When Genius Failed – The Rise and Fall of Long-Term Capital Management

A BUSINESS WEEK BEST BOOK OF THE YEAR

In this business classic–now with a new Afterword in which the author draws parallels to the recent financial crisis–Roger Lowenstein captures the gripping roller-coaster ride of Long-Term Capital Management.

It all began with John Meriwether, a famously successful Wall Street trader, spent the 1980s as a partner at Salomon Brothers, establishing the best – and the brainiest – bond arbitrage group in the world. In 1991, in the wake of a scandal involving one of his traders, Meriwether abruptly resigned. For two years, his fiercely loyal team – convinced that the chief had been unfairly victimized – plotted their boss’ return. In 1993, Meriwether gathered together his former disciples and a handful of supereconomists and proposed that they become partners in a new hedge fund different from any Wall Street had ever seen. And so Long-Term Capital Management was born.

As The firm’s staggering $100 billion balance sheet threatened to drag down markets around the world, At the eleventh hour, fearing that the financial system of the world was in peril, the Federal Reserve hastily summoned Wall Street’s leading banks to underwrite a bailout.

Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein explains not just how the firm made and lost its money but also how the personalities of Long-Term’s partners, the arrogance of their mathematical certainties, and the culture of Wall Street itself contributed to both their rise and their fall.

When it was founded in 1993, Long-Term was hailed as the most impressive hedge fund in history. But after four years in which the firm dazzled Wall Street as a $100 billion moneymaking juggernaut, it suddenly suffered catastrophic losses that jeopardized not only the biggest banks on Wall Street but the stability of the financial system itself.

The dramatic story of Long-Term’s fall is now a chilling harbinger of the crisis that would strike all of Wall Street, from Lehman Brothers to AIG, a decade later. In his new Afterword, Lowenstein shows that LTCM’s implosion should be seen not as a one-off drama but as a template for market meltdowns in an age of instability–and as a wake-up call that Wall Street and government alike tragically ignored.