When Genius Failed: The Rise and Fall of Long-Term Capital Management
Encyclopedia
When Genius Failed: The Rise and Fall of Long-Term Capital Management is a book by Roger Lowenstein
published by Random House
in 2000. (ISBN 0-375-50317-X) As of 2008, there have been six editions.
The book received numerous accolades, including being chosen by BusinessWeek
among the best business books of 2000.
(LTCM), an American
hedge fund
which commanded more than $100 billion in assets at its height. Among LTCM's principals were several former university professors, including two Nobel Prize
-winning economist
s. The book is separated into two sections: the rise and the fall. Chapters 1-6 correspond to the first section and chapters 7-10 the second. The topics include:
Between 1994 and 1998, the fund showed a return on investment of more than 40% per annum. However, its enormously leveraged gamble with various forms of arbitrage involving more than $1 trillion dollars went bad, and in one month, LTCM lost $1.9 billion. On the precipice of not only an American financial disaster, the fund's imminent collapse had significant international monetary implications, jeopardizing the financial system itself. Prompted by deep concerns about LTCM's thousands of derivative contracts, in order to avoid a panic by banks and investors worldwide, the Federal Reserve Bank of New York
stepped in to organize a bailout with the various major banks at risk.
Roger Lowenstein
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 1955, he is the son of Helen and Louis Lowenstein...
published by Random House
Random House
Random House, Inc. is the largest general-interest trade book publisher in the world. It has been owned since 1998 by the German private media corporation Bertelsmann and has become the umbrella brand for Bertelsmann book publishing. Random House also has a movie production arm, Random House Films,...
in 2000. (ISBN 0-375-50317-X) As of 2008, there have been six editions.
The book received numerous accolades, including being chosen by BusinessWeek
BusinessWeek
Bloomberg Businessweek, commonly and formerly known as BusinessWeek, is a weekly business magazine published by Bloomberg L.P. It is currently headquartered in New York City.- History :...
among the best business books of 2000.
Overview
The book tells the story of Long-Term Capital ManagementLong-Term Capital Management
Long-Term Capital Management L.P. was a speculative hedge fund based in Greenwich, Connecticut that utilized absolute-return trading strategies combined with high leverage...
(LTCM), an American
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
which commanded more than $100 billion in assets at its height. Among LTCM's principals were several former university professors, including two Nobel Prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
-winning economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
s. The book is separated into two sections: the rise and the fall. Chapters 1-6 correspond to the first section and chapters 7-10 the second. The topics include:
- Chapter 1: Meriwether
- Chapter 2: Hedge Fund
- Chapter 3: On the Run
- Chapter 4: Dear Investors
- Chapter 5: Tug-of-War
- Chapter 6: A Nobel Prize
- Chapter 7: Bank of Volatility
- Chapter 8: The Fall
- Chapter 9: The Human Factor
- Chapter 10: At the Fed
Between 1994 and 1998, the fund showed a return on investment of more than 40% per annum. However, its enormously leveraged gamble with various forms of arbitrage involving more than $1 trillion dollars went bad, and in one month, LTCM lost $1.9 billion. On the precipice of not only an American financial disaster, the fund's imminent collapse had significant international monetary implications, jeopardizing the financial system itself. Prompted by deep concerns about LTCM's thousands of derivative contracts, in order to avoid a panic by banks and investors worldwide, the Federal Reserve Bank of New York
Federal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...
stepped in to organize a bailout with the various major banks at risk.
Major characters
- John MeriwetherJohn MeriwetherJohn William Meriwether is an American hedge fund executive, seen as a pioneer of fixed income arbitrage.-Education:...
— head of the LTCM arbitrageArbitrageIn economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices...
urs. - Larry HilibrandLarry HilibrandAround 1992, arbitrage trader Larry Hilibrand was synonymous with Wall Street hubris when he became the top-paid trader at Salomon Brothers. As one of the most mathematically astute traders, Hilibrand became the youngest managing director in Salomon Brothers history. Subsequently, he was part of a...
- Eric RosenfeldEric RosenfeldEric Rosenfeld was a trader and principal in the Long-Term Capital Management hedge fund, a landmark Wall Street disaster.Prior to LTCM, Rosenfeld was an instructor at Harvard University, and then a trader at the famed Salomon Brothers...
- Robert C. MertonRobert C. MertonRobert Carhart Merton is an American economist, Nobel laureate in Economics, and professor at the MIT Sloan School of Management.-Biography:...
- Myron ScholesMyron ScholesMyron Samuel Scholes is a Canadian-born American financial economist who is best known as one of the authors of the Black–Scholes equation. In 1997 he was awarded the Nobel Memorial Prize in Economic Sciences for a method to determine the value of derivatives...
- Robert Shustak
- Victor HaghaniVictor HaghaniVictor Haghani is an Iranian American financier, one of the founding partners of Long Term Capital Management, a hedge fund which collapsed in 1998, to be eventually bailed out by a consortium of leading banks.- Biography :...
- Jon CorzineJon CorzineJon Stevens Corzine is the former CEO of Goldman Sachs and of MF Global, and a one time American politician, who served as the 54th Governor of New Jersey from 2006 to 2010. A Democrat, Corzine served five years of a six-year U.S. Senate term representing New Jersey before being elected Governor...
— former CEO of Goldman SachsGoldman SachsThe Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...