Author: Gil

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Long-Term, my ass

I recently read When Genius Failed, Roger Lowenstein’s chronicle of the rise (1994) and collapse (1998) of Long-Term Capital Management, a hedge fund staffed by Harvard and MIT Ph.D.s. The LTCM team developed “risk management” models that would allow them fund to “vaccuum up nickels” in massive (leveraged) quantities. The formula worked for a while, until it didn’t, at which point people started to realize that LTCM was leveraged out the wazoo, and that the value of its derivatives bets was literally incalculable.

Once the bottom fell out, the Fed had to coordinate a bailout of LTCM by the world’s leading banks. Many of these banks were treated as doormats by LTCM during its meteoric rise. Trust me; it’s a really entertaining story that Mr. Lowenstein tells. As David Pflug, Chase’s head of global credit, put it, “You can overintellectualize those Greek letters [in LTCM’s formulae]. One Greek word that ought to be in there is hubris.”

Two major issues — beyond the failures of “risk management” — struck me while I read the book. For one thing, LTCM’s collapse was precipitated by a series of regional financial crises in 1997-98. The final straw came when Russia defaulted on its foreign bonds in order to pay workers at home. This means, “Russia welched on its worldwide obligations because it barely had money to keep its government afloat.” And this occurred only ten years ago. So if oil futures didn’t rise 1000% in the past few years, how brazen would Russia be right now? (and if they drop significantly, where will Russia end up?)

The third issue was that the behavior of LTCM and the major banks sounded remarkably familiar to our current mortgage-driven crisis (right down to Lehmann Bros. suffering rumors about its underfunding and impending collapse). The exotic derivatives, the incalculable, illiquid assets, the “too big to fail” mentality: this could be 1998 writ large! Had these financial genii — and many of the major players involved in the recent Bear Stearns collapse also figure into When Genius Fails — managed to ignore every lesson from LTCM’s failure?

Near the end of the book, Mr. Lowenstein wrote:

Permitting such losses to occur is what deters most people and institutions from taking imprudent risks. Now especially, after a decade of prosperity and buoyant financial markets, a reminder that foolishness carries a price would be no bad thing. Will investors in the next problem-child-to-be, having been lulled by the soft landing engineered for Long-Term, be counting on the Fed, too? On balance, the Fed’s decision to get involved — though understandable given the panicky condition of September 1998 — regrettably squandered a choice opportunity to send the markets a needed dose of discipline.

That’s why I was really gratified to open today’s NYTimes and discover that Mr. Lowenstein has a great essay on exactly that topic, “Long-Term Capital: It’s a Short-Term Memory”! He does a good job of explaining the issues without getting overly technical (one of the complaints others have had about his book).

Give it a read; I bet you’ll dig it. (And get irate, when you start reading about the Fannie Mae / Freddie Mac seizure. . .)

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Maybe his brother can suit up!

I’m kinda astonished that the NFL season starts tomorrow night. I figure I’ll order up some pizza on the way home from Amy’s train and watch the Giants begin their defense of the champi —

— oh, who am I kidding? The Giants could go 3-13 this year and I won’t care! They beat the Patriots in the Superbowl and derailed The Perfect Season!

Anyway, I was just clicking around on ESPN.com and noticed that Baltimore’s starting QB Kyle Boller last year is gone for the season. I wondered who’s going to start for new head coach John Harbaugh, and I read the following sentence:

Boller entered the preseason competing for the starting job with Troy Smith and top draft pick Joe Flacco, who ultimately won the job because of Boller’s injury and Smith’s lengthy battle with infected tonsils.

So that means that Baltimore is starting a QB because one of his competitors wrecked his shoulder and the other got tonsilitis.

I know this team won a Superbowl with Trent Dilfer at QB (beating the Giants), but I have a feeling the Ravens fans will be covering their eyes and saying, “Nevermore!” a week or two into the season.

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League of Extraordinary Gentlemen

I’m a little busy this morning, dear readers; gotta put together an advertising promo for our October ish and finish laying out the 50-page guide for our annual conference. Also, I’m hoping to finish a slightly longer post tonight called Tabloid Dreams and the Plastic People of the Universe (which isn’t about Robert Olen Butler or Czech rock music).

So you get a couple of items from the Official Newspaper of Gil Roth:

First, Adam Kirsch reviews Mark Mazower’s book Hitler’s Empire, which chronicles Hitler’s plans for the Nazi empire’s expansion. His thesis? The holocaust was just a warm-up:

[T]here is every reason to believe that the techniques the Nazis perfected in the Holocaust would have been used, in the event of a German victory, to clear all of Eastern Europe for German settlement. Poles and Ukrainians who eagerly assisted in killing Jews in 1941-2 began to realize, as the war stretched on, that their turn might be next. Mr. Mazower quotes one German officer in Poland who explained that the Polish resistance was fueled by the Poles’ belief that the Holocaust offered “an atrocious picture of their own destiny.” Reinhard Heydrich, the SS ruler of what had been Czechoslovakia, spoke of sending millions of Czechs to Siberia — a clear echo of the euphemism used for the Jewish genocide, “resettlement in the East.”

Second, on a lighter-hearted note, today’s NYSun also has a review by Robert Winder of Jennet Conant’s new book, The Irregulars. Evidently, during WWII, there was a British spy ring operating in the U.S., and its members included Ian Fleming, C.S. Forester, Isaiah Berlin, Noël Coward, David Ogilvy (of Ogilvy + Mathers), and Roald Dahl. Ms. Conant’s book tell’s Dahl’s story as an Irregular, and it sounds like a blast:

He was handsome, tall (6-foot-5), witty, flirtatious, and a wounded British flying ace — an alluring combination that made him a dashing addition to the social scene . . . There was a good deal of top-grade tittle-tattle available to such a man, and Dahl took faithful notes and palmed them, with discreet skill, to his superiors. He gathered information on American isolationists and business lobbyists who wanted to keep America out of the war (and who argued that God could save the King if he so desired), and helped smear them as Nazi sympathizers. He even passed on reports of American plans to put a man on the moon, which were roundly laughed at in London.

All of Dahl’s derring-do, seductions and cloak-and-dagger play have to be seen in the context of that review of Hitler’s Empire. In fact, Kirsch’s review dominates the front page of today’s Arts+ section, with Ms. Conant’s book running alongside it, sans graphic. Now get to readin’!

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Bear arms

We’ve had a bunch of bear sightings this summer. On my drive home from work two weeks ago, I saw a bear wandering around the soccer field of a local grade school. I called the police about it when I got home a few minutes later, since the field was right around the corner from their station.

That weekend, one of my neighbors told me that they saw a bear in the yard beside our house. When they looked an hour later, the bear was still there, just hanging out.

Last Tuesday night, during Rufus’ evening walk, one of my neighbors was raking up trash in the woods about 15 feet back from the street. He told me, “I live across the street. My wife called during my drive to work and told me that a bear had just picked up our trash can and was carrying it over to the woods for breakfast.”

Tonight, we decided to walk down to the local CVS during Rufus’ evening walk, so I could pick up a Cherry Coke. About a third of a mile from my house, I noticed a jeep parked on the side of the road. The driver reached out the window as if to tap a cigarette. We walked up to her car, and she said, “He’s over there. Do you see him?” Pointing again, not tapping a cigarette.

I thought she was talking about her toddler, with whom I’d seen her walking many times. I wondered why her toddler was meandering around in someone’s yard, while she and her husband sat in her jeep. I looked where she was pointing, and realized that there wasn’t any toddler to be found.

However, there was a very large black bear beside the house across the street, in the process of emptying a trash can.

I said, “Wow, that is one giant bear!”, took Rufus’ leash from my wife, and trotted briskly on to CVS. As we got over the next hill, Amy asked, “Is there a reason we didn’t just head back home?”

Seriously, that bear would’ve towered over me on its hind legs. “Because . . . I wanted to get a Cherry Coke?”

We kept walking. As we approached the drug store, a pair of kids (around 10-11 years old, I think) were playing with their skateboard and scooter. One said to us, “There’s a bear back up the street.”

I told him that we’d passed it already, and thanked him for the warning. Amy went into the store and got my Cherry Coke. She asked, “Should we walk back the same way, or try the back road instead?”

I pondered for a moment. We’d seen the bear beside a house that let out onto that back road, so I figured there was a 50/50 chance he’d have come out on that side by the time we got back. I decided we’d go home by our regular route. The two kids left with us. I figured the bear would go after them first, since they’re trashcan-sized.

We approached the area where we’d seen the bear, and I figured that if it was in the same location, about 35 or 40 feet back from the road, chomping on trash, the five of us would be fine. Rufus gave no sign of sniffing him out, but he didn’t react during the walk down the street, either.

A neighbor across the street from that house called to us, “Be careful! There’s a bear out!”

“We know,” one of the kids said.

“No, he’s right over there!” the neighbor said, pointing to a stand of pine trees about 10 feet from the road.

I turned and bolted up the front yard of another neighbor and rang his doorbell, Amy and the kids racing behind me. The man of the house, whom I believe is a policeman, answered the door, and I hurriedly said, “There’salargebearacrossthestreet. Isitokayifmywife,dogandthesetwokidsstayinsideforaminute? I’llgogetmycarsoIcanbringeveryoneupthestreet.”

He assented, but started looking over at the trees, trying to catch a glimpse of the big bear. He offered to drive us all, but I impulsively decided a good run was in order. I handed Amy the leash and sprinted (as best I can) back to the house. The bear had already retreated from view, probably heading to that ‘back road’ area. On the way, I warned a neighbor who was just taking his little terrier out, “Gotheotherdirection. Blackbeardownthisway.”

He let out a yelp and hurried back into his garage.

I got to the car and drove down to the house. The two kids were getting into one of their mothers’ cars, since she was out looking for them. Amy & I got Rufus in, thanked the gentleman, petted his dog (he and Rufus got to make friends while I was gone), and drove back to the house.

And that’s life in Ringwood. Come visit!