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When Genius Failed

Roger Lowenstein

A gripping story behind the rise and fall of Long-Term Capital Management (LTCM), a hedge fund managed by John Meriwether (ex-Salomon Brothers's Head of Arbitrage Group), David Mullins (former vice-chairman of the US Federal Reserve), two Nobel laureate (Profs. Myron Scholes and Merton) and a group of brainy PhDs.

The personalities, relationships and expertise of the characters are critically examined. Details of how LTCM coerced various investments banks into lending it huge sums of money with virtually no haircuts (margin on collateral), and arbitraging on tiny spreads on financial instruments, from US Treasury bonds, mortgage securities to spreads between preference and ordinary shares are vividly described. As the market started to behave "abnormally" in late 1997, and the assumptions for the financial models used by LTCM no longer hold true, the fund began to lose money for every trade it made. Lowenstein's detailed account of the fund's final months, culminating in a disastrous August in 1998 and the partners' subsequent panicked moves, is riveting. Recommended.

Reviewed by Henry Tang. Click here to buy this book at Amazon.co.uk.

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