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Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It 1st Edition

52 customer reviews
ISBN-13: 978-0471498117
ISBN-10: 0471498114
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Editorial Reviews


"...a primer for those interested in the world of financial theory."
--Financial Times

"Inventing Money is not the last word on the subject, but it is a good start."
--The Economist

"Dunbar tells the full story of this most public of financial disasters, unveiling previously undisclosed information, in captivating and accessible terms."

"Mr Dunbar has gained the rare distinction of writing an interesting and informative book on a very complex financial subject and for that he deserves much credit."
--Offshore Financial Review

"Dunbar offers us a well-written and informative account of how the company's culture developed, and why LTCM plummeted so dramatically."
--Balance Sheet

"It is a fast moving and readable account that explains the development of finance over the centuries before recounting the brief but eventful life of LTCM."

"A fascinating tale, not to be missed."
--Chartered Secretary

"...his brave effort to explore the LTCM fiasco, its origins, and its ramifications. Dunbar is a former academician and journalist, making him an ideal writer to explore the theoretical origins of LTCM.

The author excels with his affectionate portrait of financial-theory giants such as the late Fischer Black. This book is a good source of information on the theoretical underpinnings of modern arbitrage."
--Business Week

"Nicholas Dunbar has written a fascinating account of this spectacular episode, and in doing so has provided an instructive insight into the functioning of global capitalism."
--CIB News

"Nicholas Dunbar's fascinating book is well-written. The book should appeal to a wide audience. Economists should certainly read it. Dunbar writes in a clear and accessible manner." --This text refers to an out of print or unavailable edition of this title.

From the Inside Flap

In the story of Long-Term Capital Management the facts speak for themselves.
* December 1992, former Salomon Brothers' Vice-Chairman John Meriwether teams up with two Nobel laureates - Myron Scholes and Robert Merton - together with his team of huge-earning arbitrage traders to found LTCM
* in both 1995 and 1996 LTCM returns net profits of over 40%
* in November 1997 LTCM hands back US$2.7 billion "excess capital" to investors
* in early 1998 LTCM increased its portfolio of assets to US$130 billion and commanded a derivatives portfolio with a notional value of US$1.25 trillion
* in August/September 1998 the total value of assets on the world's markets declines by US$3 trillion
* by September 1998 LTCM loses 90% of its value and has to be bailed out to the tune of US$3.6 billion
* from September 1998 to the present day, the ripples of this collapse continue to be felt across the globe
But try to look behind these bald facts, and the picture becomes shrouded in mystery. The diverse nature of LTCM's trading, which only allowed insiders to know the full picture, has confused many onlookers seeking to piece together the puzzle. It has been described as the equivalent to three blind men standing by an elephant: the first grabs the tail and thinks it's a snake, the second leans against it and thinks it's a wall and the third reaches out to the trunk and believes it to be a branch. In Inventing Money Nicholas Dunbar strips away the shroud of mystery and complexity to tell the complete story of this most public of financial disasters in a captivating and accessible style. Inventing Money is in equal measure the story of the strategy and people behind the collapse of one of the world's largest hedge funds, an explanation of how the modern world of finance functions and a walk through the historical development of this multi-billion dollar industry. --This text refers to an out of print or unavailable edition of this title.

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Product Details

  • Paperback: 262 pages
  • Publisher: Wiley; 1 edition (January 16, 2001)
  • Language: English
  • ISBN-10: 0471498114
  • ISBN-13: 978-0471498117
  • Product Dimensions: 6.1 x 0.6 x 9 inches
  • Shipping Weight: 1.1 pounds (View shipping rates and policies)
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (52 customer reviews)
  • Amazon Best Sellers Rank: #191,927 in Books (See Top 100 in Books)

More About the Author

Nicholas Dunbar grew up in London and trained as a physicist at Manchester, Cambridge and Harvard universities. He was inspired to become a financial journalist by university friends who took their mathematical skills from academia onto the trading floors of investment banks.

From 1998 until 2009, Dunbar was technical editor of Risk magazine, a specialist derivatives publication. In 2005, he launched Life & Pensions, a sister publication to Risk aimed at the insurance and pensions industry.

During this time, Dunbar wrote a series of exclusive stories on derivatives blow-ups which cemented his reputation as an investigative journalist, and in 2007 he won the State Street award for institutional financial journalism. He has also written a column called 'Risky Finance' for the financial commentary service Reuters Breakingviews and currently works for Bloomberg.

In 1999, Dunbar wrote his first book, Inventing Money: the story of Long-Term Capital Management and the legends behind it (Wiley, 2000). The Devil's Derivatives is his second book. For further information visit

Customer Reviews

Most Helpful Customer Reviews

124 of 124 people found the following review helpful By Gadgester HALL OF FAME on March 1, 2001
Format: Hardcover
While Lowenstein's account of the Long-Term Capital Management debacle is more fascinating, Dunbar's book provides more "meat" for those interested in the backdrop of the historical event. Starting with a brief history of speculation and progressing to finance theory, "Inventing Money" places the Long-Term saga in a historical context. Indeed, almost half of the text has nothing to do with Long-Term directly, but Long-Term was not created in isolation. People from academia and "the Street" made its existence possible, and this book chronicles its development very well.
A bit more technical than "When Genius Failed," this book gives the reader lots of background material on the theory behind what Long-Term was supposed to do: namely, arbitrage. As a Ph.D. student of financial economics, I found Dunbar's explanations easy to understand, but I can also see that they will be quite obfuscating to non-specialists in this area. The second part, about Long-Term's dealings, is easier to understand for everyone. While his account of what transpired to Long-Term is not as vivid as Lowenstein's, I think Dunbar does a laudable job at keeping the story flowing. BTW, the paperback addition has a thoroughly updated last chapter, "Aftermath."
If you are interested in the Long-Term story, both books are worth keeping. If you have to choose, go with "Inventing Money" if you are also interested in the history of finance theory and financial engineering; if you prefer an "insider's view," "When Genius Failed" would be a better choice.
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47 of 47 people found the following review helpful By Olly Buxton on April 11, 2000
Format: Hardcover
I was prompted into buying this book after seeing a truly hopeless Channel 4 documentary about the LTCM collapse which attempted - but failed entirely - to explain what LTCM was all about: What the Black/Scholes formula did, how Meriwether and cohorts used it to make money, and how they managed to singlehandedly bring western world as we know it to the brink of financial collapse with a formula which is supposed to completely eliminate risk.
Dunbar's very readable book scores on two fronts: firstly, it succeeds in explaining how these putatively "risk free" trades manage to make profit and be (to 'all' intents and purposes) perfectly hedged, when conventional wisdom would suggest that a perfectly hedged position must by definition be 'flat', and secondly, it serves as an excellent primer for anyone wanting to understand how the debt markets in general, and credit derivatives in particular, work. And all this in a little over 200 pages. Great going!
The subject matter isn't easy, but nor (at the level to which Dunbar takes it) is it rocket science, and to his immense credit Dunbar manages to resist the temptation to write it off as 'baffling rocket science by Harvard Graduates which is far too hard for the stupid reader to understand' (which is what said Channel 4 documentary did) or to insert unpenetrable graphs, equations and formulae to show just how clever he and the LTCM sort of person is.
Still, while the casual observer of the Stock Market (you know, the sort who watches the news each night to see if it went up or down) might find little in this book to light their candle, those in the industry and short on specific knowledge, or with aspirations of getting into it, could hardly find a better place to start.
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37 of 37 people found the following review helpful By nutznbolts on February 10, 2000
Format: Hardcover
Nicholas Dunbar has skillfully taken the lid off the can of worms which was the LTCM collapse with this story of the individuals and institutions involved in one of the most spectacular business failures of the past decade. His clinical yet gripping account is impartial and fair in dealing with the ethical aspects of the story and sympathetic to the human tragedy played out by the principal actors in this financial melodrama. Dunbar's account will last as a portrait of the world of derivatives, options and markets long after "Wall Street" and other attempts at putting flesh on the bones of the financial world have been consigned to the fantasy shelves, where they belong. In telling the story of LTCM's rise and fall, Nick Dunbar manages, very subtly, to initiate us into some of the more arcane mysteries of risk management in the world of options and derivatives. Like all the best instructors, he succeeds in enthusing us for his subject. From his opening sentence, Dunbar persuades us to be fascinated by the LTCM story and to want to understand it. Readers across all shades of the spectrum from professional to amateur will acquire valuable information from "Inventing Money"; as well as having a hugely enjoyable read.
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Format: Hardcover
Nick Dunbar's literate, compact volume takes the reader from the beginnings of the financial revolution marked by Black, Scholes and Merton's discovery of the heralded "Black-Scholes Options Pricing Forumula" through the heady days of John Merriwether's "Bond Arb" group and the treasury scandal that threatened to end his career, to the formation and ultimate demise of Long Term Capital Management, perhaps the most famous hedge fund in history. With minimal technical jargon, Nick Dunbar manages to tell the story with sufficient detail that the unititiated can appreciate the complexity of the financial instruments and models employed by Long Term Capital. These same details are often swept aside in journalistic accounts as generic "highly sophisticated financial instruments" and well-known "mind-bogglingly complex mathematical models". Details notwithstanding, Inventing Money never takes its eye off the human side of the story: money was made and lost, careers soared and plummeted, reputations were shattered and many questions were raised as a result of this important episode in the history of financial markets.
The book blends an historical perspective of the developments in financial markets over the past 25 years that led to the opportunities as well as the risks presented to the partners of Long Term Capital with a well-researched account of the fund's operations and ultimate demise. Properly researching the rise and fall of LTCM could only have been a daunting task. In its heyday details of the funds operation were kept mainly private and could only have become more so as the proverbial sh-t hit the proverbial f-n.
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