The account of the LTCM debacle is a vivid illustration of how hubris can lead to disaster in finance." If Long-Term defaulted, all of the banks in the room would be left holding one side of a contract for which the other side no longer existed. In other words, they would be exposed to tremendous-and untenable-risks. Undoubtedly, there would be a frenzy For example, although the fund suffered catastrophic failure, one of the founders of LTCM, John Meriwether, managed to preserve personal assets (such as houses, cars, etc.) and avoid personal debts. core. Only a few years later, he returned to continue setting up a new hedge fund, but this fund still suffered the same fate as LTCM. An eye-opening tale about what happens when the smartest minds in finance get it wrong – When Genius Failed is a cautionary tale about the importance of risk management in investments. #RiskManagement #InvestmentStrategy

Apparently, just like Midas’ touch, the Midas formula had one essential flaw: it couldn’t take into consideration the extent of the irrationality of the market and its speed (calculations were sometimes out-of-date few moments before they were even made).Q: Do you know if anyone from Long Term Capital Management has read WHEN GENIUS FAILED? Have you heard from any of them? However, LTCM decided to take a different path. They increased their stakes in a riskier financial product: equity . According to the model, the crisis is a good opportunity to make money. Vice chairman of the Federal Reserve; Ph.D. MIT; Professor at Harvard University; was seen as potential successor to Alan Greenspan WHILE AMERICA AGED HOW PENSION DEBTS RUINED GENERAL MOTORS, STOPPED THE NYC SUBWAYS, BANKRUPTED SAN DIEGO AND LOOM AS THE NEXT FINANCIAL CRISIS Recently, I read the book “ When Genius Failed”, written by Roger Lowenstein. This book is the story of rise & fall of Long Term Capital Management (LTCM), the largest hedge fund of its time. LTCM was started in 1994 by John Meriwether who was a Wall Street veteran and once a part of Salomon Brothers, an old Wall Street investment bank. However, the fund drew its real fame from its investment management team that constituted of many Nobel laureates.

When Genius Failed is an incredibly insightful book that highlights the risk of overconfidence in the financial sector." 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. Lowenstein also looks at how LTCM's failure impacted the financial markets and sparked a regulatory response from the Federal Reserve. Loomis, Carol J. (1998). "A House Built on Sand; John Meriwether's once-mighty Long-Term Capital has all but crumbled. So why did Warren Buffett offer to buy it?". Fortune. Vol.138, no.8. That awareness started an "migration" in the world market. People just look for the safest bonds and sell everything. This is bad news for LTCM.John Meriwether headed Salomon Brothers' bond arbitrage desk until he resigned in 1991 amid a trading scandal. [6] According to Chi-fu Huang, later a Principal at LTCM, the bond arbitrage group was responsible for 80–100% of Salomon's global total earnings from the late 1980s until the early 1990s. [7] Roger Lowenstein is an American author and journalist. He is currently a contributor to The Wall Street Journal. In addition to his work as a journalist and book reviewer, he is the author of five best-selling books, including Warren Buffett - The Making of an American Capitalist, When Genius Fails . What does this book have for me? Learn about a hedge fund that tried to outperform the market and failed. When Genius Failed” doesn’t say anything new – the market is volatile, and there are no mathematical models which can circumvent this – but it relays this by means of the emblematic didactic story and in such a compelling manner that this book reads more like a thriller than a financial analysis.