Rating: 
Summary: For the Love of Money
Review: If you want a fast paced account of the characters associated with the Long Term Capital debacle this is the book. If you want to understand how to effectively arbitrage bonds, this isn't your book. The book is as fair as it can be give that the principals of Long Term Capital did not speak to Lowenstein. You have to read it with that in mind since you don't know at what point some of the accounts are heresay. The book does provide some good insight about why Long Term Capital failed and actually shows that the principals of Long Term Capital are not as "evil" as some public accounts made them out to be. Some examples: 1) Long Term Capital didn't merely spurn Buffett 2) Long Term Capital's trades were being "sniped" at by people working with those that were trying to "help" them. 3) The partners were prudent in trying to prevent the situation from being exacerbated by wantonly unwinding positions. The most fascinating aspect of the book is learning that Long Term Capital's undoing wasn't necessarily its leverage (which was very high) but making trades that weren't their bread butter (i.e. straight out bets on market direction). The book is worth reading as a reminder to guard against greed, no matter how great you are.
Rating: 
Summary: Fascinating, But Flawed
Review: Lowenstein presents a fascinating study of the rise and fall of Long Term Capital Management, but unfortunately his study is flawed in a couple of respects. First, he seems to be in over his head in trying to understand the models he describes. For example, he doesn't seem to have a firm grasp on the statistical analysis that drives financial models. And he completely misses the distinction between long- term capital growth models and short-term trading models. Long-term models, which predict market behavior over a decade or more, actually work quite well. For example, Roger Ibbotson used one such model in the 1970s to predict a Dow of 10,000 by 1999. On the other hand, short-term trading models have generally been viewed with some disdain by the academic community. And it is these models that LTCM lived (and died) by. The second flaw is that Lowenstein appears to bring a set of preconceptions to the table in his account of LTCM. His thesis seems to be that financial models don't work, and that the failure of LTCM proves his point. A more thoughtful thesis would highlight the hubris of LTCM, and of Wall Street in general. Academics generally dismissed LTCM from the beginning-- most viewed its investment strategies as simple gambling. Yet, at the same time, LTCM was the darling of Wall Street. How could the Street miss the danger signals that were so obvious to the academic community? Lowenstein's biases about financial modeling ultimately reduce the book to an argument, rather than a study. It is entertaining, but not terribly enlightening.
Rating: 
Summary: When Authors Fail
Review: Roger Lowenstein's book is a lie and should be avoided. The quality of the story is comparable to the book F.I.A.S.C.O. another lie. Lowenstein's writing is typical of the hatchet job on Wall Street that ignorant journalists frequent dump on the public. His style resembles the movie making method of Oliver Stone who is very adept at weaving lies with reality to make a dishonest point. The point of Roger's book is that derivatives cause volatility and leverage with derivatives cause financial meltdowns. LTCM is the extreme example of this pattern and causality. To argue this point is to have a politically incorrect viewpoint. But Roger is clueless. Roger's description of how financial mathematics is used on Wall Street is wrong. He injects strange normative statements into his discussions, for example describing The University of Chicago's Graduate School of Business in the 1960s and 1970s as a "cauldron of neoconservative ferment" (page 34) as if financial mathematics is some kind of political or economic opinion. If using mathematics to price options is an economic opinion, let's see Roger buy and sell plain vanilla call options without the Black-Scholes model. Also, Roger is ignorant of the structure of basic financial instruments. While he describes swaps and options, the way he uses the term derivative indicates he does not have any idea how they are different. And while he believes derivatives can cause a financial meltdown he does not describe in any sensible way how it happens. Contrary to the theme of his book, Long Term Capital Management's story is a shining vindication of the robustness of mathematics in finance. Roger shows how much leverage and hubris is necessary to destroy finely applied mathematical tools. LTCM did make a lot of money before ratcheting up the leverage that blew them up. Only after taking leverage to the unique extreme experienced only by Jack Walsh's Kidder Peabody did LTCM disintegrate. LTCM's mistake was taking on positions when no opportunities were presented. If LTCM had made their capital liquid in early 1998 waiting for arbitrage opportunities, imagine what could have been their profitability with idle capital ready to position after the Russian debt debacle. LTCM's mistake was not with using mathematics to make position decisions. LTCM's mistake was hubris, a lack of patience and bad business judgment, very human qualities that not mathematical. Don't bother with How Genius Fails. Instead read Nicholas Dunbar's book Inventing Money. Inventing Money is a much better book about financial mathematics and LTCM. And it is honest.
Rating: 
Summary: Surprise - arrogance and greed will get you in trouble
Review: The cover of this book depicts pastel-toned neoclassical plaster façade structures, reminding of the ivory tower of academia or white-shoe inner halls of a prestigious bank. The story in this book, however, is anything but the picture of such serenity. Rather it is a story of unlimited hubris and greed, of billions of dollars lost in a blink of an eye, jagged lines flashing across computer screens, traders screaming into phones and sweating from anxiety, elegant academic theories crashing on the rocks of the real world. It is a fascinating story, culminating in the world-wide financial crisis and the collapse of Long Term Capital Management fund in September 1998, still fresh in the minds of many participants and observers. This book strikes a good balance between page-turning readability and substance and thoroughness in explaining relevant financial and mathematical concepts. R. Lowenstein writes a solid explanation of the rise of computational finance and numerical methods used by Wall Street since early 70's. It was greatly facilitated by two factors. First - the collapse of the gold standard and Bretton Woods fixed currency regimes, which caused big fluctuations in currencies and interest rates, brought increased inflation and market volatility. The second crucial factor was emergence of adequate computing power by the early 70's - both powerful mainframe computers to crunch huge amount of financial data and hand-held calculators which traders could use on the exchange floor to compute option prices and other quantities. The volume of all kinds of financial transactions kept rising ever since. Future leaders of LTCM - the star trader J. Meriwether and his "bond arbitragers" group from Salomon Brothers, and the co-authors of the option pricing theory 1997 Nobel Laureates Merton and Scholes - were right in the center of this momentous transformation. By early 90's "quantitative methods" were all the rage on Wall Street. Geeks with Ph.D. began replacing Gordon Gekkos and coke-snorting frat boys of the 80's as "masters of the universe". At the road show to raise money for newly incorporated LTCM hedge fund its "quants" threw incomprehensible formulae and graphs - and plenty of insults - at prospective investors. Nevertheless they managed to amass more than a billion dollars to launch LTCM. Not surprisingly, even egos and vanity played second fiddle to greed. As the book makes clear LTCM team was the most famous (and simultaneously most secretive) but hardly unique in this game. By mid-90's practically everybody was using fairly sophisticated mathematical methods. What set LTCM apart from others were old-fashioned connection network among Wall Street big guns who put their own money into new fund, self-enhancing mystique and reputation. This allowed LTCM to borrow money freely without "haircut" - minimal margin requirements to move around huge amounts of money to exploit small but persistent inefficiencies in capital markets. In one example mentioned by R. Lowenstein, one of the first LTCM large-scale bets was on the convergence of spread of about .12% between Treasuries with 29.5 years to maturity and newly issued 30-years ones. This spread was small but not tiny. Many traders could notice that. But few could significantly profit from it, because it would require very high leverage (i.e. borrowing) which itself costs money, either in interest rates or "haircut". Only LTCM with its connections could cross-borrow practically any amount of money without "haircut" and execute lucrative trades, which other firms could design but not take advantage of. Although there is little doubt that LTCM packed an impressive clip of very intelligent people, it is arguable whether a touch of genius was present in these games at all. The book itself reaches mixed verdict in this regard. What is clear, however, is that they ran a strategy which was usually winning in "normal" times - without panics and severe financial crises or big interest rates moves - but was excessively risky when things become very turbulent. In fact one doesn't need to be a genius to run this kind of scheme. Think of a boat designed to carry 30 people. Safety regulations usually ensure significant excess capacity, so in fact a boat can haul more passengers. If some rogue operator is somehow able to skip regulations he can put 50 people on board - and rake big profits most of the time. Then one day a big storm occurs - and the boat sinks. In a somewhat more advanced example, consider a following casino gambling strategy. Make a bet on something and after each round increase the bet by a constant multiplier larger than two (say, 2.1 or 2.5). Continue until winning and stop immediately after. Theoretically this will guarantee winning every time, though the amount will vary from day to day. Why doesn't everybody use this trick? Because on some rare occasions one can run out of money before a single win. The loss will be huge and negate overall gains of many winning days. It seems that LTCM ran a strategy resembling this scheme. Should we expect meltdowns similar to LTCM in the future? Definitely yes. Like generals who always fight the last war, financial institutions and regulators know what to do with previous crises. But by the time the effects of the last crisis are overcome, new risky strategies with potential troubles of their own are designed, waiting to explode as new hundreds of billions of fool's gold rush in.
Rating:
Summary: Disappointing Half-Story
Review: This book was a truly disappointing, disjointed, and ill-informed attempt at telling what should have been a riveting tale. It is obvious that the author does not understand much of the subject matter of the book. He totally mischaracterizes the role of derivatives traders/providers. For instance, he focuses exclusively on the risk side of an equity put seller, without recognizing that this is merely a risk transference from the put buyer. He gets some elementary points backwards, as in the time where LTCM is short volatility and, in an effort to cover, solicits other Wall Street firms to provide bids--it should have been offers. Most disconcerting was that it was obvious that most of the players involved refused to talk to the author, forcing him to piece together a half-story from a handful of sources who would talk to him, various newstories of the time, and his own Buffett book. Perhaps no one will ever have the complete story of what happened. This book clearly doesn't.
Rating:
Summary: Timeless Lessons Easily Forgotten
Review: Roger Lowenstein is one of today's most insightful business journalists, and his reputation is enhanced by this engrossing account of Long-Term Capital Management's stunning rise and precipitous fall. The LTCM debacle underscores the continuing truth of time-honored financial aphorisms: the perils of unchecked leverage, the need for true diversification, and, most important, the foolhardiness of projecting recent historical precedent indefinitely into the future. Worthy reading for investors both novice and professional.
Rating:
Summary: Good Overview,Disappointing in Details
Review: This book gives a good overall feel for the disaster that was waiting to happen, but is shoddy in the details (e.g. the author describes that LTCM was short equity volatility and needed to cover their position. He states they went to other dealers to get them to buy volatility. In reality the other dealers would need to sell volatility to LTCM, but I suspect most readers won't be too interested in these details). Also he can't be expected to give more than cursory explanations as to why various risks turned out to be non-hedgable or disasters waiting to happen. Since hissource for the story seems to be the big IB's like Merrill, and Goldman, he misses the fact that some of these firms and in particular their managementput their firms at supreme risk. e.g. Merrill announced that they had enough collateral at the time of the rescue to cover the liabilities that LTCM had to it. But an internal study showed that if LTCM had defaulted and the subsequent estimates of liquidity and spreads were accounted for the loss to Merrill could easily be larger than $3 billion. (This would be in addition to about $1billion of losses Merrill did incur during the same period). Most of the senior Management that made decisions to enter these trades are still around today - one went on to be risk manager of the firm. I am fairly sure that most of the dealers had similar experience. The arrogance of LTCM seems remarkable but in fact was equally represented in the firmsit did business with. It would be interesting to see a sequal that delved into the flip side of the problem which existed in the IB's themselves.
Rating:
Summary: The gang that couldn't hedge stright
Review: A somewhat didactic narrative history of the hedge fund Long Term Capital Management. Nicholas Dunbar covers the same subject in his book "Inventing Money." Both books present a blizzard of details about who did what and when. Too much detail. The general reader would better served by a medium sized article. Nevertheless if you're a finance buff interested in the nitty-gritty then read both books. Dunbar has a physics background and his book is more technical, while Lowenstein comes from journalism and his narrative flows better. LCTM began operating in 1994, set up by John Meriwether formally head of the bond-arbitrage group at Solomon Brothers. He put together a star-studded cast that included three (1997) Nobel prize winners in economics. Their basic strategy was something called convergence arbitrage. In essence this strategy says buy two bonds that you think will track one another. Go long on the cheap one and short on the other; you make money if the spread narrows. In theory you are protected from changing prices as long as the two vary in the same way. To make the big bucks LCTM was after they took a gigantic number of highly leveraged arbitrage positions all over the world. To get high leverage you borrow for the position, like buying a stock on margin. LCTM got really high leverage by avoiding something called the "haircut," which is an extra margin of collateral banks usually demand, but forgave LCTM. Why would banks they do such a thing? Because they were blinded by the glitter of the cast, and in some cases the banks themselves were investors in LCTM. By 1997 convergence arbitrage opportunities in bonds began to dry up, everyone was doing it. So LCTM applied their strategy to stocks. Find two stocks that will track on another and go long and short with borrowed money. This is not easy. Stocks are less amenable to mathematical analysis than bonds, and after all these were the bond guys from Solomon, they were out of their depth. You might ask how can you borrow most of your stock position when the Federal Reserve requires 50% margin (Regulation T). Answer: don't really buy the stocks, instead buy derivative contracts that simulate stocks, an end run around Regulation T. Even with all this leverage LCTM would claim that the fund was no more risky than the stock market, meaning a stock index. In 1998 the markets went against LCTM, with the "flight to quality" (US government bonds) as investors panicked. The fund suffered from what reliability engineers call "common mode error." Spreads got wider not narrower across the board, and LCTM's capital base began to shrink as their positions lost money. At a certain point they would have to start liquidating positions, and the market impact of such large scale selling would cascade across their portfolio. The fund would "blow up." The above gives a flavor of the material Lowenstein provides, only in much greater detail. If that's what you want, buy the book. Is this a tale of human folly or just plain bad luck? Answering that question is not easy, one needs to grasp a large amount of technical finance theory, and understand what happened in the particular case of LCTM. This book will help.
Rating:
Summary: Don't waste your time
Review: I run a hedge fund named Promethean Fund, LP. Do yourselves a favor and don't read this book. Arrogance, the belief that prices always return to some mean, managers who are out of touch with their customers needs, wealthy people who throw money at Wall Street wizards is a tale you should miss. Go for Harry Potter instead. Understand that the first chapter is a downer!
Rating:
Summary: A late book on an interestring topic
Review: "When Genius Failed" is an interesting account of the rise and fall of LTCM Hedge Fund. There are three weaknesses about this book - one, it is too late about something that happened in 1998 - two, it does not descibe well the strategies adopted by LTCM and - three INVENTING MONEY by Nicholas Dunbar is a much better book on the topic. However, it can be a good collection who is deeply interested in the LTCM.
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