When Genius Failed is a book that tells the story of the collapse of Long-Term Capital Management (LTCM), a hedge fund that was once considered one of the most brilliant and successful in the world. The book delves into the inner workings of LTCM, the people who ran it, and the risky strategies they employed. It also explores the impact of the fund’s collapse on the financial industry and the global economy.
Chapter Summaries
Chapter 1: The Geniuses
The first chapter of When Genius Failed introduces the readers to the people behind LTCM. The fund was founded by John Meriwether, a former star trader at Salomon Brothers, and included other brilliant minds such as Myron Scholes and Robert Merton, who won the Nobel Prize in Economics for their work on option pricing theory.
Chapter 2: The Partnership
The second chapter of the book describes how LTCM was formed and how it operated. The fund used complex mathematical models to make predictions about the future movements of the stock market and other financial instruments. It also employed a high degree of leverage, which meant that it borrowed heavily to invest in its trades.
Chapter 3: The Boom
The third chapter of When Genius Failed chronicles the early success of LTCM. The fund made huge profits in its first few years of operation, thanks to its sophisticated models and the expertise of its traders. Its success attracted a great deal of attention from the financial industry and beyond.
Chapter 4: The Bubble
The fourth chapter of the book describes how LTCM’s success began to unravel in the early 1990s. The fund’s models failed to take into account the impact of interest rates and other external factors, and it began to lose money.
Chapter 5: The Rescue
The fifth chapter of When Genius Failed tells the story of how LTCM was bailed out by a consortium of banks and other financial institutions. The rescue was orchestrated by the Federal Reserve Bank of New York and was seen as a necessary step to prevent the collapse of the financial industry.
Chapter 6: The Aftermath
The sixth and final chapter of the book examines the impact of LTCM’s collapse on the financial industry and the global economy. The fund’s failure was seen as a warning about the dangers of excessive leverage and complex financial models. It also highlighted the need for greater regulation of the hedge fund industry.
Conclusion
When Genius Failed is a compelling and insightful book that tells the story of one of the most famous financial disasters in history. The book provides a detailed look at the inner workings of LTCM and the people who ran it, as well as the risky strategies they employed. It also explores the impact of the fund’s collapse on the financial industry and the global economy. Overall, this book is a must-read for anyone interested in the world of finance and the dangers of excessive risk-taking.
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