Long Term Capital Management - When Genius Failed (Myth20c - Ep289)

In 1998, Long Term Capital Management received a $3.6 billion bailout from a private consortium of Wall Street banks. This amount, while staggering to most, belied an even greater $1 trillion in notional liability LTCM was facing if circumstances had worsened. What led to the firm’s insolvency was a confluence of extreme events in the markets ranging from the Asian Financial Crisis to the Russian sovereign debt default, compounded by an over-reliance on complex mathematical models and high amounts of leverage. What was even more surprising, however, was how this failure was led by a team of world renowned financiers, including two Nobel prize winners, who were seen as having the Midas touch. Tonight we are joined by returning guest Ace Niederhoff to delve into the inner workings of this infamous hedge fund, and draw lessons about the risks of overconfidence and the broader consequences of financialization of a society.

-- Brought to you by --

Very special guest Ace Niederhoff
https://manifestdestinypodcast.substack.com/
https://x.com/aceniederhoff

with Adam Smith and Hans Lander

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-- References --

- The Intelligent Investor, Graham (1949)
- Liar’s Poker, Lewis (1989)
- Barbarians at the Gate, Burrough (1989)
- Buffett on the risks LTCM’s management took, Berkshire Hathaway (1999) - https://buffett.cnbc.com/video/1999/05/03/buffett-on-the-risks-ltcms-management-took.html
- History of U.S. Gov't Bailouts, Nankin and Schmidt (2008) - https://www.propublica.org/article/government-bailouts
- My Life as a Quant: Reflections on Physics and Finance, Derman (2008)
- When Genius Failed, Lowenstein (2000)
- Trillion Dollar Bet, Nova (2000)
- The Smartest Guys in the Room, Elkind and McLean (2003)
- BANKING CRISIS - After Dark, Myth of the 20th Century (2023) - https://myth20c.wordpress.com/2023/03/17/banking-crisis-after-dark/f
- Confessions of a Private Equity Operator, Myth of the 20th Century (2024) - https://myth20c.wordpress.com/2024/06/02/confessions-of-a-private-equity-operator/
- Enron - The Smartest Guys in the Room, Myth of the 20th Century (2024) - https://myth20c.wordpress.com/2024/10/13/enron-the-smartest-guys-in-the-room/