds and pensions funds use derivatives to "reduce" their investment risks. Lowenstein's book shows that it's really the human factor lying at the root of these fiascos. If only it could give the public a better understanding of the true nature of these modern financial instruments......


Meriwether: Take This Hubris And Shove it   September 14, 2000
 1 out of 1 found this review helpful

The reporting and research in this book are impeccable. The book is financial story-telling at its best: an almost perfect portrait of LTCM and its far flung Empire with offices in Connecticut and London. And that is what makes this book a compelling tale about the interconnected forces in global finance. It is much more than a story about the dangers of leverage and the demise of LTCM. It is probably the best case study we have so far of the end of geography in the global capital markets.

The book gives us a much more sobering account of Meriwether than the one we get in Lewis's Liar Poker. The analysis has heft, yet it is not heavy-handed with figures like Dunbar's book on LTCM, which is the only other one available on the subject. The characters are alive. Even Meriwether's Catholic school buddies reflect on what it was like to know him as a young man. According to Meriwether's mom, he was picking stocks with his brother at a young age. And the irony: Meriwether is launching a new arb fund. I wonder if they will entice the Central Bank of Italy to put money in the fund again!

This goes to show you that you don't need a degree from the London School of Economics, Harvard or MIT to make extended, leveraged bets. But without the players and their high-brow backgrounds, When Genius Failed would have been a less interesting story.


Meriwether: Take This Hubris And Shove it   September 14, 2000
 14 out of 20 found this review helpful

The reporting and research in this book are impeccable. The book is financial story-telling at its best: an almost perfect portrait of LTCM and its far flung Empire with offices in Connecticut and London. And that is what makes this book a compelling tale about the interconnected forces in global finance. It is much more than a story about the dangers of leverage and the demise of LTCM. It is probably the best case study we have so far of the end of geography in the global capital markets.

The book gives us a much more sobering account of Meriwether than the one we get in Lewis's Liar Poker. The analysis has heft, yet it is not heavy-handed with figures like Dunbar's book on LTCM, which is the only other one available on the subject. The characters are alive. Even Meriwether's Catholic school buddies reflect on what it was like to know him as a young man. According to Meriwether's mom, he was picking stocks with his brother at a young age. And the irony: Meriwether is launching a new arb fund. I wonder if they will entice the Central Bank of Italy to put money in the fund again!

This goes to show you that you don't need a degree from the London School of Economics, Harvard Business School or MIT to make bad, leveraged bets. But without the players and their high-brow backgrounds, When Genius Failed would have been a less interesting story.


Readable and insightful history of LTCM   September 13, 2000
 22 out of 25 found this review helpful

The story of LTCM's rise and fall is a compelling one not only for people interested in finance, but for anyone fascinated by the spectacle of very smart people losing enormous sums of money. Lowenstein's book makes this story accessible by glossing over some of the technical details, a tradeoff of readability for depth, but still provides insight into the causes of LTCM's collapse. I recommend reading both this book and Nicholas Dunbar's excellent _Inventing Money_: Dunbar provides more technical explanations, while Lowenstein has a richer story to tell about the people involved.


Interesting book   September 12, 2000
 23 out of 29 found this review helpful

An interesting and detailed reading covering the collapse and the meltdown of Long Term Capital. Richly entertaining and well written. Contains useful lessons for anyone in the asset management business.