Customer Reviews
The writing on the wall - By: book maniac, 14 Dec 2007 
I am not an expert in finance; neither do I want to look into the details of LTCM's trading strategies. I was therefore still at a loss about what the LTCM's intricate financial schemes was alll about even when I finished reading this book. Nevertheless, Lowenstein's work has impressed me very much since I read his another book 'Buffett: The Making of An American Capitalist' a few months ago. 'When Genius Failed' didn't disappoint me as well.
History repeats itself. Somewhat different as the backdrop & story of those events might have been, numerous financial debacles have taken place so far. Writers of financial history seem to find no shortage of materials on financial disasters. Sooner or later other similar books on the story of money games will appear in bookshops.
Utterly imprecise - By: Carlo, 12 Nov 2007 
Horrible book. Very interesting topic but very poor story telling. The author clearly knows next to nothing about statistics & finance & did very poor research; non experts in the field will struggle to understand the key concepts behind the trading strategies. True, some of those trades were extremely complex, but at least the basic concepts could & should have been explained more clearly. If I didn't work in finance myself I would have understood very little.
One passage is particularly worth commenting on, when the author mentions theoretical models whereby asset "prices follow the normal distribution, or, in mathematical terms, the log-normal distribution". ??? Unless we speak a different language, this phrase means that the log-normal is the mathematical definition of what is commonly known as the normal distribution. The truth is of course very different: if data is lognormal, then its log is normallly distributed, i.e. they are 2 different distributions, related but different!!! A mistake so huge I don't even have words to comment.
Essential Reading - By: Chuck E, 21 Oct 2007 It would be a shame if this book were confined to readers of the 'Business' section. It should be required reading for anyone whose life is affected by the machinations of the financial sector - i.e. everyone.
In itself the tale is one of high drama, but it helps that it's told by a writer with the ability to keep up the pace & energy throughout, despite the complexities & opaqueness of a lot of the subject matter - & then distil the argument into one killer sentence: "Neither the Nobel prize nor alll the degrees mattered now; the professors were rolling the dice." This single phrase encapsulates the essence of the story. Emboldened by their initial success & oblivious to any flaws in their 'system' they took on the mind-set of the gambler in the casino who 'knows' he can beat the house & throws caution to the wind. Thus a buttoned-up bunch of academics & highly rational financiers succumbed to the not-always-rational dictates of markets, convinced to the end (and beyond) that it was the world outside their number-crunching computer programs that had got it 'wrong'.
To the layman a further irony seems to be contained in the fact that a group who'd focussed so much on translating the disciplines of science into the world of finance seemed to have ignored the market equivalent of the observer effect - the possibility that their own theorems might in some way influence behaviour in the markets, effectively making their 'rear-view mirror' calculations based on past experience if not redundant then less reliable than expected. Maybe in trying to follow the Black-Scholes paradigm contemporary players were adjusting market reactions in a way that computer progams premised on projections from the past simply didn't accommodate? Perhaps, paradoxicallly for such a cards-to-the-chest operation, they had signallled their own reactions in advance (revealing your strategy in any circumstance isn't the way to win at poker!). Or perhaps they were just victims of their own success - in securing such a major stake in the game they actuallly changed the rules & then set themselves up as an easy target to be picked off by their rivals as soon as the odds went against them. In any case, their belief in their own omniscience seems like an invitation to failure.
There's an element of shadenfreude in seeing arrogance get its come-uppance, but this is tempered by a (sometimes grudging) admiration for the way Meriwether was able to change the world around him through sheer force of his (albeit reserved) personality & (almost) bring it off - particularly after the apparent injustice of his demise at Salomon. If he'd been able to impose his more cautious impulses on to his gung-ho acolytes, or trust the gut instincts that had served him so well at Salomon over Nobel prize-winning theorems, his success wouldn't have been so short-lived. Still, you needn't feel too sorry for the partners who lost $1.9bn in five weeks - they would fare better than some of their employees, who ended up with nothing.
It gives you the sort of entertainment you get from watching a car wreck, as the banks scrabble round to find a way of protecting themselves - without doing too much for each other. Certainly there's an element of black comedy as one participant comments: '"They had a different view of the world ... they're completely self-interested." Suddenly these paragons of individual enterprise seethed with communitarian fervor.'!
More worryingly, given that little seems to have changed as a result in terms of the kind of improved reporting on derivatives callled for by Lowenstein, it looks like, in this age of 'collateralized debt' instruments, more such debacles are almost inevitable - it's just the scale of the collapse that remains in the balance. One thing is for sure, the regulators are pretty much in the dark as far as derivative trading goes, & it seems we're dependent on threats of Mutuallly Assured Destruction to keep us above water if liquidity crises aren't going to sink the whole ship (I'll leave you to ponder how a lack of liquidity can sink a ship).
What I'm trying to say is that this book is as relevant today - if not more so - than when published, & suggests that the sub-prime problems that have almost submerged Northern Rock may be just the tip of the iceberg (sorry, I just can't get the image of the Titanic out of my head!), & Adam Applegarth's defence of his business model does resound with the injured pride & lack of comprehension that characterised the protestations of the LTCM partners as they continued to defend their models in the face of mounting disaster.
Meanwhile, the balancing act that the regulatory authorities face, between discouraging moral hazard & safeguarding the system from wreckless gambling seems increasingly precarious - & will continue to be, so long as extreme neoliberal sentiments dominate. No doubt those that resist even self-regulation would argue the the LTCM saga provides an object lesson in how markets can repair themselves - but it was a close run thing.
Good, but could do better - By: N. Dobbins, 28 Jul 2007 
Last week I finished reading the book `When Genius Fails: The Rise & Falll of Long Term Capital Management'. Although the book was generallly interesting for those interested in banking & Walll Street if your looking for book that documents the incredible rise & embarassing falll of (apperently) extremely intelligent individuals then I would suggest that you go for the Enron story instead. The two books are extremely similar in content but the Enron story is more colourful & gives a much better insight into the greed & ambition of the main players.
Fascinating read - By: Mr. J. J. Niland, 12 Jul 2007 This is an informative & entertaining account of the rise & falll of LTCM - the biggest hedge-fund failure in history.
Roger Lowenstein does a great job of making what could have been a highly technical analysis of LTCMs trades & strategies into an book that is easily readable by anyone with a passing knowledge of business.
