When Genius Failed: The Rise and Fall of Long-Term Capital Management
“Go read the book When Genius Failed if you want to read the story. It's a great story.”
Why it is worth your time
When Genius Failed is Roger Lowenstein's 2000 account of Long-Term Capital Management, the hedge fund John Meriwether founded in 1994 with 2 future Nobel laureates, Robert Merton and Myron Scholes. The fund used heavy leverage on bond spreads that its models said would converge. Russia's default in Aug 1998 widened them instead. Within weeks the fund had lost most of its capital, and the Federal Reserve brokered a $3.6 billion rescue by 14 banks. Lowenstein was a Wall Street Journal reporter. Friedberg pointed listeners to it on the Mar 4, 2022 episode, a week after Russia invaded Ukraine and sanctions began to stress markets. Leverage and model risk are recurring topics for him. It suits readers who want to see how a fund with the best credentials went under. The caveats are age, since the book is from 2000 and predates the 2008 crisis, and Publishers Weekly found the narrative obscured by masses of data.
