John Meriwether was one of the top bond traders at Salomon Brothers and later became head of the fixed income securities department Mortgage security and bond trading. For four years, Long-Term had been the envy of Wall Street. In 1937, John Maynard Keynes made the distinction between risk and incalculable uncertainty the foundation stone of his theoretical revolution. That was their first mistake. All of them were very smart. Only an effective intervention by a low-paid bureaucrat--Peter Fisher of the New York Federal Reserve--kept the banks together long enough to cobble together an orderly liquidation in the autumn of 1998. More than 6000 investors lost money and some of them lost their entire retirement savings Ryan, S.
The first part was ok, the middle dragged on too much and the ending was very strong. Without my doing any work, I can lend it to the Government of India and get back Rs. Lowenstein is simply confused at many points in the book in understanding derivatives, models, and the role of models and judgement in the trading process. That is the entire essence about being careful and playing safe. This return for investors was obtained after paying management fees and expenses of roughly 10%, i.
This was a masterpiece of manipulation. Arbitrage is a glamorous idea, but in reality it is slow, tedious work. This is nice - because the higher return 12% was obtained while bearing zero risk - but unexciting. Second, the book is overly simplistic and a bit preachy. Informative and interesting, full of suspense I read this book with the aim of increasing my knowledge about the stock market and various terminologies etc. His name is Jho Low, a man whose behavior was so preposterous he might seem made up.
In turn, the dealer would utilize the capital markets to offload the exposure. Meriwether, pathologically self-effacing, emerges not unsympathetically in Lowenstein's portrait, except of course that he was crazily unsuited to running a financial firm. He sees the failure of Long-Term as proof that the mathematical models of Merton and Scholes were wrong, and suggests that the way out is to go back to the happy world of finance before mathematical models. The value of the bankers' stocks had fallen precipitously. It had a clear focus on it's goal of avoiding speculative positions and focusing on arbitrage. But there was a twist. As the other bankers nervously shifted in their seats, Herbert Allison, Komansky's number two, asked Cayne where he stood.
What we have come to know and accept as fact today were seemingly unheard of nearly fifty years ago. He wanted them to do it right then-tomorrow would be too late. Lowenstein demonstrates that even with the most brilliant minds in the financial world making and supporting decisions on buying and selling stocks, bonds, options, and derivative contracts; there is always risk involved. The book is imbued with a deep hostility against derivatives, the use of mathematical models, arbitrage, etc. At any rate, the book is very well documented and is able to put you in the situation quite easily. The Fed's immediate neighbors include a shoe repair stand and a teriyaki house, and also Chase Manhattan Bank; J.
Undoubtedly, there would be a frenzy as every bank rushed to escape its now one-sided obligations and tried to sell its collateral from Long-Term. Meriwether, a congenial though cautious midwesterner, had been popular among the bankers. Since retail investors are absent, the regulatory burden upon hedge funds is absent, which is greatly enabling for sophisticated financial strategies. This created a less costly version of margin maintenance for both parties involved. Sometimes, briefly, there are opportunities for obtaining high returns without bearing the risk that is normally essential to winning those high returns. David Komansky, the portly Merrill chairman, was worried most of all.
Do it with two dollars, you'll win a nickel. And of course, when the big bankers realized they'd been had, they were vengeful. Merton and Myron Scholes, who recently won the Nobel Prize for their work on pricing derivatives. By: Roger Lowenstein 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. Armed with the cachet of its founders' stellar credentials Robert Merton and Myron Scholes, 1997 Nobel Prize laureates in economics, were among the partners , it quickly parlayed expertise at reading computer models of financial markets and seemingly limitless access to financing into stunning results.
At first, Long-Term worked incredibly well. Not Scholes, a dapper and fast-talking marketing man. Merrill Lynch, the firm that had brought Long-Term into being, had long tried to establish a profitable, mutually rewarding relationship with the fund. Long-Term proved that it made sense to take these new ideas very seriously, and there was a steady procession of academic economists kick-starting arbitrage work at all major finance houses. It had gone to George Soros. This Book was a very interesting reading all by itself.
While Long-Term did fail, part of the reason why it failed was that all its competitors adopted similar methods. The way to juice things up is using leverage, or borrowed money. William McDonough, the beefy president of the New York Fed, talks to bankers and traders often. It was setup by a stellar cast of partners, who brought skills in arbitrage, in modern finance and in the upper reaches of the finance profession. The book has been awarded with , and many others.
But the bankers felt that Long-Term had already caused them more than enough trouble. Briefly summarise what has happened in the case of Trio Capital last year in 2012 in Australia The collapse of Trio Capital is the biggest superannuation fraud in Australian history. In 1998, the event occurred. I came here to understand what signs to look for the next time that Wall Street will bring a recession about. But Long-Term had spurned them.