Rating: 
Summary: Arbitrage but no Diversification
Review: On the whole, Lowenstein's book is worth reading, but he like most other journalists had no access to Meriwether or other principals at LTCM. The major problem with the book is that there is not much new information presented. I have more information from the articles that I copied following the collapse of LTCM. The on-the-run US Treasury hedge described as one of the first trades undertaken by LTCM is interesting for several reasons. This $2B trade was first reported in the WSJ (16Nov98). LTCM bought $2B of the off-the-run 29 ½ year T-bonds (higher yield, lower price) and sold short $2B of the more liquid 30 year T-bonds (lower yield, higher price) as a hedge. They were betting that the yield spread would narrow. It was reported that LTCM netted about 25M from that transaction, but it is not clear if that amount is accurate. Michael Lewis ("Liar's Poker") was the only journalist who was allowed to interview Meriwether and other LTCM principals after the collapse of LTCM, and he wrote an article for the NYTimes magazine (24Jan99). In that article, Lewis indicated that Meriwether and his Arbitrage Group at Salomon made the exact same trade for $2B at Salomon in 1987 during the October crash. Lewis indicated that he failed to appreciate what they had done in October 87, and he didn't include that story in his book. This liquidity arbitrage opportunity is a type of market inefficiency that does exist if you can wait for the yields to converge. The point is that LTCM was not doing anything very sophisticated. And more to the point, they repeated that exact hedge strategy time and time again. They repeatedly bought the less liquid security and shorted US Treasuries as a hedge. They did this with Danish CMOs and many other foreign bonds. And they concentrated on foreign bonds because those markets are said to be less efficient. This is perhaps the major contribution of Lowenstein's book. He indicated that LTCM tended to buy the less liquid security in every market and short US Treasuries as a hedge. Meriwether and his Arbitrage Group firmly believed that spreads would always converge. But that is only true in a world without margin calls. Since LTCM had for the most part one-sided bets, when the arbitrage spreads widened, they were doomed, even with their questionable margin arrangements. Nuclear powers can default and credit spreads can widen. Their portfolio model overlooked those two events, and they were evidently unaware of the most elementary rules regarding diversification. A truly diversified portfolio would not be destroyed by a shift in the credit spread or a Nuclear default. Time and again, I have heard it said that the many of the LTCM trades appeared sound. But these folks always overlook the ever present margin calls. This weak idea is also put forth in Lowenstein's book. He claims that their swap trades were intelligent convergent plays, and he couldn't be further off first base. There is no secondary market for swap trades, so you can't get out if interest rates move against you. And if you default on a swap trade, you damage your counterparty, not the market. And remember, LTCM had thousands of such transactions, not just one or two on-the-surface intelligent trades. They had thousands of directional trades all betting on the same convergence strategy. Hardly the definition of an intelligent strategy. This is why the FED had to step in. There was no secondary market for most of the derivatives that LTCM was involved in. Remember David Askin, Michael Streinhardt, or Jay Goldinger? Everything would have been fine if the interest rates just went in the right direction. They lost about 2B of their client's money in hedge funds. Interest rates and margin calls were to blame. When the LTCM story first broke, most of us were led to believe that LTCM, with their Nobel laureates and their young professors, was doing very difficult financial transactions involving the Black-Scholes European option pricing model or something similar. Nothing could have been further from the truth. LTCM evidently only had a few trading strategies. They merely leaned on their bankers not to enforce margin calls that any normal investor must face. They actually believed that they were so well healed that initial margin was not necessary. LTCM thought they were merely a spread manager like a bank. The LTCM principals claimed that their portfolio was safe because of the massive amount of diversification. But what they overlooked was that most of their bets were identical: buy the less liquid security and short the more liquid security. The correlation coefficients of their various bets hovered around +1.0. A well diversified portfolio would have many trades with a negative correlation with respect to other assets in the portfolio. Apparently none of the LTCM young professors had ever studied for the CFA exam. No one in his right mind would try to manage such a directional portfolio and claim that it was diversified. The second major point made in Lowenstein's book that is not well known is the role played by Merrill Lynch in getting LTCM started with massive amounts of capital formation. Merrill also desperately wanted to be LTCM's clearing agent, but that job went to Bear Stearns. An issue that was not made as well as it might have been is that there were four investment banks (Goldman, Merrill, Salomon, and UBS) that each lost 700M or more it trying to emulated LTCM trades. According to Michael Lewis, Goldman Sachs worked much harder than other firms trying to emulate Meriwether's group, and their loses might have been much larger. JP Morgan was also desperate to copy Meriwether, but it is not clear how much they lost. I still remember Sandy Weill trying to explain away those massive Salomon losses on CNBC. The one notable exception was Morgan Stanley. They had little to do with LTCM.
Rating: 
Summary: Reads like a Tom Clancy novel for financial meltdown
Review: Ok I admit it. I went into this book thinking it was going to be a long and tedious tome about derivatives and malinvestment gone mad. What a pleasant surprise. This book is extremely well written, "develops" the characters in this saga as well as most novels, and taught me everything I wanted to know about how the United States financial system was brought to the brink of collapse by an unregulated derivatives system out of control. What new LTCM's lurk out there, slouching towards Wall Street to be born? This book is a great read, and a must for anyone interested in looking behind the scenes in the US financial system.
Rating: 
Summary: Good Book, but eBook is a horrible format.
Review: The book is a fun read, but why am I not able to print out eBook selection's? I know it's a piracy issue, but if I really wanted to pirate the book, I could simply scan in the actual paper book and use OCR software. For the limited use and addded constraint of the eBook format, they really need to come down in price. Until then, I'm sticking to paper.
Rating:
Summary: Enlightening
Review: It was a fascinating story about the people that created Long Term Credit. The book thankfully does not focus on details of trading or hedging strategies. Its about the experiences that shaped the founders, their strengths and weaknesses. I eagerly moved through the story as LTCM moved from conception, to success story, to non-functional. The number of references shows that the book is meant to describe the facts with only a modest amount of finger-pointing.
Rating:
Summary: When Genius Failed By Roger Lowenstien
Review: What has been outlined in this wonderful book is that risk just like the future cannot be predicted accurately but can be estimated. Also the dangers of high debt and overleveraging is outlined. In short this is one of the only books that tries to mimick the real dangers of systemic risk, luckly it was avoided but the vexing question is, will it be repeated again? and are central bankers prepared for dangers like this.
Rating:
Summary: Interesting story of hubris
Review: I find it odd that people are getting so hyper over technicalities in the book. Yes, there are some references to derivatives that are only vaguely correct, but the interesting thing about the book is that a non-PhD in finance can read it and get some insight into the kind of self-obsession and hubris that actually make the use of sophisticated modelling irrelevant. Paranoid hording of information and spitting numbers out of a quantitative model is not high-finance, nor is it genius; and even if it IS genius - it isn't sufficient to run a hedge fund properly. Understanding the limitations of the models, interpreting the numbers in context, getting a qualitative feel for the market participants, treating one's subordinates with respect, and controlling oneself from putting on big trades out of sheer arrogance IS relevant to running a hedge fund - that's the lesson here - even if having to do so seems to violate the outdated fama version of efficient markets.
Rating:
Summary: Fascinating human drama inside the world of modern Finance
Review: You will not be able to put this book down once you start. The brilliantly told story of the LTCM failure serves as warning for investors, CFO/CEOs, regulators and, more broadly, for people that believe too ardently on their skills and knowledge. That, in a nutshell, is the key reason portrayed by the author for their failure: They were TOO good, so much as to believe on their own speech until the very end.
Rating:
Summary: BIG MEN MAKE SMALL MISTAKES!
Review: Small traders who break the simple rules are called 'dumb' by the professionals in the industry in their magazine articles, interviews on radio & TV etc. Here we have a group of top academics including Nobel Prize winners in economics who headed a firm that made some of the most silly 'mistakes' that caused them to lose over FOUR BILLION DOLLARS1 The reason: simple over-trading and mis-management of funds - just what the little guy is always told not to do! This book gives a brief introduction to the various players involved. It gives an indicationl of the greed involved, not only by over-leveraging but by forcing investors to take back their money so the partners could put all their money in the fund and make all the profits for themselves. Interestingly, they did these people a great favor by preventing them from going broke. Later in the book, when the crisis is really brought forward, we are given a detail day to day account of the stress and problems that the fund managers were creating for themselves and the rest of Wall Street as many banks and other financial institutions had tied up hundreds of millions with this firm. In the end the Federal Reserve arranged a bailout with fourteen major banks to save day. Ironically, the super-losers went and created another fund after this big crash and sure enough they raised a few hundred millions in trading capital so the 'bright' fellows can get running again!
Rating:
Summary: Highly Recommended!
Review: This riveting page-turner reads like a financial thriller and is all the more compelling for being true. Author Roger Lowenstein has a knack for establishing character quickly and capturing the way that ego, hubris and Wall Street's herd mentality came together to create a crisis that threatened a global financial meltdown unseen since the Great Depression, or perhaps never seen at all. At a time when markets have assumed an unprecedented stature, this is a powerful cautionary tale for financial professionals and those who idolize them. Lowenstein's clear analysis shows that little has changed since the heyday of Long-Term Capital Management. In other words, brace yourself, because the conditions that made this crisis possible still exist. We at getAbstract.com put this book on the required reading list for investors, money managers, bankers and policymakers who are pondering the proper extent of regulation and financial oversight.
Rating:
Summary: Simply excellent. A rare gem.
Review: Lowenstein has created a real gem: well-researched, objective and beautifully written. "Story" provides insight to much more than simply Long Term Capital's dramatic history. It highlights many of the firms, practices, executives, etc. that so reflect the frailties and strengths of institutional finance. Readers without a background in modern financial instruments should not be wary because author does fine job of translating these tools into layman's language. I'm a fairly hardheaded (and hardhearted) cynic after nearly two decades on Wall Street. This book could have been just another nonsense piece for Main Street: a soapy "glamour/tragedy" expose. It's not that at all but rather a superb and objective history of a dramatic period in institutional banking. A fascinating read!
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