In 1993, former Salomon Brothers trader John Meriwether created an American hedge fund entitled Long-Term Capital Management (LTCM). In less than 4 years after its inception the hedge fund became worth more than $100 billion. In When Genius Failed, Roger Lowenstein tells the story of how LTCM accrued this massive amount of wealth only to be run out of the industry as failures a few short years later.
There are a few reasons that make this book a very interesting read. Firstly, Lowenstein’s meticulous research and writing style both serve to elevate the book. Lowenstein interviewed experts in the industry, people that did business with LTCM and even some members of the hedge fund itself. By getting multiple sides to the story, Lowenstein is able to effectively paint a picture of what the brief reign of LTCM looked like.
Despite already knowing the outcome of the book, When Genius Failed’s narrative of LTCM’s downfall plays out like a Hollywood movie. Lowenstein does a remarkable job of bringing these very real characters to life on the page. The seamless weaving of fact and storytelling is what makes Lowenstein’s writing style well worth reading.
While this book was certainly impressive from a writing point of view, Lowenstein obviously had bigger goals. The main purpose of the book was to show that LTCM’S meltdown was not an isolated incident, but rather a blueprint for how the market can collapse. Lowenstein’s predictions were proven correct, as many mistakes made during the LTCM era were made again leading up to the 2008 mortgage crisis. Lowenstein highlights this with a new afterword discussing the stark similarities between LTCM’s failure and the mortgage crisis.
The book does a great job of showing how LTCM were not solely at fault for the huge effects their failure would have on the market. Lowenstein goes into great detail about how Wall Street and the government added their own poor decision making to what was already a major problem. Yet what is truly alarming is the fact we are seeing many of these same decisions being made today. As of 2016, various economists and experts have been making comparisons between what happened with the mortgage crisis and what is happening today with the subprime auto loan market. This book is becoming just as relevant today as it was when it was written in 2000.
Whether you read this book as a cautionary tale, a history lesson, or as just purely an interesting narrative, it is well worth the investment of your time.
This book review was completed by Abbey Research staff member Curtis and originally appeared on this site.