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When Genius Failed
The Rise and Fall of Long-Term Capital Management
Roger Lowenstein
read on April 1, 2010

I ended up coming across this book because given all the other finance books I'd been reading lately, Amazon's computers thought I would be into this one also. For whatever reason, I figured this book was about the 2008 crises and went ahead and got it. I was way off- it was about the last crises that happened, when Long Term Capital Management failed.

In all the reading I've done during and since the 2008 crisis, I've heard the "LTCM bailout" mentioned a lot, but didn't really know anything about it. Turns out it was a hedge fund created by some of the smartest guys in the industry (led my John Merriweather, former Soloman banker, a big fan of Liar's Poker). Merriweather was joined by Merton and Scholes, the guys who pretty much invented options pricing, and later won the Nobel prize for their work. I remember learning their models in college investment courses, it was a bit surreal to see how they actually applied it themselves.

Anyway, I was a huge fan of the book. LTCM was all about math- they were the original quants. Their strategy was just to nail the equations and manage risk with calculated certainty. LTCM made around 40% returns per year for the first three or four years it existed. It was a huge success. Unfortunately, their models gave them extremely tiny profits, so in order to really make so much money they needed to be highly leveraged. Of course, then Russia defaulted on it's loans, put a wrinkle in global finance, and everything went to hell. Bam. Bankrupt. It's hard to believe that guys this smart still get rich and greedy, and then get stupid.

Well written, and an incredible story. Like Liar's Poker, I can't believe I had made it so far in my life without reading this. Lowenstein has a book about to come out on the 2008 crisis, so now I'm really looking forward to that.

Author Bio:

Roger Lowenstein (born in 1954) 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, N.Y. 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, America's Bank: The Epic Struggle to Create the Federal Reserve (The Penguin Press) was released on October 20, 2015.