When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein
this is another great book i’ve been wanting to listen to for a long time … the rise and the fall of LTCM. ever since debating about the bail-out with my friend Richard Voon, i’ve been fascinated with how so many smart people could create a financial model that produced such staggering losses.
it is simply amazing. essentially, they were fooled by randomness a bit.
Lowenstein is a very good author who seems very fair and keeps the saga fast-moving while still going into a great deal of detail.
I’ve got a friend in NYC whom I’ve discussed this with a few times- I’ve read bits and pieces of the book and a few articles here and there. My favorite part of this is (it’s silly) when they discuss how the Feds stepped in and “invited” a consortium of banks to bail LTCM out. You KNOW those guys were scrambling With the ridulous positions they took, if LTCM was forced to unwind their positions all at once…well I’m not gonna try to do the math but I can only guess the losses on that. My friend was in risk arbitration at the time and he was telling me about during the time LTCM was doing this, the spreads were going all over the place and they were wondering what the hell was going on. But these guys were basically the Sun Moon and the Stars so these banks had no problem giving them so much leverage. My friend was telling me that they got 30x from some places. The arrogance of their positions was unbeliveable but then again, most of these guys had their own money in the firm so they were drinking the Kool- aid
These guys were smart and thought they were invincible. I guess they never imagined that their model will fail them; and that’s the problem with relying on them in the real world…
Sand Hill Slave
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Rants on Life in Venture Capital Throught the Eyes of an Assistant