When Genius Failed: Lowenstein Talks LTCM
Brett D. Fromson: Or an admission of mistakes.
Roger Lowenstein: Yes, and they were somewhat diffident on the issue of whether they had been deleveraged. That was a sticking point with them.
Brett D. Fromson: In what way?
Roger Lowenstein: They said leverage isn't the right measure of risk.Brett D. Fromson: What is? Roger Lowenstein: You know, they would say volatility around the mean, which I think is one of the things that got them into trouble. Because volatility is a backward-looking measure, it doesn't tell you what volatility tomorrow is going to be. I think they certainly realized that their position size was too big. Recently, of course, Meriwether came out and said the strategy was fundamentally flawed. That's a pretty interesting remark. It's just not in agreement with what they've been saying for two years to many, many people. Brett D. Fromson: Basically flawed in what regard? Did he say? Roger Lowenstein: I believe he referred to position size, I believe he did refer to leverage, but you better check. I don't know the extent to which this was a change of heart, the extent to which it was PR. I certainly called him on it when I learned about the "new openness," but apparently the window had closed. Brett D. Fromson: Question... Roger Lowenstein: Did they? What had they learned? They learned some humility from this, yes. Brett D. Fromson: Not to put too fine a point on it, but they lost a lot of money that wasn't theirs. That should chasten a person.
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