When Genius Failed Audiobook By Roger Lowenstein


Regulators had worried about the potential risks of these inventive new securities, which linked the country’s financial institutions in a complex chain of reciprocal obligations. Officials had wondered what would happen if one big link in the chain should fall. McDonough feared that the markets would stop working, that trading would cease; that the system itself would come crashing down. As the fund started to lose money, banks demanded that they open up their books to demonstrate that they could pay back their loans.

As Irish investors become more sophisticated in their strategies, they look beyond the risks of stock-picking to managing risk through diversified, balanced investment portfolios. I re-read it last weekend in light of the recent news about Day Trading strategies the failure of hedge fund Carlyle Capital Corp. and the Fed’s emergency loan to Bear Stearns. After I. The rhetoric of innovation is often about fun and creativity, but the reality is that innovation can be very taxing and uncomfortable.

A Story Of Mathematical Calculation Vs Human Unpredictability

An interesting, well-told if brief account of the rise and fall of Long-Term Capital Management (you remember that one, don’t you?). When things get heated it was along the lines of Sorkin’s Too Big to Fail, but otherwise a decent treatment of the significant events in the life and death of LTCM. In the early months of 2000, I read an interesting snippet in a local paper about a Q & A session at Stanford after a lecture Scholes gave there. He was asked if there was a tech stock bubble and he said no. I sent a brief letter to the editor refuting his answer and it was published.

Review When Genius Failed

When Genius Failed is filled with reminders about what happens when investors put their head in the sand and blindly embrace ideology. It’s Review When Genius Failed a stark warning to investors and financiers everywhere, that reality doesn’t always make sense, and yet you can never fully escape it.

Ratings And Book Reviews (

In the first few years this allowed LCTM to make spectacular profits for themselves and their investors. The fewer buyers there are in the market, the more severe the losses for sellers. By August, LTCM had lost 45 percent of its capital and was leveraged at 55 times that amount. As they started to lose money, banks demanded that they open their books to prove that they could pay back their loans.

The modern financial world is a 747 with one engine, no backup systems, and crew more than a bit unclear on how it works. Everything must work right all the time or there is a crash with little in between. LTCM committed no crimes, no one went to jail, it cannot be dismissed as an isolated event due to a rogue operator . This all happened with the best and brightest following the latest principles completely within the law, with the blessing of the great Greenspan, and a maximal embodiment of the spirit of the “free market”. Mathematical models are based on very good math with very many assumptions required to make the computations workable.

They negotiated a special agreement that Bear will keep clearing for LTCM as long as the hedge fund kept $1.5b on call at Bear. Both parties were trying to protect against the other harming it. Because arbitrage takes advantage of tiny spreads , in order to produce substantial returns high leverage is required. The mathematicians at LTCM, always precisely calculating the odds, figured out that their 30-year treasury arbitrage was 1/25th as risky as owning the bonds outright , so 25 times leverage was in order. A number of computer based market models have been proposed that act like real markets. Some of these rely on market models based on a set of dynamical equations. Others rely on a market composed of rule based market actors, which simulate trading in the market.

When Genius Failed Key Idea #2: Ltcm Leveraged Heavily In Order To Maximize Their Profits

In the letter to investors, Meriwether talked with amazing certainty about the chances that the fund will lose money (a measure known as Value-at-Risk or VAR). They could calculate the exact risk of these events thanks to the models built by finance luminaries. Now, like never before, risk could be measured and controlled completely, or so it seemed. And the measure was volatility – the variance of returns around the mean. Meriwether enlisted the help of Merrill Lynch to raise capital. His ambitious goal was to raise $2.5b, charge 25% of profits and 2% of assets, and lock up investors’ capital for 3 years. His pet academicians from Salomon jumped at the opportunity to join him but that was not enough to attract $2.5b for a new hedge fund (they usually started with 1% as much).

The author’s thesis, that the LTCM managers underestimated the risk from fat tails, is implausible given their sophistication (I’m sure the former LTCM managers would think this explanation is simply ludicrous). I think that the author failed to distill and synthesize the numerous, complex, contributing factors that were actually behind the failure in an effort to have a nice neat bumper sticker rational for its cause. It is a clear exposition of the catastrophic failure of Long Term Capital and the hubris of its most important partners.

When Genius Failed Book Review (book Review Sample)

Read the world’s #1 book summary of When Genius Failed by Roger Lowenstein here. By sparing creditors, equity holders and managers some of the pain of loss, we are more likely to see a repeat of the behavior that produced the LTCM crisis in the first place. Indeed, the expectation of future bailouts could have played a subtle role in the growth of LTCM in the first place. Did the favorable financing of LTCM go beyond reliance on the LTCM brand name and reflect the brand name and potential support of the U.S. government? Will LTCM’s resolution make the too-big-to-fail problem even worse? Perhaps with time we will have a clearer sense if the benefits of the Fed’s role in the LTCM resolution outweigh potential costs. For now, enjoy Lowenstein’s fable but come up with your own more satisfying moral.

Review When Genius Failed

They had already seen a slight dip in profits once the crisis hit in the summer of 1997, but they didn’t let that dissuade them. They continued to follow their models – which eventually led them off a cliff. Despite knowing very little about these products, they invested very heavily, as the models told them that everything would work out. So they gave the strategy a shot, and in doing so added more Review When Genius Failed risk. They began investing in paired shares – essentially different stocks in the same company. For example, they invested in Royal Dutch Petroleum and Shell Transport England, both of which comprised the international conglomerate Royal Dutch Shell. In times of uncertainty and insecurity, the normal thing to do would be to invest in bonds, which, although not very profitable, are very secure.

This Book Traces The R ..

Instead of trying to interpret news, it might be possible to use the internal characteristic of the market as triggers for the market actors. Black-Scholes and related option pricing Brent crude Oil models made a great contribution in the past. There are obvious problems with this thought experiment. Humans and the interactions between them are vastly too complex to simulate.

But that wasn’t why McDonough had called the bankers. But on the Wednesday afternoon of September 2-3, 1998, Long-Term did not seem small. The source of the trouble seemed so small, so laughably remote, as to be insignificant. A load of tea is dumped into a harbor, an archduke is shot, and suddenly a tinderbox is lit, a crisis erupts, and the world is different. In this case, the shot was Long-Term Capital Management, a private investment partnership with its headquarters in Greenwich, Connecticut a posh suburb some forty miles from Wall Street. LTCM managed money for only one hundred investors, it employed not quite two hundred people, and surely not one American in a hundred had ever heard of it.

During the mid-1990s LTCM was two-and-a-half times as large as the second largest mutual fund, and an incredible four times the size of its closest hedge fund rival. They also controlled more assets even than huge investment banks, like Lehman Brothers Review When Genius Failed and Morgan Stanley. This lack of regulation makes hedge funds a ripe environment for investment in riskier financial products, such as derivatives. This is a great book detailing one of the biggest debacles in financial history, LTCM fall.

Derman details his adventures in this field – analyzing the incompatible personas of traders and quants, and discussing the dissimilar nature of knowledge in physics and finance. Throughout this tale, he also reflects on the appropriate way to apply the refined methods of physics to the hurly-burly world of markets.

You might be right in the long run but could still get burnt in the short run. A great example of how a book based on investigative journalism shall be written. As for the writing, Lowenstein masterfully aggregates multiple accounts of the events and leaves the reader utterly engrossed. I have given it 4 stars because the book misses more explanations to make it accessible to the broad public and the layperson. Hard to believe that after LTCM’s fall John Meriwether went on to found a new firm, JWM Partners, which, not surprisingly, blew up in the downturn.

A partner at LTCM described their technique as scooping up loose nickels created when prices in financial markets got slightly out of balance. However, it was only through leverage that such small bets created huge returns. And, as the house example demonstrates, such leverage left the firm extremely but knowingly vulnerable to an unfavorable shift in prices. Lowenstein seems to have fallen into the trap of confusing the failure of a firm with the failure of markets. As others have also noted, the decline of LTCM appears with hindsight to be based on large, but surprisingly run-of-the-mill judgments, bets and strategic decisions that went wrong. Nothing in the book convinced me that the general methods that informed those judgments, bets and decisions were systematically flawed. In fact, the one potential systemic failure that the book hints at relates to ill-conceived government policy.

Great Book, Not So Great Audiobook

In 1994, Alan Greenspan increased interest rates, afraid that the economy was overheating. This created a market overreaction, which sent bond yields higher than they should be – a great opportunity for LTCM to apply its arbitrage models. The academic view is that the fluctuations of a given stock and, in fact, the entire stock market follows a random course. The most articulate expression of this arguments can be found in Professor Burton Malkiel’s book A Random Walk Down Wall Street. According to this view, volatility is distributed in a bell curve (a so called “log normal” distribution), just as people’s height and weight are distributed in a bell curve. The larger the movement away from the mean , the larger the movement in the stock price and the greater the potential risk. If volatility falls in a bell curve, risk can be estimated.


Please enter your comment!
Please enter your name here