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When Genius Failed: The Rise and Fall of Long-Term Capital Management (平装)
by Roger Lowenstein
| Category:
Hedge fund, Bond trading, Greed, Risk, Financial markets |
| Market price: ¥ 168.00
MSL price:
¥ 138.00
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| Stock:
In Stock |
MSL rating:
 Good for Gifts |
| MSL Pointer Review:
An excellent engrossing story of finance, greed and ego and a riveting account of the life and death of a business in a tragical way. |
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AllReviews |
  1 2 Total 2 pages 12 items |
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Patrick Pope, USA
<2006-12-24 00:00>
When Genius Failed is an exciting account of a Hedge fund that brought together the smartest people in the business, skyrocketed to amazing highs and lost everything in a few short months. This is best business narrative I have read.
Lowenstein does an excellent job of adding color and excitement to a financial calamity of immense proportions. What is somewhat amazing is that he was able to get such detailed information about the inner workings of Long Term Capital and the emotions among its various constituents.
Even readers far removed from Wall Street will find the drama and players quite exciting.
In addition to the enormous financial losses, there is a great deal of interpersonal drama. As colorful as any Hollywood script, there is an eclectic cast of characters: The Nobel prize winners, the professors, the Iranian, the Jew, and the Irish catholic who went from the south side of Chicago to become one of the greatest bond traders in history and the ring leader of LTCM.
As the fund is loosing hundreds of millions per day, the partners become increasingly unable to deal with events because the fund was driven by sophisticated mathematical models that did not address the chain of events leading to its demise. As the fund seeks to be rescued, some of the world's wealthiest and most powerful figures are brought into the fray. At one point, Warren Buffet was vacationing with Bill Gates when he conducted a three hour long satellite-phone call to discuss the bailout. To add to the anxiety, the phone kept disconnecting as the boat they were sailing on was getting too close to the sides of a fjord, blocking the signal. In scenes like this, the author does an excellent job of adding color and heightening the drama.
While this is best of the bond trading books, you should read Liars Poker and one of the books on Drexel first. Liars Poker describes the initial group at Salomon, including the central character, John Meriwether, who went on to create LTCM. Some of the individuals from Salomon also went to work for Drexel Burnham Lambert, which went bankrupt four years before LTCM was created. Reading books about each of the three organizations paints a much more complete picture of the pivotal characters and their bond trading exploits. |
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A reader, USA
<2006-12-24 00:00>
This is a great story. Not so much due to the breathtaking scope of financial disaster, but rather the timeless human lessons presented in such fascinating detail. If it were a movie, the plot would be dismissed as unrealistic. The heroes (anti-heroes?) of LTCM make choices so obtuse, they literally boggle the mind. You would think the most sophisticated players in the most sophisticated markets in the world would have a keen grasp of simple things, like position sizing. These guys are nobel prize winners, ubergeeks with multiple PhDs, the high quants of Salomon. You would assume they had an assortment of complex and finely tuned algorithms, implemented in real time via massive computing power, to determine the proper size of positions. And yet, when LTCM came a cropper, it was in large part simply because their positions were too big. Not just too big: ridiculously, massively, insanely big. Technical details aside, the how of their failure is not as interesting as the why. As in Why, Oh Why did these guys think they were invincible?
Conviction cuts both ways. Without it, you can't achieve anything truly noteworthy. With too much of it, you're likely to drive yourself over a cliff. These guys' conviction levels made UFO cults look downright modest. When you feel strongly about something, you increase the size of your bet. If you feel very strongly, maybe you bet a significant portion of your net worth. But what do you call it when you bet not only a few hundred times your net worth, but that of your friends and clients as well- when you act with a certainty greater than that of the sun coming up tomorrow? At least they walked the walk; by doubling down on their own personal stakes, the partners went out of their way to ensure they had more exposure than anyone. True believers to a man.
The details are complex, but the heart of the story is simple. Genius did not just fail, it got hijacked and turned against itself. A sufficiently intelligent and creative person can convince him(or her)self of anything, no matter how outlandish, given strong enough emotional motivation to do so. Rationality was outflanked by ego, smarts subsumed by pride... in the normal world there are checks and balances on this sort of thing. If you start thinking you are a modern day Icarus, you are usually brought back to earth by various limits and circumstances -friends and family if you are lucky- before inflicting too much damage. But if the people around you actively encourage your hubris -if they whisper sweet nothings in your ear and hoist you on high- there's no telling how far your delusions may take you.
In the end, all the credentials and intelligence, all the skills and smarts presented on a silver platter, didn't mean a damn thing. This is instructive and eye opening; the emperor has no clothes. Those outside Wall Street typically assume that those inside know what's going on. That the monolothic skyscrapers, the PhDs in mathematics and physics, the rows of supercomputers mean something. That these people have some intrinsic grasp of reality that the rest of us do not, that they know exactly what they are doing at all times. But they don't. Or if they do, they can still fall prey to the reign of emotions and the folly of the human heart. This lesson is never fully learned; bigger giants will fall.
This isn't to paint all market players with the same brush. Just because LTCM flamed out in spectacular fashion doesn't mean every hedge fund is one bad day away from disaster. There are managers out there, running billions of dollars, whose success is measured in decades. But they are successful in the long term because they understand risk, they understand fallibility, and they know not to fly too close to the sun. Markets are like the ocean; you don't try to tame the ocean. You respect it... or you pay the price. |
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