Financial crime has truly become my new favorite genre, lol.

It's rather amusing to observe how closely the events in this book mirror those in "Too Big To Fail." It's almost uncanny, right down to Warren Buffet being that little old stickler.

Reading about those stupid managers who receive golden parachutes instead of facing jail time really irks me. Alas, that seems to be the reality in many cases.

It makes one wonder about the fairness and integrity of the financial world. How can such blatant wrongdoings go unpunished?

Perhaps this is why the genre of financial crime has such appeal. It shines a light on the seedy underbelly of the financial industry and allows us to question the actions and decisions of those in power.

Despite the frustration it may cause, it also serves as a reminder of the importance of vigilance and accountability in the world of finance.

Even the most complex mathematical models often fail to take into account the irrational nature of human beings.

These models are constructed based on a countless number of assumptions, and people tend to follow them blindly.

Arrogance, greed, and flawed models have ultimately obliterated the once-promising LCTM.

It is essential to recognize that human behavior is far more intricate and unpredictable than what can be captured by these models.

We need to approach mathematical models with a healthy dose of skepticism and not rely solely on them to make decisions.

By understanding the limitations of these models and considering the human element, we can avoid the pitfalls that led to the downfall of LCTM and make more informed and rational choices in the future.

This book receives three stars. It offers a serviceable summary of its subject matter, but it is by no means outstanding.

If you have an interest in finance, particularly in statistical modeling and hedging strategies, you will find this account of Nobel Prize hubris gone awry due to the fact that "muh models" failed to predict multiple standard deviation events quite intriguing.

Moreover, if you enjoy reading about bad actors who utilize the arms of the federal government to engineer golden parachutes for themselves, you'll truly like this book.

However, what makes this book challenging is the difficulty in differentiating the personalities of a group of middle-aged finance guys. So, when there is some sort of conflict, we are expected to remember that Harvard MBA #1 is timid while Wharton MBA#3 is assertive. But the average reader will likely find the numerous names in this book running together.

In conclusion, this book is the very definition of a three-star book.

**Updating to 5 star from 4 star bc since reading, LTCM has popped up many times and now I intimately understand what is being referenced!**

I remember frequent mention of LTCM in uni finance courses. It's truly great to actually understand what lies beneath. The author had a huge task of condensing a gargantuan and complex phenomenon into a digestible format, and he did a remarkable job. However, I still found it difficult to keep track of the different players and their motivations. Maybe I need to take out my textbooks again as I couldn't fully explain their trades.

The overall theme of "they were greedy" seems easy in hindsight. But if you have a well-oiled machine churning out money for multiple years, I think it would be extremely hard not to become complacent. The financial markets continue to move forward.

Here is a really good story. Smart people once bet billions on the belief that markets would become more efficient as time went by. However, what they didn't anticipate was that nation state fiat money systems could fail in extremely chaotic manners that their computer models couldn't predict. They simply couldn't foresee the actions of politicians. And as a result, they failed in a rather spectacular way. It's a fascinating story that shows the limitations of even the most intelligent and well-prepared individuals. Thanks to Roger for sharing this interesting tale.

Previously, my entire understanding of LTCM was that it was a group of noble academics and mathematicians who ran a complex model that ultimately led to a disaster.

In more detail, their model was based on the concept of an option formula, assuming that the market was efficient and liquid. Therefore, they could bet on every "regression to mean," such as widening bond credit spreads and on-off the run treasuries. This meant that LTCM acted as a liquidity provider like a bank and profited after the spread decreased.

The first four years of operation were extremely delightful, with annual gains above 30 percent. This was thanks to the low-cost fees and abundant credit that LTCM squeezed from the bank using their reputation and the power of traders and academic professors.

After years of success, many competitors copied and implemented their strategies, which diminished the opportunities. Instead of waiting for a good bet, the traders of LTCM went beyond their model of arbitrages of "good assets" and traded on a variety of new things, including equity volatility, emerging market debt, Japanese stocks, and risk arbitrages.

All of this was not sophisticated. It was like a change from discipline to a rogue trader. Actually, many of the partners were very concerned, but due to all the easy money, low fees, and loans from banks, the situation continued.

In the end, when too much leverage, illiquidity, and a bad event (the Russian debt default) combined, it led to LTCM's bankruptcy. There was no regression to mean when everyone knew that some "whale" was about to force-sell, no way out of a large position, and no way to negotiate on a margin call.

LTCM broke and was taken over by Wall Street bankers at only 10% of its capital before the crisis.

This is a remarkable book that delves into multiple themes.

It explores the concept of "faking it till you make it," emphasizing the significance of friendship and even touches on the Archimedean principle of finding a firm spot to stand on in order to move the Earth.

Alternatively, it tells the tale of a relatively small company with great credentials that managed to navigate the finance market for a time but then nearly brought it crashing down before the big players intervened to prevent a complete collapse.

For me, this kind of book initially seems really easy to read. It is filled with cool language, dynamic action, and smooth-talking deals. However, upon closer inspection, it's not always the case. The cool language is often so full of jargon that someone like me struggles to fully understand it.

Here, while I have a general understanding of what Long Term Capital did, the intricate details explained in the book elude me.

Moreover, it's deeply frustrating to once again encounter a story that reveals how, in the world of finance, once you succeed, you can't really fail as an individual. Long Term Capital's actions were a huge catastrophe, yet the senior management is back in the game. They may have less wealth, but what's the real difference?

"When Genius Failed" is a cautionary tale about the perils of overconfidence and a reminder that everyone should read and internalize the Spiderman motto of great power and great responsibility.

Proof that markets are only a reflection of its society.

Society is not always efficient. People have emotions and often panic, get excited, and do stupid things. This is just being human. We can't expect the markets to act like robots because in fact they are a collective of passionate, intelligent, greedy, and fearful humans.

The actions and decisions of individuals within a society directly impact the markets. When people are overly optimistic, they may drive up prices, creating a bubble. On the other hand, when fear takes over, they may sell off assets, causing a market crash.

Markets are a complex and dynamic system that reflects the ever-changing nature of society. Understanding this relationship is crucial for investors, policymakers, and anyone interested in the economy. By recognizing the role of human behavior in the markets, we can better predict and manage market fluctuations.

In conclusion, markets are not an independent entity but a reflection of the society in which they operate. We must take into account the human element when analyzing and interpreting market trends.

A good inside account of the rise and shattering fall of Long-Term Capital Management (LTCM), one of the most glittering hedge funds of the 1990s, is presented. Loewenstein examines the insular, secretive, and competitive inner circle of traders and arbitrageurs. LTCM boasted of including two Nobel laureates who were crucial in developing the Efficient Markets Hypothesis and computer models for arbitrage. However, they were undone by their own hubris and betrayed by their models. The collapse of LTCM in 1998/99, after the Russian market meltdown, was a sign of the interconnectedness of modern markets. Problems anywhere could lead to crashes continents away. Loewenstein also highlights the Fed's role in rescuing LTCM under the Too Big To Fail Policy. A small group of wealthy investors trading for themselves became a danger to the wider system through unconstrained leverage. The basic story is simple: early success, overreaching, blind faith in models, ignoring warning signs, and a stunning reversal of fortune. This is a classic tale of players not heeding Keynes' dictum. What's intriguing is the technical story Loewenstein only hints at. I lack the math skills to understand the underlying models or the Black-Scholes work. But Loewenstein invokes critiques of both. If markets aren't always efficient and rational, it has implications for regulation and the market system. I wish Loewenstein had explored the social and political implications and what the fall of LTCM says about what happened eight years later.

Detailed, eye-opening revelations!

This remarkable book delves deep into the captivating story of the spectacular rise and the astonishing fall of LTCM. This hedge fund was established by the crème de la crème of the industry, including Nobel Laureates. Over a span of 4 years, they managed to amass profits of more than 300%, growing their assets by an impressive $3.5+ billions. However, in a mere nearly 2 months, it all came crashing down.

The book uncovers several crucial factors that led to their downfall. The assumptions made in their models, the excessive and disproportionate leverage they employed, their neglect of intuitive reason, and their overinflated egos all played significant roles. These elements are hard to overlook and provide valuable insights into the perils of the race for dynastic fortunes.

Overall, this book makes for a truly great read, offering a comprehensive understanding of the essence of this extraordinary rise and the unparalleled fall. It serves as a cautionary tale and a must-read for anyone interested in the world of finance and investment.

It's a truly remarkable book. I wholeheartedly recommend it to anyone who desires to have a comprehensive understanding of the story of LMCT. However, the most astonishing aspect for me isn't actually within the pages of this book. What surprises me the most is when I looked up the more recent deeds of the protagonist, Meriwether, on his Wikipedia page. (Thanks to the fact that more updated information is added on wiki after this book is completed.)

If one were to summarize this book in a single sentence, it would be ``you can be highly leverage, and you can be highly illiquid, but you can't be both''. In fact, my major objection to the book is that it seems the author is overly striving to provide explanations for LTCM's failure. This effort commences as early as the first few pages of the book, which might be a good writing strategy, but in my opinion, it isn't a flawless logic. Among his reasons, some appear reasonable, while others seem to be merely those things that ``align with the facts'' but fail to be the genuine causes. Of course, LTCM's failure is a cumulative process, so it's difficult to attribute it to any one or two specific bad investment decisions.

Among other things, I'd like to recall four aspects that I remembered from the book:

1. How statistical ``arbitrage'' is employed by the traders in LTCM and what transpired during times of crisis.

2. The author of the book gently calls for more financial regulations in the hedge fund business. It is implied (or more precisely, I fabricated after reading this book) that more transparency in the business would significantly reduce anyone's potential to amass a large fortune from a big gamble, but would reduce the risk and thus benefit the health of the entire profession. I'm not sure if it's fair to say that the author believes more regulation will guide the hedge fund business towards a service of capital allocation rather than being a zero-sum game.

3. I enjoy reading the ``neutralized'' account of how the big bankers interacted with each other. It reminds me of the feudal wars in the Three Kingdoms era (or medieval Japan or something similar...). I term it a ``neutralized'' story because I like to read between the lines. But if you're not the conspirator type (or even just for entertainment purposes), you probably didn't find this part interesting.

Big banks, of course, are complex entities and are constantly evolving, so any insights gained through a popular book are not intended to endure for a very long time.

4. There was a crash in the Chinese futures market for government bonds (SSE Mar 27, 1995). And although not a perfect analogy, I just like to compare the public's and the government's responses in each case. History tends to suggest that the most significant impact on the course of a market, a nation, or a profession is not based on any one or two incidents but rather on people's overall reactions to them in the long run.

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