From the Publisher
With a new Afterword addressing today's financial crisis
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. Drawing on confidential internal memos and
interviews with dozens of key players, Lowenstein explains not just
how the fund 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.
From the Jacket
Praise for Roger Lowenstein's national bestseller Buffett:
The Making of an American Capitalist
"A delightful portrait . . . Mr. Lowenstein has done a masterly
job."
-- The New York Times Book Review
"A significant contribution to the craft of biography as well as an
illuminating and comforting story for investors everywhere."
-- Chicago Tribune
"The singular achievement of Lowenstein's excellent biography... is
that it burnishes the Buffett myth while deconstructing it with
heavy doses of reality."
-- Barron's
"Lively, smoothly written, and elaborately researched,
Buffett is likely to stand as the definitive
biography."
-- Business Week
"Thoroughly researched and perceptive . . . a highly readable
account."
-- Financial Times
"Lowenstein has accomplished something remarkable."
-- Los Angeles Times
From the Hardcover edition.
About the Author
Roger Lowenstein, author of the bestselling Buffett: The
Making of an American Capitalist, reported for The
Wall Street Journal for more than a decade, and wrote the
Journal''s stock market column "Heard on the Street" from
1989 to 1991 and the "Intrinsic Value" column from 1995 to 1997. He
now writes a column in Smart Money magazine, and has
written for The New York Times and The New
Republic, among other publications. He has three children and
lives in Westfield, New Jersey.
Bookclub Guide
Q: Do you know if anyone from Long Term Capital Management has read
WHEN GENIUS FAILED? Have you heard from any of
them?
A: Yes. Some of Meriwether's former partners, who are partners with
him now in a new venture, asked me to make changes because they
thought sections of the book would be harmful to their future
fund-raising efforts. We, of course,
carefully reviewed and re-reviewed the accuracy of everything in
the book but followed a "let-the chips fall where they would"
policy with regard to what the reverberations would be.
Q: Was there any way to predict the demise of LTCM by looking at
their investment style in the 1990s? Was anyone paying attention?
A: No - they had been a big success in the [19]90s. That was part
of the problem. Their models looked backward and, based on that
prior success, they invested as though they thought they couldn't
lose.
Q: Could LTCM have done more effective damage control to save the
fund or did events spiral too quickly?
A: No - that was also part of the problem. Being so self-confident
they also got way too big in positions, meaning that once the
trouble hit it was impossible to get out without rocking the market
even more. They were trapped.
Q: John Meriwether's September 1998 letter to investors (informing
them of their incredible losses) was surprisingly optimistic. Do
you think he was being disingenuous at the time?
A: No. He believed his trades were good trades- that's why he had
gotten into them. As it turned out, they weren't nearly so good as
he thought - many have yet to recover. But that aside, he forgot
that even good trades can go the
other way. This is what the book calls "the human factor." When
people panic, markets don't resemble what's in a computer model.
They go where the most nervous trader takes them.
Q: Why do you think the government has filed this incident away and
refuses to address it in terms of regulation or legislation while
Alan Greenspan simultaneously calls for less regulation?
A: We live in a time of unprecedented prosperity and bullishness.
Regulations change (as during the New Deal) when times are bad.
When times are good, nobody cares.
Q: The hubris you describe in WHEN GENIUS FAILED
is more than most of us can imagine. Should the public treat
Meriwether's recent contrition (during interviews) as sincere?
A: You know, I wasn't in the room. It's certainly notable that he
said nothing for two years and then issued a mea culpa two weeks
before the book came out. But then, he has always been a private
man. Perhaps he was being sincere but also self-interested - as are
most of us most of the time.
Q: What is the lesson in WHEN GENIUS FAILED for
the average American and investor?
Don't believe the future will look like the past. History rhymes,
as Twain said, it doesn't repeat. Moreover, don't think that more
"sophisticated" investors possess some magic formula or key. They
don't, nor do all their computers and their "models." And finally,
whenever someone is so confident that they run huge amounts of
leverage-more than 30 times debt to equity in this case - run the
other way. The one feature that does repeat, although in different
forms, throughout financial history is that the people who get into
trouble are the people who run up too much debt to survive a rainy
day.
Q: Somehow it makes sense that LTCM was based in the secret, monied
playground of Greenwich, Connecticut. Maybe a bunch of guys from
Jersey would have handled this better.
A: Well I have a strong bias for Jersey guys, as you know. But I
think what was important wasn't the Greenwich locale per se but the
partners' distance from Wall Street. Seclusion fed the partners'
already inflated sense of superiority. If they had been rubbing
elbows a little more with guys downtown, who knows?
Trade Paperback
October 9, 2001
Random House Publishing Group
English
0375758259
9780375758256