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Readers reviews of Inventing Money

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When Long Term Capital Management collapsed it threatened to bring down the US financial system. Two Fed interest rate cuts are directly attributable to this LTCM disaster. The reasons for the collapse of LTCM are still being debated and this book is a very useful contribution, if a little disappointing. At the end of it we still have the feeling that LTCM still think they were right and that the market was wrong. The book is useful in many ways.

 

It is an excellent discussion of the challenge posed by options and derivative trading to the CAPM approach to investing and fund management. The background on the development of options theory and pricing models is very good. It confirms our opinion that effective options and OTC trading is really the realm of the mathematically gifted, leaving little room for the average retail trader who is just financial fodder fighting over scraps. The concept of a spiral of financial innovation is particularly interesting. This is modern arbitrage trading and it does have applications for retail traders in equity markets.

 

All this theory, well explained and put into context, is used as an explanation for the development and success of LTCM. The theory does not adequately explain the collapse of LTCM and nor are there any useful suggestions for preventing a repeat of the LTCM failure. Towards the end of the book it seems that some players are still bitter that their success was undermined by the unwillingness of those lending money to continue to provide money when it all could have worked out in the long run.

These ‘Master of the Universe’ were humbled by the markets but there is still a lingering impression that it was not their fault.

 

 

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