When Genius Failed
The Rise and Fall of Long-Term Capital Management
Roger Lowenstein · 2000 · Business
13 min · 13 chaptersNarrated in your voice
What it's about
Roger Lowenstein reconstructs how a hedge fund run by Wall Street's most decorated traders and two Nobel laureates in economics nearly collapsed the global financial system in 1998. The book argues that mathematical sophistication and elite credentials are no defense against leverage, and that markets can behave in ways history's data never suggested. It mattered because the Federal Reserve's emergency intervention previewed the too-big-to-fail logic that would reappear, at far greater scale, in 2008.
Reading plan
Pick a finish date and Genius lays out the days — the plan shows today's target and keeps you honest.
Read together
Start a circle and share the code — everyone sees everyone's honest place in the book. Accountability, not leaderboards.
Who it's for
- Investors and finance professionals who want to understand how leverage and model risk can destroy even the most sophisticated strategies - General readers curious about the 1998 financial crisis and its link to later ones - Students of decision-making who want a real case study in overconfidence among experts
What’s inside
- 1The Salomon Apprenticeship1 min
Meriwether's bond-arbitrage desk at Salomon Brothers taught a generation of traders that markets could be beaten with leverage and precision, a lesson that was half true and half fatal.
- 2Assembling the Dream Team1 min
LTCM's founders believed that pairing elite academic theory with veteran trading instinct would eliminate the uncertainty that sank ordinary investors, an assumption the fund's own history would disprove.
- 3The Convergence Trade1 min
LTCM's central strategy assumed that prices of related securities must eventually align, but eventually is not a strategy when leverage forces a fund to survive today.
- 4Too Much Money, Too Little Humility1 min
Success made LTCM more dangerous, not more cautious, because the partners responded to shrinking opportunities by increasing leverage rather than reducing it.
- 5A Beautiful Model, an Ugly Assumption1 min
The fund's risk models used history as a map of the future and failed exactly when history stopped repeating itself.
- 6Cracks in Asia1 min
The 1997 Asian financial crisis was a warning that correlations could break down suddenly, but LTCM read it as confirmation of its models rather than a reason for caution.
- 7Russia Defaults, Diversification Fails1 min
When Russia defaulted on its debt in August 1998, LTCM discovered that its supposedly uncorrelated bets were all secretly the same bet on calm, liquid markets.
- 8The Squeeze1 min
Leverage that multiplies gains on the way up multiplies panic on the way down, and once rivals could infer LTCM's positions, they traded against the fund and accelerated its collapse.
- 9The Fed Steps In1 min
The New York Fed organized a private-sector rescue not to save LTCM's partners but to prevent a disorderly collapse that could have frozen credit markets, a decision that set a precedent for treating large, interconnected firms as too big to fail.
- 10Aftermath and the Unlearned Lesson1 min
LTCM's rescue restored market stability but not institutional humility, since much of Wall Street rebuilt similar leveraged strategies within a few years.
About Roger Lowenstein
Roger Lowenstein is an American financial journalist who spent years as a reporter and columnist for the Wall Street Journal. He is also the author of Buffett: The Making of an American Capitalist and several other books on markets and finance, and is known for translating complex financial mechanics into narrative accessible to general readers.
