Who is the author of 'When Genius Failed'?

The author of 'When Genius Failed' is Roger Lowenstein.

What are the main themes in 'When Genius Failed'?

The main themes in 'When Genius Failed' include Behavioral Finance, Finance, Personal Finance.

What genre is 'When Genius Failed'?

'When Genius Failed' is categorized as Finance.

What is the main focus of 'When Genius Failed'?

The main focus of 'When Genius Failed' by Roger Lowenstein is the rise and fall of Long-Term Capital Management (LTCM), a hedge fund that famously collapsed in 1998 due to its highly leveraged investments and failure to manage risk. The book explores the strategies employed by LTCM's founders, including several Nobel Prize-winning economists, and delves into the intricacies of financial markets, the consequences of hubris in the finance industry, and the broader implications of the hedge fund's collapse on the global economy.

Who are the key figures discussed in the book?

The key figures discussed in 'When Genius Failed' by Roger Lowenstein include John Meriwether, the founder of Long-Term Capital Management (LTCM); economists Myron Scholes and Robert Merton, who were pivotal in developing the financial models used by LTCM; and various investors and financial regulators who interacted with or were affected by LTCM's strategies and subsequent failure.

What events led to the collapse of Long-Term Capital Management (LTCM)?

The collapse of Long-Term Capital Management (LTCM) was primarily driven by a combination of factors including excessive leverage, reliance on flawed mathematical models, and a changing financial environment. Key events leading to the collapse included: High Leverage: LTCM used significant leverage to amplify its investments, borrowing heavily to increase its trading positions, which meant that even small market movements could result in enormous losses. Market Turbulence: The Asian financial crisis in 1997 and the Russian default in 1998 created severe disruptions in global markets, leading to a sharp increase in volatility. LTCM's models failed to account for such systemic shocks. Model Risk: LTCM's strategies were based on complex mathematical models that assumed that price disparities would converge over time. However, during periods of market stress, correlations between asset classes changed dramatically, leading to massive losses. Liquidity Crisis: As markets became volatile and investor confidence waned, LTCM faced a liquidity crisis. Investors started pulling back, making it difficult for LTCM to unwind positions without incurring severe losses. Rescue Efforts: In September 1998, LTCM's situation deteriorated to the point where major financial institutions feared the collapse of LTCM could lead to systemic risks in the financial system. A consortium of banks and investment firms was formed to provide a bailout, but this intervention did not ultimately stabilize the fund, leading to its liquidation.

How does the author explore the themes of risk and failure in finance?

In 'When Genius Failed,' Roger Lowenstein explores the themes of risk and failure in finance primarily through the story of Long-Term Capital Management (LTCM), a hedge fund that experienced a dramatic collapse in 1998. The author illustrates how LTCM's founders, including Nobel Prize-winning economists, developed complex financial models that underestimated the potential risks involved in their investment strategies. Lowenstein emphasizes how overconfidence in quantitative models can lead to catastrophic financial decisions, showcasing the inherent unpredictability of markets. The narrative delves into the psychology of risk-taking, highlighting how investors and institutions can become blinded by past successes and the allure of high returns, ignoring the possibility of failure. The book also examines the systemic risks that arise when firms operate with high leverage and the consequences of interconnectedness in global finance. Through LTCM's rise and fall, Lowenstein provides a cautionary tale about the dangers of hubris in the financial world and the critical importance of understanding and managing risk.

What lessons can be learned from the story of LTCM?

The story of Long-Term Capital Management (LTCM) in Roger Lowenstein's 'When Genius Failed' offers several important lessons: Risk Management is Crucial: LTCM's downfall highlights the importance of understanding and managing risk. Even the most sophisticated models can fail to predict market dynamics. Leverage Can Be Dangerous: The excessive use of leverage by LTCM amplified both their potential gains and catastrophic losses, demonstrating the dangers of borrowing heavily in financial markets. Market Interconnectedness: LTCM’s failure showed how interconnected global financial markets are. A crisis in one area can rapidly affect other areas, leading to wider financial instability. Hubris and Overconfidence: The arrogance of LTCM’s founders, who believed their quantitative models provided a foolproof strategy, teaches the dangers of overconfidence in one's knowledge and abilities. The Importance of Liquidity: LTCM experienced a liquidity crisis during market turbulence, underscoring the necessity for ensuring sufficient liquidity in a trading strategy. Behavioral Factors: The book also discusses how behavioral biases can influence decision-making in finance, often leading to irrational outcomes. The Role of Regulation: Lastly, LTCM’s impact prompted discussions about the role of regulatory oversight in managing systemic risk in the financial sector.

When Genius Failed Book Summary

When Genius Failed chronicles the dramatic rise and fall of Long-Term Capital Management, a hedge fund that boasted an elite team of financial wizards. As it navigates the complexities of high-stakes finance and groundbreaking quantitative models, the book unveils how overconfidence in genius can lead to catastrophic consequences. When the Asian financial crisis strikes, the fund’s intricate strategies unravel, threatening the global economy. Authors Roger Lowenstein masterfully intertwine personal narratives with economic theory, revealing the fragile balance between risk and reward. This gripping tale serves as a cautionary reminder that brilliance can blind us to the dangers lurking beneath the surface.

By Roger Lowenstein

Published: 2001

"When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein explores the complexities of finance and risk."

“A riveting account that reaches beyond the market landscape to say something universal about risk and triumph, about hubris and failure.”—The New York Times NAMED ONE OF THE BEST BOOKS OF THE YEAR BY BUSINESSWEEK 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. Praise for When Genius Failed “[Roger] Lowenstein has written a squalid and fascinating tale of world-class greed and, above all, hubris.”—BusinessWeek “Compelling . . . The fund was long cloaked in secrecy, making the story of its rise . . . and its ultimate destruction that much more fascinating.”—The Washington Post “Story-telling journalism at its best.”—The Economist

Roger Lowenstein is an acclaimed American financial journalist and author known for his insightful analysis of the stock market and investment strategies. He gained prominence with his best-selling books, including "When Genius Failed," which chronicles the rise and fall of Long-Term Capital Management, and "Buffett: The Making of an American Capitalist," a biography of famed investor Warren Buffett. Lowenstein has contributed to major publications such as The Wall Street Journal and The New York Times, showcasing his ability to distill complex financial concepts for a general audience. With a background in economics, he combines storytelling with rigorous research to illuminate the intricacies of financial markets. Through his writing, Lowenstein has not only informed readers but also shaped the discourse around investing and economic thought.

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