Some of our favorite books on investment malfeasance and skulduggery (work in progress)
Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County by Philippe Jorion
In 1994, Orange County Treasurer Robert Citron lost $1.7 billion of the county’s $7.4 billion investment fund. Right up until the awe-inspiring loss, Citron had a reputation as something of an investment wizard in the municipal world. In an era of falling and stable interest rates, he had reaped sizable gains from the Orange County Investment Pool’s (OCIP) assets in reverse repos and inverse floating rate structured products. But when the Federal Reserve started rasisng interest rates in February 1994, OCIP’s interest-rate sensitive assets tanked, exacerbated by the pool’s high leverage.
Jorion’s book is wonderful tale of hubris — of how easily short-term success in the markets can be confused with expertise. It is also a brilliant cautionary tale about the stealthy risks of derivatives and structured products. But more than anything, Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County. The Largest Municipal Failure in U.S. History
When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein
In 1993, John W. Meriwether assembled a hedge fund dream team. When the hedge fund Long-Term Capital Management (LTCM) launched in 1994, principals included two future Nobel Laureates Myron Scholes and Robert Merton, David W. Mullins Jr., former vice-chairman of the Federal Reserve and a bevy of former Salomon Brothers traders.
For four years, LTCM enjoyed spectacular results — but none so good as to trump its spectacular collapse in 1998. LTCM lost $4.6 billion in less than four months. The hedge fund’s collapse and subsequent bailout, orchestrated by the Federal Reserve, became the archtype for the “too big to fail” policy model. When Genius Failed: The Rise and Fall of Long-Term Capital Management
The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry by Bill Black
