Jun 122015

I just finished a fantastic book called When Genius Failed which you can get at Amazon here. The book centers around a hedge fund called Long Term Capital Management in the mid 90s. Years prior at Soloman Brothers a group formed to do specific type of bond trades called “arbitrage” — the idea is that you pick two bonds that you think whose prices are spread further apart than they should be. You anticipate that they are going to narrow up. So you purchase one bond and short the other. That’s the simplified premise.

Now this group went sort of rogue and after some drama unfolded, they all reunited under the new hedge fund Long Term Capital Management. They boasted professors and academics on staff that designed the most popular models in use. They depended so heavily on these models they got in real deep on tons of trades, many risky. They were so sure of it.

They were playing head games with the banks and under financiers. Shit started to unravel when a few key moves in the markets didn’t go their way. What unfolded was an unprecedented event requiring Fed intervention and all of the incredible drama that resulted.

If you liked Barbarians at the Gate, you’ll love this too. Great read.

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