THE CRISIS OF CROWDING -- Contents -- Foreword -- Preface -- Cast of Characters -- CHAPTER 1 Introduction -- PART I: THE 1998 LTCM CRISIS -- CHAPTER 2 Meriwether's Magic Money Tree -- The Birth of Bond Arbitrage -- The Dream Team -- Early Success -- CHAPTER 3 Risk Management -- The General Idea -- Leverage -- Measuring Risk -- The ρ -- Economics -- Copycats, Puppies, and Counterparties -- LTCM's Actual Risk Management Practices -- Diversification -- Operations -- The Raw Evidence -- CHAPTER 4 The Trades -- The Short U.S. Swap Trade -- The European Cross-Country Swap Trade (Short UK and Long Europe) -- Long U.S. Mortgage Securities Hedged -- The Box Spread in Japan -- The Italian Swap Spread -- Fixed-Income Volatility Trades -- The On-the-Run and Off-the-Run Trade -- Short Longer-Term Equity Index Volatility -- Risk Arbitrage Trades -- Equity Relative-Value Trades -- Emerging Market Trades -- Other Trades -- The Portfolio of Trades -- CHAPTER 5 The Collapse -- Early Summer 1998 -- The Salomon Shutdown -- The Russian Default -- The Phone Calls -- The Meriwether Letter -- Buffett's Hostile Alaskan Offer -- The Consortium Bailout -- Too Big To Fail -- Why Did It Happen? -- Appendix 5.1 The John Meriwether Letter -- Appendix 5.2 The Warren Buffett Letter -- CHAPTER 6 The Fate of LTCM Investors -- CHAPTER 7 General Lessons from the Collapse -- Interconnected Crowds -- VaR -- Leverage -- Clearinghouses -- Compensation -- What's Size Got to Do with It? -- Contingency Capital -- The Fed Is a Coordinator of Last Resort -- Counterparty Due Diligence -- Spread the Love -- Quantitative Theory Did Not Cause the LTCM Collapse -- Déjà Vu -- PART II: THE FINANCIAL CRISIS OF 2008 -- CHAPTER 8 The Quant Crisis -- The Subprime Mortgage Market Collapse -- What Was the Quant Crisis? -- The Erratic Behavior of Quant Factors -- Standard Factors.

Quantitative Portfolio Factors -- Causes of the Quant Crisis -- The Shed Show -- CHAPTER 9 The Bear Stearns Collapse -- A Brief History of the Bear -- Shadow Banking -- Window Dressing -- Repo Power -- The Unexpected Hibernation -- The Polar Spring -- CHAPTER 10 Money for Nothing and Fannie and Freddie for Free -- The Basic Business -- Where's the Risk? -- CDO and CDO2 -- The Gigantic Hedge Fund -- Big-Time Profits -- The U.S. Housing Bubble -- The Circle of Greed -- Real Estate Agents and Mortgage Lender Tricks -- Home Owners -- Profits and Politicians -- The Media and Regulators -- Grade Inflation -- Commercial Banks -- Freddie and Fannie's Foreclosure -- Why Save Freddie and Fannie? -- Did Anyone Know? -- CHAPTER 11 The Lehman Bankruptcy -- The Wall Street Club -- Why Was Lehman Next? -- Business Exposure -- A Chronology of the Gorilla's Death -- Double Down in Real Estate -- Mildly Seeking Capital -- The Final Days -- A Classic Run on the Bank -- Why Let Lehman Fail? -- Who Was at Fault? -- Lehman Brothers -- The Counterparties -- The Government and Market Structure -- The Legal Opinion on the Lehman Bankruptcy -- Who Would Have Been Next? -- The Spoils of Having Friends in High Places -- CHAPTER 12 The Absurdity of Imbalance -- The Long-Dated Swap Imbalance -- The Repo Imbalance -- The 228 Wasted Resources and the Global Run on Banks -- CHAPTER 13 Asleep in Basel -- Basel I -- The Concept -- The Problems -- Basel II -- The Concept -- The Problems -- Basel and the Financial Crisis -- CHAPTER 14 The LTCM Spinoffs -- JWM Partners LLC -- Platinum Grove Asset Management -- The Others -- The Copycat Funds -- CHAPTER 15 The End of LTCM's Legacy -- The Bear and the Gorilla Attack -- November Rain -- What Went Wrong? -- Market Insanity -- Bigger Shocks -- Market Imbalance -- Deleveraging -- Coup de Grace.

CHAPTER 16 New and Old Lessons from the Financial Crisis -- Interconnectedness and Crowds -- Leverage -- Systemic Risk and Too Big to Fail -- Derivatives: The Good, the Bad, and the Ugly -- Conflicts of Interest -- Policy Lessons -- Risk Management -- Counterparty Interaction -- Hedge Funds -- The Importance of Arbitrage -- PART III: THE AFTERMATH -- CHAPTER 17 The Flash Crash -- Background -- Flash Crash Theories -- Fat Finger Theory -- High-Frequency Trader Theory -- Jittery Markets -- The Real Cause of the Flash Crash -- The Waddell-Reed Trade -- The Computer Glitch -- Gone Fishing -- The Aftermath -- CHAPTER 18 Getting Greeked -- Members Only -- The Conditions -- The Benefits of Membership -- The Drawbacks of Membership -- The Club's Early Years -- Getting Greeked -- Greek Choices -- Remain a Club Member and Order Finances -- Ditch the Club and Keep the Debt -- Ditch the Club and Ditch the Debt -- The IMF and Euro Packages -- The EU's Future -- CHAPTER 19 The Fairy-Tale Decade -- I Hate Wall Street -- The Real Costs of the Financial Crisis -- An Avatar's Life Force -- Economic System Choices -- The Crisis of Crowds -- The Wine Arbitrage -- APPENDIXES: -- APPENDIX A The Mathematics of LTCM's Risk-Management Framework -- A General Framework -- A Numerical Example -- Measuring Risk -- APPENDIX B The Mechanics of the Swap Spread Trade -- The Long Swap Spread Trade -- The Short Swap Spread Trade -- APPENDIX C Derivation of Approximate Swap Spread Returns -- APPENDIX D Methodology to Compute Zero-Coupon Daily Returns -- APPENDIX E Methodology to Compute Swap Spread Returns from Zero-Coupon Returns -- APPENDIX F The Mechanics of the On-the-Run and Off-the-Run Trade -- APPENDIX G The Correlations between LTCM Strategies Before and During the Crisis -- APPENDIX H The Basics of Creative Mortgage Accounting -- APPENDIX I The Business of an Investment Bank.

Investment Banking -- Capital Markets -- Equities -- Equity Cash -- Equity Derivatives -- Equity Finance -- Arbitrage (Proprietary Trading) -- Fixed Income -- Government and Agency Obligations -- Corporate Debt Securities and Loans -- High-Yield Securities and Leveraged Bank Loans -- Money Market Products -- Mortgage- and Asset-Backed Securities -- Municipal and Tax-Exempt Securities -- Financing -- Fixed-Income Derivatives -- Lehman Brothers Bank -- Foreign Exchange -- Global Distribution (Global Sales) -- Research -- Client Services -- Private Client Services (Private Wealth Management) -- Private Equity -- Technology -- Corporate and Risk Management -- Summary -- APPENDIX J The Calculation of the BIS Capital Adequacy Ratio -- The General Calculation -- An Example -- Notes -- Glossary -- Bibliography -- About the Author -- Index.