By leveraging one security, investors had potentially given up control of all of their others. This truth is extremely worthy of being remembered. The securities might seem unrelated, but since the same investors owned them, they were implicitly linked in times of stress.

Apparently, it didn't occur to Rosenfeld that as Long-Term tended to buy the less liquid security in every market, its assets were not entirely independent of one another, unlike how one dice roll is independent of the next.

Seen in these terms, Long-Term's letter represented a significant leap. While it wholeheartedly acknowledged risk, it eliminated uncertainty by assigning numerical odds to its likelihood of loss.

However, Black-Scholes makes a very crucial assumption: that the volatility of a security is constant. To state that the value of an option to buy IBM depends on its volatility is meaningless unless there is an agreement on what its volatility is.

There is a reason why financial markets reach extremes more frequently than coin flips. A key condition of random events is that each new flip is independent of the previous one. The coin doesn't remember that it landed on tails three times in a row; the odds on the fourth flip are still fifty-fifty. But markets have memories.

If the Long-Term episode proved anything, it is that the systems of disclosure that have worked so well regarding traditional securities have not been able to perform the task effectively with respect to derivative contracts.

There are numerous incidents that occur on Wall Street, and they are no less exciting than the best Hollywood thrillers. The story of "Long Term Capital Management" is surely among the all-time greatest folklore of Wall Street. In 1994, this Arbitrage Company managed to raise $1.25 billion, the largest start-up ever, which initially surprised a few people. However, its fall ended up astonishing many, if not all, on Wall Street.

This group broke away from one of the Wall Street giants of the 90s, Solomon Brothers, and started on their own, an act that demonstrated supreme confidence in their abilities to tame market volatilities. John Meriwether, who headed Salomon Brothers' bond trading desk until he resigned in 1991 amidst a trading scandal (not of his own making), created Long-Term Capital as a hedge fund in 1993. He recruited several Salomon bond traders who were part of his distinguished team in his former company. He also brought in two future Nobel Prize winners, Myron Scholes and Robert C. Merton, who were then blue-chip professors at Stanford and Harvard respectively. Their repeated success in outperforming the market made everyone take notice and gradually gave them a cult status on Wall Street.

By the spring of 96, LTCM had an astounding $140 billion in assets, yet they were unknown to 99% of Americans. They were two and a half times as big as Fidelity (the largest mutual fund) and were controlling more assets than Lehman Brothers and Morgan Stanley. Even at its peak, it had only a couple of dozen traders who preferred to keep a low profile and stay discreet, which they managed successfully. What ultimately ended their golden run was the great financial crash of 1998, triggered by the Russian financial crises in August and September 1998 when the Russian Government defaulted on their government bonds. However, what hurt them the most was the absence of independent risk managers to monitor all traders. At LTCM, the partners monitored themselves, which ultimately led to their downfall. They lost 90% of their assets in less than 4 months during the dramatic events of 1998 and were finally bailed out by the Federal Reserve with the help of the 14 biggest financial institutions of Wall Street (including Goldman, Morgan, Barclays, Chase, and more).

In conclusion, LTCM did everything right, based on huge mathematical models using all past data and the top minds, including 2 Nobel winners. However, the one thing that toppled all their models was the unpredictability that was never accounted for in all the models. As quoted from the book, "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."

Too big to fail.... LTCM might not have been the first to be bailed out, nor was it the last. However, it holds the dubious distinction of perhaps being the only firm that had a significant role in what ultimately became a global contagion. Read and re-read this story. Save it for posterity.

The fund boys consisted of Meriwether, the leader, Victor Haghani & Larry Hilibrand, the overbearing maverick traders, and Profs Merton and Scholes, the Nobel laureates and tutors to the rest of the street, along with many others.

The Others included Corzine at Goldman, with unclear intentions but unquestioned ability. Herb Allison at Merrill was an early mover, the chief negotiator, and perhaps the fall guy. Buffet's stance was ambiguous, sometimes yes, sometimes no, and at times missing. Sandy Weill, with his connections to Salomon, travellers, and Citi, maintained a safe distance. And there were the humble folks at Bear, UBS, and Swiss Bank.

This is a must-read for macro enthusiasts. It serves as an example that 1) risks, even when measured, cannot always be contained; 2) leverage amplifies the impact in times of trouble; 3) human ingenuity can both cause and overcome many problems; and 4) genius can fail.

Absolutely riveting writing!

Lowenstein has a remarkable talent for presenting financial stories in a manner similar to how Dan Brown crafts his thrilling novels.

The book under discussion focuses on Long Term Capital Management. It features a collection of math, computer, and financial geniuses who aimed to conquer the market through the application of statistics and probability. With the addition of two Nobel Prize winners, champion traders, and an ex-Federal Banker, it became one of the most prestigious funds.

They dominated the market, securing the best deals and constructing an impressive portfolio. In the first four years, they quadrupled the value of their funds.

However, it is a well-known fact that great rewards are accompanied by great risks. The underestimation of risk was the downfall of LTCM. Relying on Gaussian models and standard deviations as measures of uncertainty, they created a Gaussian world where every risk was quantified. But as they later discovered, this was incorrect.

What ensued was the most significant decline ever: the fund lost 92% in just six weeks. Revealing more would spoil one of the best market stories I have ever read. It taught me valuable lessons about the two main emotions that a trader must combat: greed and fear.

I first embarked on reading this book during the summer of 2007 and then revisited it this fall. In 1997, while I was carefree and running around France exploring art, the financial system of this country was on the verge of collapse. The Federal Reserve had to intervene, and major banks endured enormous losses due to hubris and a lack of understanding of the true risks they were undertaking.

Lowenstein masterfully takes us behind the scenes to disclose how real geniuses - with Long-Term's marketing strategy highlighting the number of Nobel prize-winning economists on their staff - engaged in massive, highly leveraged bets based on fundamentally flawed data (hmm, does it sound familiar?). In brief, Long-Term wagered on bond spreads and assumed that rational actors would buy and sell stocks and bonds in a more or less random pattern.

Lowenstein never completely dismisses this idea, but what he does demonstrate is how human behavior and the newly emerging interconnectedness of global markets imply that the odds can turn strongly against you (again, sounds familiar?) precisely when your funds are depleted. He also points out how other investment banks, especially Goldman, were striving to go public to be able to place even more bets with shareholder money (one of the real misdeeds of this era).

Finally, he launches into a (well-founded) tirade against Greenspan (during the "Maestro" era) and the Fed's lack of oversight of the derivatives market, and how this would lead to increased government intervention. Lowenstein's book, published in 2000, served as a warning bell. It is truly well worth another examination.

The banking system is a complex and crucial part of our economy.

This article offers an interesting blend of investigation and commentary on the banking system.

I had anticipated it to be a pure investigative piece, so the inclusion of commentary came as a bit of a surprise and at times, it felt a touch forced.

However, it was fascinating to learn about the significant impact that Booth had on the banking system.

His actions and decisions had far-reaching consequences that are still being felt today.

Equally interesting was the role that Travelers played in the whole scenario.

Their actions and strategies added another layer of complexity to the already intricate web of the banking system.

Overall, despite the unexpected nature of the commentary, the article provided valuable insights into the inner workings of the banking system and the individuals and institutions that shape it.

It serves as a reminder of the importance of a well-functioning and regulated banking system for the stability and growth of our economy.

Let's all just ignore the last 3 books on here.

It was for my internship.

During my internship, I was assigned a task related to these books.

However, upon further review, I realized that they were not relevant to the overall objective of the internship.

Therefore, it would be more beneficial to focus on the other books and materials that are directly related to the internship requirements.

By ignoring the last 3 books, we can streamline our efforts and ensure that we are making the most of our time and resources.

This will also help us to achieve better results and gain more valuable experience during the internship.

So, let's all agree to ignore the last 3 books and move forward with a more focused and productive approach.

I'm an absolute sucker for books that deal with the malfeasance and shenanigans on Wall Street and the subsequent comeuppance that follows.

It didn't quite reach the level of Eichenwald's detailed daily tick-tock account. There were times when I felt I could have used a bit more explanation from Lewis regarding some of the concepts related to the derivatives that were being bought, sold, and so on.

However, despite these minor drawbacks, I still found the book extremely compelling. It's one of those things where you wonder, "How on earth did I not hear about this when it actually happened?"

The story within the book is so engaging that it keeps you hooked from start to finish, making you realize the complex and often shady world of Wall Street finance.

Even with the lack of a bit more in-depth explanation in some areas, the overall narrative is strong enough to make you appreciate the magnitude of the events and the consequences that followed.

It's a book that definitely makes you think about the inner workings of the financial world and how easily things can go awry.

Surprisingly, I read this book in just 36 hours.

I simply couldn't put it down. The folly of over-leveraged bond market trading described within its pages was just too fascinating and engaging for me to resist.

It was like a captivating mystery that unfolded with each turn of the page.

The author's detailed exploration of the complex world of bond trading and the disastrous consequences of over-leveraging kept me on the edge of my seat.

I found myself completely immersed in the story, eager to discover what would happen next.

By the end of the 36 hours, I not only had a better understanding of the bond market but also a newfound appreciation for the importance of谨慎 in financial trading.

This book truly exceeded my expectations and I would highly recommend it to anyone interested in finance or simply a good read.

This book is truly incredibly enlightening.

The history of LTCM provides us with invaluable lessons that vividly illustrate the fundamental characteristics of human nature within the context of the financial world.

Pride, arrogance, greed, and overconfidence are crystal clear in the conduct of Meriwether and his associates. They firmly believed they were engaging in the best trades in the market, supported by the most robust theoretical underpinnings. However, the harsh reality is that life does not conform to the normal distribution, and uncertainty cannot be completely mitigated. A series of unpredictable events ultimately led to the downfall of LTCM, which nearly brought down almost all of Wall Street along with it.

Regarding the writing, Lowenstein demonstrates remarkable skill in aggregating multiple accounts of the events, thereby leaving the reader utterly engrossed. I have awarded it 4 stars. The reason is that the book lacks more detailed explanations, which would have made it more accessible to the broad public and the layperson.

As a side note, it is truly interesting to gain an understanding of how the FED behaves in such complex and critical situations.

If you owe the bank a mere $100, well, that's clearly your own problem. But if you owe them a staggering $100 million... suddenly, it becomes their problem. Now, add three more zeros and you have Long Term Capital Management.

With a whopping $100 billion in assets, a leverage ratio of 25 to 1, and panicked markets, LTCM posed a serious threat that could have brought down the entire Wall Street. This led to the Fed's intervention and the orchestration of a bailout.

Roger Lowenstein, with his wit and light touch, tells the frenzied story of John Meriwether and his team. He details how they created Long Term Capital Management, amassed astonishing returns for their investors, and then spectacularly lost everything in just a few months. Paired with two Nobel prize winners, Merton and Scholes, one would have thought that the brightest minds on Wall Street couldn't fail so dramatically. But in some ways, Wall Street is like a never-ending play filled with bigheaded, witty, and ambitious characters, all vying for the last word. If that's the kind of show that interests you, then "When Genius Failed" is your front-row ticket.

This is a good book, but it can be a hard read if one is not interested in the nuance of their trading strategy.

The detailed exploration of the trading approach might seem overwhelming and complex to those who lack a specific interest in this area.

Even for those who are somewhat inclined towards understanding trading strategies, I sometimes found the explanations to be half-baked.

There were moments when the concepts were not fully developed or clearly presented, leaving the reader with a sense of confusion or incompleteness.

However, it should be noted that the book does offer some valuable insights and ideas that could potentially be useful to those who are willing to invest the time and effort to fully understand and analyze its contents.

Overall, while it has its drawbacks, it still has the potential to be a worthwhile read for the right audience.