This is business history for those who like to dwell on disaster.
It charts the rise and fall of the investment company Long-Term
Capital Management, formed in 1994 by John Merriweather who had
been a leading figure in Salomon Brothers. For four years it racked
up returns of 40% a year and amassed a staggering US$100 million of
assets, virtually all borrowed, which it used to enter into
derivative contracts producing over $1 trillion worth of exposure.
The size of the operation and the scale of the risk boggle the
imagination. But it all started to go wrong. Arrogance and greed
led to greater and greater risks being taken, yet below the surface
of their apparent respectability and success the alchemists of
wealth fought to keep ahead of catastrophic failure. The author is
a respected financial journalist with experience on the Wall Street
Journal. He writes well and he knows the stage on which this drama
was played out. The events, and the people a team that Time
magazine dubbed 'the brightest and brokest' as things went from bad
to worse are described here in detail. The story takes on the
mantle of a thriller as success turns to failure following the
collapse of markets in Brazil, Indonesia and Russia, and frantic
rescue attempts are made with the entire American federal banking
system drawn into the process. For those fascinated by the world of
high finance and who hope to draw lessons (or perverse pleasure?)
from the apparent genius of market men becoming all too fragile,
this is a riveting read. Though the author tells his readers it is
an unauthorized account, the sources acknowledged and thanked for
their cooperation appear well placed to make it an authoritative,
if sobering, tale. (Kirkus UK)
Picking up where Liar's Poker left off (literally, in the bond
dealer's desks of Salomon Brothers) the story of Long-Term Capital
Management is of a group of elite investors who believed they could
beat the market and, like alchemists, create limitless wealth for
themselves and their partners. Founded by John Meriweather, a
notoriously confident bond dealer, along with two Nobel prize
winners and a floor of Wall Street's brightest and best, Long-Term
Captial Management was from the beginning hailed as a new gold
standard in investing. It was to be the hedge fund to end all other
hedge funds: a discreet private investment club limited to those
rich enough to pony up millions. It became the banks' own favourite
fund and from its inception achieved a run of dizzyingly
spectacular returns. New investors barged each other aside to get
their investment money into LTCM's hands. But as competitors began
to mimic Meriweather's fund, he altered strategy to maintain the
fund's performance, leveraging capital with credit on a scale not
fully understood and never seen before. When the markets in
Indonesia, South America and Russia crashed in 1998 LCTM's
investments crashed with them and mountainous debts accumulated.
The fund was in melt-down, and threatening to bring down into its
trillion-dollar black hole a host of financial instiutions from New
York to Switzerland. It's a tale of vivid characters, overwheening
ambition, and perilous drama told, in Roger Lowenstein's hands,
with brilliant style and panache.
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