This is genius? FPs who are wealthy and successful beyond imagination can start to think of themselves as wizards. It is easy to be seduced and blinded by huge sums of money. Genius is a body of work, not a portfolio value, or one’s net-worth.
LTCM management talked about the prisoner’s dilemma, an interesting reference given the situation. They claimed that the solution for LTCM was to minimize their loss, but it all happened so quickly and they sped down the slope like greased lightening.
When discussing the fact that the partners lost $2 billion, some of the principals laughed at it claiming, “it happens.” Referring to a more contemporary villain, he says, “they Madoffed themselves.”
The operational style and character of LTCM foreshadowed the governing dynamics of the Wall Street mentality in concert with Big Government that helped create the Great Recession of 2009. Endogenous risk and risk management systems ultimately failed at LTCM despite the fact that their infrastructure was built on diversification.