Inventing Money: The Story of Long-Term Capital Management and the Legends behind It

Inventing Money: The Story of Long-Term Capital Management and the Legends behind It

Inventing Money: The Story of Long-Term Capital Management and the Legends behind It

Inventing Money: The Story of Long-Term Capital Management and the Legends behind It

Synopsis

LTCM was the fund that was too big to fail, the brightest star in the financial world. Built on genius, by legends of Wall Street and two Nobel laureates, it spiralled to ever greater heights, commanding unimaginable wealth. When it fell to earth in September 1998 it shook the world. This is the story of the rise and fall of LTCM and the legends behind it. A brave and ambitious work, Inventing Money was written by leading financial journalist Nicholas Dunbar.

Excerpt

‘I can calculate the motions of heavenly bodies,
but not the madness of people’

Isaac Newton, after losing £20,000 in the stock market.

A man was crossing a bridge over the Charles River from Boston to the Massachusetts Institute of Technology (MIT) in Cambridge. It was October 1968 and there was plenty going on to distract Fischer Black. Richard Nixon was on his way to winning the presidential election, and the country was bitterly divided over the Vietnam War, where almost a million US troops were in action. Earlier that year, Martin Luther King had been assassinated, a bitter blow to those living in Boston’s black ghetto of Roxbury. All over the world that year, riot shields confronted student banners.

But Black had other things on his mind. A tall, quiet man with slickedback hair and chunky spectacles, he wore a dark suit, in contrast to the long hair and afghan coats of the students leaving their classes. Black didn’t notice the students; he was deep in thought as he entered the MIT economics faculty. He was there at the invitation of a young Canadian academic, Myron Scholes, who had recently joined the faculty from Chicago.

Aged 30, Black was earning a living at Boston consulting firm Arthur D. Little, trying to advise mutual funds on their stock market investments. But Black’s heart wasn’t in his work. Instead, he was seeking Scholcs’s help in pricing an obscure type of financial contract called an option. Black didn’t yet know about the brainy young student in the economics department, Robert C. Merton, who was interested in the same problem.

A talkative 27-year-old, Scholes showed his visitor into his office, and brought him a cup of coffee. He couldn’t possibly know that the work he and Black were about to embark on would one day result in him and Merton shaking hands with the King of Sweden and accepting a Nobel Prize. He would have been insulted by the suggestion that shortly afterwards, their . . .

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