Everyone holds their own view regarding what should be included in the compulsory literature at school. Here is my perspective: finance students should all read "When Genius Failed."

In university, I was educated about the Bell curve, the Black-Scholes option pricing formula, and numerous other methods for assessing risk and return. It is in human nature to strive for certainty or the capacity to evaluate probabilities. This has been the case in financial markets for decades. However, we seem no closer to the answer today than we were 30 years ago.

Markets are intrinsically unpredictable, and wild fluctuations that sometimes lack an apparent underlying cause occur from time to time. No formula can account for that, regardless of the high IQ of the person who devised it. Consequently, the models become perilous. We seek guidance where it cannot be found. We wager our houses on things that seem to be "certain." Until something unexpected transpires. Then we rationalize that this unexpected event had never occurred before! It was supposedly a hundred-year flood. Somehow, these so-called hundred-year-floods happen every 5 - 10 years, and sometimes even more frequently. Memory is a delicate thing.

At first, the book did not seem that easy to read. Price-to-equity ratios, risk multipliers, derivatives, swap contracts... These complex financial terms filled the pages, making it a bit of a challenge. However, the more I delved into it, the more it felt like a thrilling financial mystery. It was truly captivating and eye-opening.

The book tells the story of a firm that was the darling of Wall Street in the 1990s. This firm, called Long-Term Capital Management, was established and run by the crème de la crème of the U.S. financial industry and financial education. Their investment placements were based on sophisticated mathematical models developed largely by the founders themselves. The partners managed to raise a huge amount of investment in a very short time, as everyone was blinded by their impressive credentials. This made it one of the most successful start-ups in history. At certain moments, the firm was managing astronomical volumes of investments.

But then, it all came crashing down. It required an unlikely cooperation of the largest Wall Street banks to avoid a larger financial shock, similar to what happened in 2008 after the fall of Lehman.

There are many valuable lessons to draw from this book.

Financial lessons:

- There is a significant difference between investing and gambling, although both involve risk.

- Quantifying and estimating risks does not mean avoiding them. One should not混淆 these two concepts.

Management/business lessons:

- Assembling a dream team is the best thing one can do. It will attract other top players, clients, and investors. Success is contagious.

- Loyalty and companionship can and should be fostered within a company.

- Risk-taking in a company should be checked and balanced to a certain extent.

Personal lessons:

- Greed and hubris have their limits. You can only go so far with them.

This book is a great example of how a book based on investigative journalism should be written. It provides a fascinating and educational look into the world of finance and the lessons that can be learned from past mistakes.

Lowenstein's book "When Genius Failed" became an excellent continuation for me after Michael Lewis's "Liars' Poker" (https://www.goodreads.com/review/show...).

In the book, the story of the creation, analysis of the activities, and spectacular downfall of such a "star" company known on Wall Street as LTCM (Long-Term Capital Management) is described.

The book intertwines a professional and deeply scientific approach with human passions for profit and huge superprofits. I recommend reading and seeing how LTCM, along with its leadership, went under in the summer and what exactly led to these events...

A cautionary tale that I delved into as an integral part of my continuous endeavor to fathom the institutions (and individuals) that exert such a profound influence on our economy. It makes one seriously ponder and consider the implications. This particular tale has the potential to nudge anyone towards the stance and ideas represented by Elizabeth Warren. It serves as a wake-up call, highlighting the various issues and challenges that exist within our economic framework. By examining such cautionary tales, we can gain a better understanding of the need for change and reform. It forces us to question the status quo and look for alternative solutions. Elizabeth Warren's approach and policies seem to offer a glimmer of hope in addressing some of these pressing concerns.

**It's All About the Fund**

As the title implies, "When Genius Fails" focuses on the "Rise and Fall of Long-Term Capital Management." Don't anticipate learning about the broader economic issues that led to LTCM losing vast sums. The main subject here is the fund itself, and Lowenstein does an excellent job of chronicling its spectacular rise and disastrous fall.

LTCM began as the "largest startup of all time," raising $1.25B in its first round. Founded by John Meriwether and a group of quants, its strategy was to identify arbitrage opportunities and amplify them using significant leverage. Lowenstein effectively explains LTCM's various trading strategies.

**Bond Arbitrage**

Initially, LTCM mainly engaged in "bond arbitrage." They searched the markets for unusually large spreads between treasury bills and futures on those bills. If a spread seemed excessive, LTCM would buy the futures, sell the bills, and wait for the spread to converge. Then they would liquidate their positions and pocket a nice, seemingly "riskless" profit.

**Risk vs. Uncertainty**

However, nothing is truly "riskless," especially in financial markets. The book clarifies this well. The key lies in the difference between risk (like "will there be an earthquake tomorrow?") and uncertainty (like "will the coin land heads or tails?"). While we know the odds of a coin flip are 50/50, it's unclear how to quantify the "odds" of an earthquake. LTCM's primary mistake was equating risk with uncertainty. They looked at past volatility and assumed future volatility would be the same, wrongly believing that predicting security prices was like predicting a coin flip. In reality, it's more like predicting an earthquake.

**Uncertain Assumptions**

Many of LTCM's models were based on common assumptions in mathematical finance, such as constant volatility over time, continuous price changes, a lognormal distribution of returns, and independently and identically distributed returns. These assumptions simplify models and make calculations tractable, often being quite accurate. But the problem was that LTCM took them too seriously. Under these assumptions, their strategies were calculated to be extremely non-risky. And for a couple of years, while the economy was stable, the modeling assumptions seemed to hold, and LTCM made huge amounts of money.

**Beyond Bond Arbitrage**

Soon, LTCM wasn't the only one doing bond arbitrage, so opportunities dried up. With piles of unused cash, they had to expand and started using new strategies. These included merger arbitrage (betting on announced acquisitions closing), purchasing exotic bonds from countries like Russia, and betting on equity volatility (assuming the "presumed volatility" implied by option prices was too high).

**All Goes to Shit**

Then, a couple of "earthquakes" hit. Russia defaulted on its debt, bond spreads widened, and equity volatility increased. The problems in a few countries had a significant and unexpected impact on the world economy.

**Too Much Leverage**

This might not have been a major issue if LTCM wasn't so highly leveraged. They were leveraged at more than 30:1, so as their positions declined, they had to start paying out. And their positions continued to drop to extremes that their models predicted were extremely unlikely. In times of crisis, the assumptions underlying their models didn't hold. Returns were not independent and identically distributed, prices weren't continuous, and volatility wasn't constant. In fact, returns had fat tails, leading to extreme outcomes more often than a normal distribution would suggest. In good times, LTCM's returns were compounded by its high leverage; in bad times, its losses were magnified.

**The Fed Steps In**

In less than 5 weeks, LTCM lost more than $3.6 billion. They were on the verge of going bankrupt, and with $100 billion in assets under management and $1 trillion in derivative exposure, they would have severely damaged the banks that had lent them money. So, the Fed stepped in. It organized a bailout committee of about 15 banks and asked them to contribute $4 billion to buy LTCM. Importantly, the Fed didn't actually bail out LTCM; it just coordinated the bailout. The media has often inaccurately portrayed this.

**Surveying the Damage**

The 15 or so banks raised $3.65 billion and essentially bought out the fund to avoid the losses they would have suffered if it had been sold in a fire sale. I had always thought that most of LTCM's losses were due to Russia's default. But they actually lost much more on swaps and almost as much on volatility bets. Altogether, LTCM lost over $4.5 billion, with $3.6 billion lost in just 5 weeks. In four years, a dollar invested quadrupled to $4.11, but less than five months later, it was worth only 30 cents.

**Final Comments**

Lowenstein is a talented writer, and this account is engaging throughout. I would have liked more context about the overall economic situation at the time, but as far as LTCM's story goes, you get a comprehensive overview. If you're not interested in what happened to Long Term Capital Management, you probably won't care for this book. But if you have even a passing interest, it's a surprisingly accessible and quite entertaining read.

A truly fantastic read awaits you, delving deep into the themes of greed, hyper-speculation, and the perils of being massively over-leveraged. Surprisingly, this isn't a contemporary account related to 2022. Instead, it presents a captivating and detailed story of a hedge fund that spectacularly imploded in the late 1990s.

The narrative takes you on a journey through the inner workings of the hedge fund world,揭示了那些被贪婪和过度投机所驱动的行为。You'll witness the decisions and actions that led to the fund's downfall, and gain valuable insights into the risks associated with excessive leverage.

If you have a penchant for books like The Big Short, which offer a gripping look at the financial markets and the forces that shape them, then this book is an absolute must-read. It will keep you on the edge of your seat, as you follow the跌宕起伏的 story of the hedge fund's rise and fall.

This is a truly fascinating story.

Definitely, there are some moments within the book that are serious page turners.

If you have an interest in the financial ruins of Wall Street hedge funds, then this book is sure to captivate you.

The author has done an excellent job of描绘 the complex world of finance and the events that led to the downfall of these hedge funds.

You will be on the edge of your seat as you follow the twists and turns of the story, trying to figure out what will happen next.

Whether you are a finance professional or just someone who enjoys a good read, this book is well worth checking out.

It offers a unique perspective on the inner workings of Wall Street and the consequences of greed and mismanagement.

So, if you're looking for a thrilling and informative read, look no further than this book about the financial ruins of Wall Street hedge funds.

This is the captivating story of a hedge fund that thrived from approximately 1994 to 1998. However, it came perilously close to detonating the markets, and was only saved by an unwilling consortium of major Wall Street banks.

If you have a penchant for white collar crime, and let's face it, who doesn't? Well, here's a great list for you. You'll likely find this book highly enjoyable. Technically speaking, no one was ever charged with a crime, but it sure feels like it belongs to the same genre.

If you've delved into any of Nassim Nicholas Taleb's works, this book will truly resonate with you. It's the tale of a financial model that was developed in Mediocristan but was then deployed in Extremistan. It's a model that attempts to function in the "fourth quadrant" with its fat tails and complex payoffs. It's a story that combines elements of finance, risk, and the unexpected, making it a must-read for anyone interested in the inner workings of the financial world.

Really interesting look at what now feels like a practice run for the 2008 financial crisis (and, undoubtedly, our next financial crisis too).

I don't think much in here will be a revelation to those familiar with what happened in 2008. However, it's still pretty fascinating to read a book written in 2000 that has no idea just how relevant it's about to become. The author does a great job of introducing all the various personalities involved. They give a sense of their role in the crisis without getting bogged down in needless biographical details.

I think readers need some level of existing knowledge about how derivatives and other financial instruments work. Although the author gives some explanation of concepts like margin and yield, there's a lot that you're presumed to already know. This means that those who are new to the world of finance may struggle a bit to fully understand everything. But for those with a basic understanding, it's a great read that provides valuable insights into the events that led up to the 2008 financial crisis.

This is an outstanding account of the astonishing rise and fall of Long-Term Capital Management. It was a highly leveraged hedge fund managed by several prominent figures in finance, such as John Meriweather, Robert Merton, Myron Scholes, and David Mullins.

LTCM specialized in arbitrage trades, typically betting that the spreads between riskier and less-risky assets would narrow. They capitalized when others fled to safety due to liquidity issues and took advantage of developing, less efficient derivatives and bond markets. It achieved remarkable returns in its early years.

However, the Asian financial crisis of 1997 and the Russian financial crisis of 1998 severely shook the global markets, widening the spreads as everyone sought safety. The fund's extreme leverage magnified both its gains and losses. Lowenstein出色地描述了所有相关人员的傲慢。令人惊讶的是，无论出了多少问题，这些人仍然坚信自己的所作所为。这个团队能够迷住华尔街并与几乎所有主要参与者交织在一起，这也令人难以置信。

Lowenstein讲述这个故事的方式几乎任何人都能理解。没有太多的技术细节，但又有足够的技术细节，让有金融知识的人不会感到无聊。他在大约240页的叙述中尽可能详细地讲述了这个故事，但那些想要了解更多交易和金融交易细节的人可能会想看Nicholas Dunbar的《Inventing Money》。我还没有读过这本书，但我听说它更侧重于具体的策略和交易，而不是叙述。总的来说，我还是会推荐这本快速阅读的书。

This is an excellent account of the crisis that struck Long Term Capital Management (LTCM) in 1998.

It is truly fascinating to read this book while the last crisis, namely the subprime mortgage crash, is still in the process of recovery. There are numerous analogies that can be drawn between the two.

Essentially, it is an exemplary story of what can occur when some extremely intelligent economists model what they anticipate to be a highly lucrative business, yet fail to consider the human factor and how, in times of crisis, everyone rushes for the exit.

The first half of the book delineates the ascent of LTCM and how the geniuses behind the fund were essentially able to create money based on their models. The second half details the heavy downfall that befell them when they found themselves in an unimaginably leveraged situation and complete illiquidity, resulting in them losing over $100 million per day. The last chapter is interesting in that it describes how the Fed and other Wall St. banks collaborated (albeit with some reluctance) to rescue LTCM from bringing down the entire Wall St., almost similar to J.P. Morgan at the turn of the 20th century.

The author appears to be very knowledgeable about the subject, but at times, his own bias towards the perils of leverage and modelling becomes evident. In theory, the models were sound, but where they failed was in how heavily they wagered on the arbitrage spreads.

They had completely overlooked the human factor.

At times, the so-called "vulgar Marxist" explanations of economics bear an uncanny resemblance to the efficient markets theory. This is because they presuppose a kind of inevitable result of exploitation and trading, which enables them to make simplistic forecasts about the future.

However, people in the markets constantly engage in actions that are not even in line with their own narrow self-interest. They do these things due to their unique personalities and prejudices. Some are arrogant, some are bold, and others are timid.

One simply cannot understand financial crises without delving into these more complex and confounding issues of psychology.

This book is rather straightforward journalism, but it makes one crucial point extremely well. Without taking into account the relationships between people, it is impossible to fathom why the most renowned figures in finance could place bets of a magnitude that no rational person would otherwise ever consent to.