''When Genius Failed: The Rise and Fall of Long-Term Capital Management'' is a book by
Roger Lowenstein published by
Random House
Random House is an American book publisher and the largest general-interest paperback publisher in the world. The company has several independently managed subsidiaries around the world. It is part of Penguin Random House, which is owned by Germ ...
on October 9, 2000. The book puts on an unauthorized account of the creation, early success, abrupt collapse, and rushed
bailout
A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy.
A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global sys ...
of
Long-Term Capital Management
Long-Term Capital Management L.P. (LTCM) was a highly-leveraged hedge fund. In 1998, it received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York.
LTCM was founded in 1 ...
(LTCM). LTCM was a tightly-held American hedge fund founded in 1993 which commanded more than $100 billion in assets at its height, then collapsed abruptly in August/September 1998. Prompted by deep concerns about LTCM's thousands of
derivative contract
In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, Index fund, index, or interest rate, and is often simply called the "underlying". Derivative ...
s, in order to avoid a panic by banks and investors worldwide, the
Federal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is responsible for the Second District of the Federal Reserve System, which encompasses the State of New York, the 12 northern counties of New ...
stepped in to organize a
bailout
A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy.
A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global sys ...
with the various major banks at risk.
The book's account is largely based on interviews conducted with former employees of LTCM, the six primary banks involved in the rescue, and the Federal Reserve, as well as informal interactions by phone and e-mail with Eric Rosenfeld, one of LTCM's founding partners.
As of 2014, there have been four editions in English, five editions in Japanese, one edition in Russian and one edition in Chinese.
The book received numerous accolades, including being chosen by ''
BusinessWeek
''Bloomberg Businessweek'', previously known as ''BusinessWeek'', is an American weekly business magazine published fifty times a year. Since 2009, the magazine is owned by New York City-based Bloomberg L.P. The magazine debuted in New York City ...
'' among the best business books of 2000.
The Best Business Books of 2000
/ref>
Overview
The book tells the story of Long-Term Capital Management
Long-Term Capital Management L.P. (LTCM) was a highly-leveraged hedge fund. In 1998, it received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York.
LTCM was founded in 1 ...
(LTCM), an American hedge fund
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
which commanded more than $100 billion in assets at its height. Among LTCM's principals were several former university professors, including two Nobel Prize
The Nobel Prizes ( ; sv, Nobelpriset ; no, Nobelprisen ) are five separate prizes that, according to Alfred Nobel's will of 1895, are awarded to "those who, during the preceding year, have conferred the greatest benefit to humankind." Alfr ...
-winning economist
An economist is a professional and practitioner in the social sciences, social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
s. The book is separated into two sections: the rise and the fall. Chapters 1-6 correspond to the first section and chapters 7-10 the second. The topics include:
*Chapter 1: Meriwether
*Chapter 2: Hedge Fund
*Chapter 3: On the Run
*Chapter 4: Dear Investors
*Chapter 5: Tug-of-War
*Chapter 6: A Nobel Prize
*Chapter 7: Bank of Volatility
*Chapter 8: The Fall
*Chapter 9: The Human Factor
*Chapter 10: At the Fed
Between 1994 and 1998, the fund showed a return on investment of more than 40% per annum. However, its enormously leveraged gamble with various forms of arbitrage involving more than $1 trillion went bad, and in one month, LTCM lost $1.9 billion. On the precipice of not only an American financial disaster, the fund's imminent collapse had significant international monetary implications, jeopardizing the financial system itself. Prompted by deep concerns about LTCM's thousands of derivative contract
In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, Index fund, index, or interest rate, and is often simply called the "underlying". Derivative ...
s, in order to avoid a panic by banks and investors worldwide, the Federal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is responsible for the Second District of the Federal Reserve System, which encompasses the State of New York, the 12 northern counties of New ...
stepped in to organize a bailout
A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy.
A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global sys ...
with the various major banks at risk.
Major characters
* John Meriwether — head of the LTCM arbitrage
In economics and finance, arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more markets; striking a combination of matching deals to capitalise on the difference, the profit being the difference between the ...
urs.
* Larry Hilibrand
*Eric Rosenfeld
*Robert C. Merton
Robert Cox Merton (born July 31, 1944) is an American economist, Nobel Memorial Prize in Economic Sciences laureate, and professor at the MIT Sloan School of Management, known for his pioneering contributions to continuous-time finance, especia ...
* Myron Scholes
*Victor Haghani Victor Haghani (born c. 1962) is an Iranian-American founder of Elm Wealth, a research-driven wealth advisor and manager. Elm uses index-tracking funds to invest across the largest asset classes and tries to give its clients broad exposure to globa ...
*Jon Corzine
Jon Stevens Corzine ( ; born January 1, 1947) is an American financial executive and retired politician who served as a United States Senator from New Jersey from 2001 to 2006 and the 54th governor of New Jersey from 2006 to 2010. Corzine ran fo ...
— former CEO of Goldman Sachs
Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, H ...
References
{{Reflist
External links
Book Review: When Genius Failed, by Roger Lowenstein
Review on Bookfinder.com
2000 non-fiction books
Long-Term Capital Management
Books about traders
Books about companies
Random House books