In mid-September 1998, understanding the spillover risks from this event, the Fed (US Federal Reserve) intervened to save the collapse of LTCM, as well as to save the stability of the financial system. world itself. The Fed establishes a chain of banks that can mobilize resources to rescue LTCM.

The author attempts to give the reader insight into the personalities of the LTCM members, and his descriptions of them work to a certain degree. Such insight is necessary to gain a proper understanding of their behavior. But a description of their overt behavior and demeanor still leaves the reader wanting as to whether their appearance, i.e. the way they portrayed themselves to others, did reflect what they truly believed inside. Was their behavior part of their salesmanship, a conscious strategy to portray themselves as savvy business people who had great insight into the workings of the financial markets, masking their hidden insecurities on these workings? Or was their behavior reflective of what they truly were, i.e. individuals who through their training in finance and mathematics, were confident in themselves and in the concept of LTCM. For example, was John Meriwether indeed a quiet, private individual with a "steel-trapped" mind as the author portrays him, or was this merely a facade that Meriwether thought would give him a sphinx-like aura of mystery? And if the latter is true, why did Meriwether think that such behavior was ne the global storm that had begun so innocently with devaluations in Asia, and had spread to Russia, Brazil, and now to Long-Term Capital, would envelop all of Wall Street.

O'Rourke, Breffni (1997-09-09). "Eastern Europe: Could Asia's Financial Crisis Strike Europe?". RadioFreeEurope/RadioLiberty . Retrieved 2015-08-22. However, improbable things happen all the time, and it was certainly difficult for Meriwether to predict that in 1991, a scandal (which he had little or nothing to do about) would force him out of Salomon Brothers.

million: Bankers Trust, Barclays, Chase, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, J.P.Morgan, Morgan Stanley, Salomon Smith Barney, UBS

That awareness started an "migration" in the world market. People just look for the safest bonds and sell everything. This is bad news for LTCM. Lowenstein, Roger (2000). When Genius Failed: The Rise and Fall of Long-Term Capital Management. Random House. ISBN 978-0-375-50317-7.

But among the existing hedge funds, LTCM stands out in terms of size, reputation and loan amount. Operated by a team of stars with large capital, LTCM is a name that everyone wants to cooperate with. Many rich people as well as companies aspire to own a part of this cake. Well, let’s just say that, according to the mathematical models (and, as you know, math is always right ), there was only one in septillion chances that LTCM could lose everything in a single year . Many banks and investors began to look for ways to control and rescue LTCM. They fear that once LTCM loses control, all the money LTCM earns will be in jeopardy. But over time, their position only worsened, they had no other choice.Apparently, just like Midas’ touch, the Midas formula had one essential flaw: it couldn’t take into consideration the extent of the irrationality of the market and its speed (calculations were sometimes out-of-date few moments before they were even made). And history has proven that banks raced to join funds like this because they simply didn't fully understand the risks. Scholes and Merton had devised a formula – colloquially known as the Midas formula – which should have essentially eliminated risk from trading. When Genius Failed. 2011. p.55. While J.M. presided over the firm and Rosenfeld ran it from day to day, Haghani and the slightly senior Hilibrand had the most influence on trading.

Some industry officials said that Federal Reserve Bank of New York involvement in the rescue, however benign, would encourage large financial institutions to assume more risk, in the belief that the Federal Reserve would intervene on their behalf in the event of trouble. (See Greenspan put) Federal Reserve Bank of New York actions raised concerns among some market observers that it could create moral hazard) since even though the Fed had not directly injected capital, its use of moral suasion to encourage creditor involvement emphasized its interest in supporting the financial system . [39] an uncertain world to rigorous, cold-blooded odds-they were the very best that modern finance had to offer.When Genius Failed shows us the importance of understanding the full scope of a situation before taking risks." Just for comparison, what this means in real-world terms: during the mid-1990s, LTCM was twice bigger than the second largest mutual fund in the world , and a staggering four times as large as its closest hedge fund rival! Recently, I read the book “ When Genius Failed”, written by Roger Lowenstein. This book is the story of rise & fall of Long Term Capital Management (LTCM), the largest hedge fund of its time. LTCM was started in 1994 by John Meriwether who was a Wall Street veteran and once a part of Salomon Brothers, an old Wall Street investment bank. However, the fund drew its real fame from its investment management team that constituted of many Nobel laureates. into being, had long tried to establish a profitable, mutually rewarding relationship with the fund. So had many other banks. But Long-Term had spurned them. The professors had been willing to trade on their terms and only