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

roger lowenstein

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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 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.

275 pages, Paperback

First published January 1,2000

This edition

Format
275 pages, Paperback
Published
January 1, 2002 by Fourth Estate
ISBN
9781841155043
ASIN
1841155047
Language
English

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About the author

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roger lowenstein

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Roger Lowenstein is an American financial journalist and writer. He graduated from Cornell University and reported for The Wall Street Journal for more than a decade, including two years writing its Heard on the Street column, 1989 to 1991. Born in 1954, he is the son of Helen and Louis Lowenstein of Larchmont, New York. Lowenstein is married to Judith Slovin.
He is also a director of Sequoia Fund. In 2016, he joined the board of trustees of Lesley University. His father, the late Louis Lowenstein, was an attorney and Columbia University law professor who wrote books and articles critical of the American financial industry.
Roger Lowenstein's latest book, Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War, was released on March 8, 2022, and won the 2022 Harold Holzer Lincoln Forum Book Prize.

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Community Reviews

Rating(4.1 / 5.0, 100 votes)
5 stars
43(43%)
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24(24%)
3 stars
33(33%)
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100 reviews All reviews
Profile Image for Kimberly .
J_Kazue
★ ★ ★ ★ ★
July 14,2025
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Another cautionary tale unfolds about those who grossly overestimate themselves and engage in the unthinkable, only to have it all come crashing down around them.

A notional exposure of a staggering $1T is based on a capital of just a few billion. These individuals believed it was safe simply because their models told them so. It's a classic error committed by those with a more scientific bent, but in this case, taken to an extreme.

The book has also made me reflect on the documentary "The Smartest Guys In The Room", which curiously only emerged several years later.

I'm quite impressed by the extensive amount of research the author has conducted and the remarkable way he has explained some of the more complex financial transactions. It provides a fascinating and eye-opening look into the world of high finance and the perils that can lurk within.

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440tuneit
★ ★ ★ ★ ★
July 14,2025
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A good expose of LTCM and its backstory has been presented. I was already familiar with the story, but I didn't fully appreciate the arrogance of these individuals. They made fundamental business mistakes that are applicable to any business, not just the financial markets. For instance, they strayed from their core competency, which is a basic principle in MBA 101. They ventured into areas where they had no expertise or experience. It's analogous to a dry cleaners deciding to enter the food service business. Although it might seem like a good idea on the surface, it's not their area of specialization. LTCM got involved in other aspects of the financial markets where they really didn't belong. They made a significant amount of money and, due to their greed, wanted more. As a result, they transitioned from a specialized bond hedge fund to a general hedge fund that claimed to do everything. They believed they were so intelligent that their academic models could accurately predict the markets and that the markets would conform to their models. Maybe that was the case to some extent, but with their enormous leverage, they could be right 360 out of 365 days of the year and still face disaster because of their absurd leverage.

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pinkhearted
★ ★ ★ ★ ★
July 14,2025
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Told by my boss to read, this piece turned out to be better than I expected. At first, I was a bit reluctant, but as I delved into it, I found myself getting more and more engaged.


The ending was particularly interesting. It was when everything started to go horribly wrong that the story really took off. The author's reflections on the moral hazard of the Fed's involvement were quite thought-provoking. In a way, it seemed somewhat prophetic, as if the author had a premonition of what was to come.


I found myself pondering these ideas long after I had finished reading. It made me realize the importance of understanding the potential consequences of our actions, especially when it comes to matters of such significance. Overall, I'm glad my boss recommended this read, as it has given me a lot to think about.

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coop52
★ ★ ★ ★ ★
July 14,2025
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I would simply not bet the house on never being wrong.

Making such a bet implies an absolute certainty that one will never make a mistake, which is an extremely bold and perhaps even foolhardy stance.

In life, we are all prone to errors and misjudgments. No matter how intelligent, experienced, or cautious we may be, there are always unforeseen circumstances, new information, or moments of human fallibility that can lead to mistakes.

Betting the house on never being wrong not only shows a lack of humility but also exposes one to significant risks. If we are too confident in our own infallibility, we may become closed-minded, resistant to new ideas, and less likely to learn from our mistakes.

It is much wiser to approach life with a degree of openness and flexibility,承认 that we may make mistakes from time to time, and be willing to learn and grow from them. This way, we can better navigate the uncertainties and challenges that come our way and avoid the potentially disastrous consequences of betting the house on an impossible guarantee.
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anjimymay
★ ★ ★ ★ ★
July 14,2025
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3.5

This is a pretty good read.

I gave it a 3.5 rating. The reason for this is that I didn't understand a significant portion of it. However, it's important to note that this is more due to my own capabilities rather than the book being of poor quality.

I had put off reading this book for an extremely long time. I didn't think I would ever get around to it. But, in the end, I'm truly glad that I finally cracked it open.

From reading this book, I have learned a great deal. It has provided me with valuable knowledge and insights that I otherwise would not have had.

Despite the parts that I didn't fully understand, the overall experience of reading this book has been quite rewarding. I would recommend it to others, especially those who are willing to put in the effort to understand its contents.

I look forward to exploring more books like this in the future.
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Kvshi
★ ★ ★ ★ ★
July 14,2025
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Takeaways:


1) Leverage is extremely dangerous. It can magnify both gains and losses, often leading to disastrous consequences.


2) No one has the ability to accurately predict the future. The financial markets are highly volatile and unpredictable, making it impossible to know what will happen next.


3) Psychology plays a significant role in our decision-making. It can trick us into taking bigger and bigger risks, especially when we are influenced by emotions such as greed and fear.


4) Due diligence meetings are mostly ineffective. They often fail to uncover the true risks and potential problems associated with an investment.


5) Wall Street has a notoriously short memory. It seems to forget the lessons of past crises and repeats the same mistakes over and over again.


In conclusion, it is essential to be aware of these takeaways when dealing with financial matters. We should approach investments with caution, do our own research, and not be swayed by emotions or the opinions of others.
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Warazoro
★ ★ ★ ★ ★
July 14,2025
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This is a truly great read. I thoroughly enjoyed Lowenstein's detailed account of LTCM's downfall.

It is important to note that this book definitely assumes a certain level of financial literacy on the part of the reader. Even I, with my background in finance, didn't fully understand the complex type of spread trading and arbitrage strategies that LTCM employed.

However, despite this lack of complete understanding, I definitely gained a profound appreciation for the extreme dangers of leverage. The story of LTCM serves as a powerful reminder of how quickly things can go wrong when too much leverage is involved.

Overall, this book is a must-read for anyone interested in finance, risk management, or the history of the financial markets. It provides valuable insights and lessons that are applicable not only to the world of finance but also to our daily lives.
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