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| Foreword | |
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| Preface | |
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| Cast of Characters | |
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| Introduction | |
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| The 1998 LTCM Crisis | |
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| Meriwether's Magic Money Tree | |
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| Meriwether's Magic Money Tree | |
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| The Birth of Bond Arbitrage | |
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| The Dream Team | |
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| Early Success | |
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| Risk Management | |
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| The General Idea | |
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| Leverage | |
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| Measuring Risk | |
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| The � | |
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| Economics | |
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| Copycats, Puppies, and Counterparties | |
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| LTCM's Actual Risk Management Practices | |
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| Diversification | |
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| Operations | |
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| The Raw Evidence | |
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| The Trades | |
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| The Short U.S. Swap Trade | |
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| The European Cross-Country Swap Trade (Short UK and Long Europe) | |
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| Long U.S. Mortgage Securities Hedged | |
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| The Box Spread in Japan | |
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| The Italian Swap Spread | |
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| Fixed-Income Volatility Trades | |
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| The On-the-Run and Off-the-Run Trade | |
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| Short Longer-Term Equity Index Volatility | |
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| Risk Arbitrage Trades | |
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| Equity Relative-Value Trades | |
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| Emerging Market Trades | |
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| Other Trades | |
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| The Portfolio of Trades | |
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| The Collapse | |
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| Early Summer 1998 | |
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| The Salomon Shutdown | |
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| The Russian Default | |
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| The Phone Calls | |
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| The Meriwether Letter | |
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| Buffett's Hostile Alaskan Offer | |
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| The Consortium Bailout | |
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| Too Big to Fail | |
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| Why did it Happen? | |
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| The John Meriwether Letter | |
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| The Warren Buffett Letter | |
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| The Fate of LTCM Investors | |
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| General Lessons from the Collapse | |
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| Interconnected Crowds | |
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| VaR | |
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| Leverage | |
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| Clearinghouses | |
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| Compensation | |
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| What's Size Got to do with it? | |
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| Contingency Capital | |
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| The Fed is a Coordinator of Last Resort | |
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| Counterparty Due Diligence | |
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| Spread the Love | |
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| Quantitative Theory Did not Cause the LTCM Collapse | |
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| D�j� Vu | |
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| The Financial Crisis of 2008 | |
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| The Quant Crisis | |
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| The Subprime Mortgage Market Collapse | |
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| What Was the Quant Crisis? | |
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| The Erratic Behavior of Quant Factors | |
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| Standard Factors | |
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| Quantitative Portfolio Factors | |
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| Causes of the Quant Crisis | |
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| The Shed Show | |
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| The Bear Stearns Collapse | |
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| A Brief History of the Bear | |
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| Shadow Banking | |
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| Window Dressing | |
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| Repo Power | |
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| The Unexpected Hibernation | |
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| The Polar Spring | |
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| Money for Nothing and Fannie and Freddie for Free | |
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| The Basic Business | |
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| Where's the Risk? | |
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| CDO and CDO<sup>2</sup> | |
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| The Gigantic Hedge Fund | |
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| Big-Time Profits | |
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| The U.S. Housing Bubble | |
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| The Circle of Greed | |
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| Real Estate Agents and Mortgage Lender Tricks | |
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| Home Owners | |
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| Profits and Politicians | |
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| The Media and Regulators | |
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| Grade Inflation | |
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| Commercial Banks | |
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| Freddie and Fannie's Foreclosure | |
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| Why Save Freddie and Fannie? | |
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| Did Anyone Know? | |
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| The Lehman Bankruptcy | |
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| The Wall Street Club | |
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| Why was Lehman Next? | |
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| Business Exposure | |
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| A Chronology of the Gorilla's Death | |
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| Double Down in Real Estate | |
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| Mildly Seeking Capital | |
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| The Final Days | |
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| A Classic Run on the Bank | |
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| Why Let Lehman Fail? | |
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| Who was at Fault? | |
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| Lehman Brothers | |
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| The Counterparties | |
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| The Government and Market Structure | |
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| The Legal Opinion on the Lehman Bankruptcy | |
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| Who Would have been Next? | |
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| The Spoils of having Friends in High Places | |
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| The Absurdity of Imbalance | |
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| The Long-Dated Swap Imbalance | |
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| The Repo Imbalance | |
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| The 228 Wasted Resources and the Global Run on Banks | |
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| Asleep in Basel | |
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| Basel I | |
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| The Concept | |
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| The Problems | |
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| Basel II | |
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| The Concept | |
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| The Problems | |
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| Basel and the Financial Crisis | |
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| The LTCM Spinoffs | |
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| JWM Partners LLC | |
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| Platinum Grove Asset Management | |
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| The Others | |
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| The Copycat Funds | |
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| The End of LTCM's Legacy | |
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| The Bear and the Gorilla Attack | |
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| November Rain | |
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| What Went Wrong? | |
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| Market Insanity | |
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| Bigger Shocks | |
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| Market Imbalance | |
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| Deleveraging | |
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| Coup de Grace | |
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| New and Old Lessons from the Financial Crisis | |
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| Interconnectedness and Crowds | |
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| Leverage | |
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| Systemic Risk and Too Big to Fail | |
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| Derivatives: The Good, the Bad, and the Ugly | |
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| Conflicts of Interest | |
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| Policy Lessons | |
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| Risk Management | |
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| Counterparty Interaction | |
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| Hedge Funds | |
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| The Importance of Arbitrage | |
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| The Aftermath | |
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| The Flash Crash | |
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| Background | |
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| Flash Crash Theories | |
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| Fat Finger Theory | |
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| High-Frequency Trader Theory | |
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| Jittery Markets | |
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| The Real Cause of the Flash Crash | |
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| The Waddell-Reed Trade | |
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| The Computer Glitch | |
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| Gone Fishing | |
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| The Aftermath | |
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| Getting Greeked | |
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| Members Only | |
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| The Conditions | |
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| The Benefits of Membership | |
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| The Drawbacks of Membership | |
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| The Club's Early Years | |
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| Getting Greeked | |
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| Greek Choices | |
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| Remain a Club Member and Order Finances | |
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| Ditch the Club and Keep the Debt | |
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| Ditch the Club and Ditch the Debt | |
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| The IMF and Euro Packages | |
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| The EU's Future | |
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| The Fairy-Tale Decade | |
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| I Hate Wall Street | |
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| The Real Costs of the Financial Crisis | |
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| An Avatar's Life Force | |
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| Economic System Choices | |
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| The Crisis of Crowds | |
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| The Wine Arbitrage | |
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| Appendixes | |
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| The Mathematics of LTCM's Risk-Management Framework | |
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| A General Framework | |
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| A Numerical Example | |
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| Measuring Risk | |
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| The Mechanics of the Swap Spread Trade | |
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| The Long Swap Spread Trade | |
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| The Short Swap Spread Trade | |
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| Derivation of Approximate Swap Spread Returns | |
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| Methodology to Compute Zero-Coupon Daily Returns | |
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| Methodology to Compute Swap Spread Returns from Zero-Coupon Returns | |
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| The Mechanics of the On-the-Run and Off-the-Run Trade | |
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| The Correlations between LTCM Strategies Before and During the Crisis | |
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| The Basics of Creative Mortgage Accounting | |
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| The Business of an Investment Bank | |
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| Investment Banking | |
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| Capital Markets | |
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| Equities | |
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| Equity Cash | |
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| Equity Derivatives | |
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| Equity Finance | |
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| Arbitrage (Proprietary Trading) | |
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| Fixed Income | |
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| Government and Agency Obligations | |
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| Corporate Debt Securities and Loans | |
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| High-Yield Securities and Leveraged Bank Loans | |
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| Money Market Products | |
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| Mortgage- and Asset-Backed Securities | |
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| Municipal and Tax-Exempt Securities | |
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| Financing | |
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| Fixed-Income Derivatives | |
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| Lehman Brothers Bank | |
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| Foreign Exchange | |
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| Global Distribution (Global Sales) | |
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| Research | |
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| Client Services | |
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| Private Client Services (Private Wealth Management) | |
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| Private Equity | |
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| Technology | |
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| Corporate and Risk Management | |
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| Summary | |
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| The Calculation of the BIS Capital Adequacy Ratio | |
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| The General Calculation | |
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| An Example | |
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| Notes | |
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| Glossary | |
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| Bibliography | |
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| About the Author | |
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| Index | |