The Crisis of Crowding
Quant Copycats, Ugly Models, and the New Crash Normal
Ludwig B. Chincarini
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A rare analytical look at the financial crisis using simpleanalysis
The economic crisis that began in 2008 revealed the numerousproblems in our financial system, from the way mortgage loans wereproduced to the way Wall Street banks leveraged themselves.Curiously enough, however, most of the reasons for the bankingcollapse are very similar to the reasons that Long-Term CapitalManagement (LTCM), the largest hedge fund to date, collapsed in1998. The Crisis of Crowding looks at LTCM in greaterdetail, with new information, for a more accurate perspective,examining how the subsequent hedge funds started by Meriwether andformer partners were destroyed again by the lapse of judgement inallowing Lehman Brothers to fail.
Covering the lessons that were ignored during LTCM's collapsebut eventually connected to the financial crisis of 2008, the bookpresents a series of lessons for hedge funds and financial markets,including touching upon the circle of greed from homeowners to realestate agents to politicians to Wall Street.
Guides the reader through the real story of Long-Term CapitalManagement with accurate descriptions, previously unpublished data,and interviewsDescribes the lessons that hedge funds, as well as the market,should have learned from LTCM's collapseExplores how the financial crisis and LTCM are a globalphenomena rooted in failures to account for risk in crowded spaceswith leverageExplains why quantitative finance is essential for everyfinancial institution from risk management to valuation modeling toalgorithmic tradingIs filled with simple quantitative analysis about the financialcrisis, from the Quant Crisis of 2007 to the failure of LehmanBrothers to the Flash Crash of 2010
A unique blend of storytelling and sound quantitative analysis,The Crisis of Crowding is one of the first books to offer ananalytical look at the financial crisis rather than just an accountof what happened. Also included are a layman's guide to theDodd-Frank rules and what it means for the future, as well as anevaluation of the Fed's reaction to the crisis, QE1, QE2, andQE3.