When Genius Failed
by Roger Lowenstein · first published 2000
58% recommend39% neutral3% critical
Why HN recommends it
Engaging, story-driven account of the rise and collapse of hedge fund LTCM, showing how leverage, repo funding and model overconfidence undid brilliant people. Suits readers wanting a cautionary tale on finance.
Summarised by Claude from recommending comments
"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. A mysterious and shy midwesterner, he knitted together a group of Ph.D.-certified arbitrageurs who rewarded him with filial devotion and fabulous profits. Then, 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's return. Then, in 1993, Meriwether m
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If you're interested in reading some more about the collapse of LTCM, I recommend When Genius Failed by Roger Lowenstein (for a fuller appreciation, read Liar's Poker by Michael Lewis first). If you're interested in reading an excellent account of a startup HFT/hedge fund, it's worth ordering a secondhand…
on “What are hedge funds, and what social functions do they serve?” ↗…said this was good, I said that 'illiquid' and 'crappy' are not by definition the same thing. That's all I said. I'm not even going to address your Buick analogy. Read this book - http://www.amazon.com/When-Genius-Failed-Long-Term-Managemen... - it will give you a good idea how credit markets operate and how they can act irrationally. Right now the major issue is that no one knows how to value themselves because no one…
on “JPMorgan buys Bear Stearns for $2/sh, ~$236mm total” ↗…was "borrowed" very heavily from this book: http://www.amazon.com/Inventing-Money-Long-Term-Capital-Mana... Most people read this book but I think the above book is much better. http://www.amazon.com/When-Genius-Failed-Long-Term-Managemen... I'd recommend reading both if this sort of thing interests you, in the order that they are listed. Since this article is mostly about LTCM, its kindof interesting to look at their…
on “The History of the Black-Scholes Formula” ↗A random walk down wall Street Reminisces of a stock operator When genius failed Unconventional success And generally just read financial news and follow markets until you develop a sense for spotting BS.
on “Ask HN: What are the must-read books about economics/finance?” ↗…because he got a new video game, it is not because the video game's designers were 2nd rate. And Wall Street attracts people seemingly as smart as you would ever want to be. Read Roger Lowenstein's "When Genius Failed" about how a coupla Nobel Prize winners in econ started a hedge fund (Long Term Capital Management) which blew up spectacularly in 1997. Other smart people knew what they were doing wrong, but that didn't…
on “My Manhattan Project: How I helped build the bomb that blew up Wall Street.” ↗…Financial institutions balance their books daily with repos. (The market is HUGE.) IB's have a need for repo's also, but they often push the limits of sanity. LTCM used repos for large leverage also. (When Genius Failed is an interesting book to read; essentially the crisis of 2007 was LTCM on a larger scale.) The financial crisis of 2007 was actually a run on banks through the repo market. IB's used repos on a rolling…
on “An Economy of Liars” ↗…exactly an iconoclastic, or even interesting, position to take. They're among the worst trading catastrophes in history. A good book has been written about LTCM, but it's not Taleb's; it's Lowenstein's _When Genius Failed_.
on “Nassim Taleb, Absorbent Barriers and House Money” ↗Based on your listings, you may also enjoy When Genius Failed, which is based on LTCM and their downfall. Link: https://www.amazon.com/dp/0375758259/ref=cm_sw_r_cp_api_i_j0...
on “Ask HN: Recommendations on books and documentaries on tech companies/people?” ↗Not the OP, but _When Genius Failed_ by Lowenstein was a good book for understanding what happens in the asterisk ("if done right").
on “Hedge fund Melvin sustains 53% loss after Reddit onslaught” ↗An excellent book on LTCM is 'When Genius Failed' (not an affil link): http://www.amazon.com/When-Genius-Failed-Long-Term-Managemen...
on “The math that killed Lehman Brothers” ↗Liar's Poker - Michael Lewis http://www.amazon.com/Liars-Poker-Rising-Through-Wreckage/dp... In Defense of Food - Michael Pollan http://www.amazon.com/Defense-Food-Eaters-Manifesto/dp/01431... When Genius Failed: The Rise and Fall of Long-Term Capital Management - Roger Lowenstein http://www.amazon.com/When-Genius-Failed-Long-Term-Managemen...
on “Ask HN: Great books you read in 2009?” ↗…Alchemist The Count of Monte Cristo A Canticle for Leibowitz Neverwhere My Uncle Oswald Stories of Your Life and Others Invisible Cities Life of Pi Atlas Shrugged --- WALL STREET / FINANCE --- When Genius Failed Liar's Poker Buffett (Lowenstein) Bull! Black-Scholes and Beyond (textbook) Fixed Income Securities (textbook) The Road to Serfdom The Smartest Guys in the Room Fortune's Formula The Fourth Turning…
on “Ask HN: Good books?” ↗…science, not the history---it reminded me a bit of those boxes about the lives of prominent scientists that dot some introductory textbooks---but it's still frustrating. I actually found Roger Lowenstein's /When Genius Failed/ much more illuminating---he gives more attention to institutions, incentives, and personalities, and how they interact. Edit: missing word, style
on “A Billionaire Mathematician’s Life of Ferocious Curiosity” ↗For anyone interested in this topic, be sure to read "When Genius Failed". I finally read it last year and it's excellent. http://www.amazon.com/When-Genius-Failed-Long-Term-Managemen...
on “Companies in the U.S. are valued 10% above the cost of replacing their assets” ↗I think that you are referring to LTCM ( https://en.wikipedia.org/wiki/Long-Term_Capital_Management ) which blew up in the late 90s. For others interested, I would strongly recommend the book "When Genius Failed" ( http://www.amazon.com/dp/0375758259 )
on “At 78, Scientist Is Starting a Hedge Fund” ↗