When Genius Failed: The Rise and Fall of Long Term Capital Management. Roger Lowenstein
as the red board fence in Rosemoor.
Typical of Meriwether, he made gambling an intimate part of the group’s shared life. The arbitrageurs devised elaborate betting pools over golf weekends; they bet on horses; they took day trips to Atlantic City together. They bet on elections. They bet on anything that aroused their passion for odds. When they talked sports, it wasn’t about the game; it was about the point spread.
Meriwether loved for his traders to play liar’s poker, a game that involves making poker hands from the serial numbers on dollar bills. He liked to test his traders; he thought the game honed their instincts, and he would get churlish and threaten to quit when they played poorly. It started as fun, but then it got serious; the traders would play for hours, occasionally for stakes in the tens of thousands of dollars. Rosenfeld kept an envelope stuffed with hundreds of single bills in his desk. Then, when it seemed that certain bills were cropping up too often, they did away with bills and got a computer to generate random lists of numbers. The Arbitrage boys seemed addicted to gambling: “You could never go out to dinner with J.M.’s guys without playing liar’s poker to see who would pick up the check,” Gerald Rosenfeld, Salomon’s chief financial officer, recalled. Meriwether was a good player, and so was Eric Rosenfeld (no relation), who had an inscrutable poker face. The straight-arrow Hilibrand was a bit too literal. He was incapable of lying and for a long time never bluffed; mustachioed and eerily intelligent, he had a detachment that was almost extrahuman. Once, when asked whether it was awkward to have a wife who worked in mortgages (which Hilibrand traded), he answered flatly, “Well, I never talk to my wife about business.”
The Arbitrage Group, about twelve in all, became incredibly close. They sat in a double row of desks in the middle of Salomon’s raucous trading floor, which was the model for the investment bank in Tom Wolfe’s The Bonfire of the Vanities. Randy Hiller, a mortgage trader in Arbitrage, found its cliquish aspect overbearing and left. Another defector was treated like a traitor; Meriwether vengefully ordered the crew not to even golf with him. But very few traders left, and those who remained all but worshiped Meriwether. They spoke of him in hushed tones, as of a Moses who had brought their tribe to Palestine. Meriwether didn’t exactly return the praise, but he gave them something more worthwhile. His interest and curiosity stimulated the professors; it challenged them and made them better. And he rewarded them with heartfelt loyalty. He never screamed, but it wouldn’t have mattered if he had. To the traders, the two initials “J.M.”—for that was his unfailing sobriquet—were as powerful as any two letters could be.
Though he had a private office upstairs, Meriwether usually sat on the trading floor, at a tiny desk squeezed in with the others. He would chain-smoke while doing Eurodollar trades, and supervise the professors by asking probing questions. Somehow, he sheathed great ambition in an affecting modesty. He liked to say that he never hired anyone who wasn’t smarter than he was. He didn’t talk about himself, but no one noticed because he was genuinely interested in what the others were doing. He didn’t build the models, but he grasped what the models were saying. And he trusted the models because his guys had built them. One time, a trader named Andy who was losing money on a mortgage trade asked for permission to double up, and J.M. gave it rather offhandedly. “Don’t you want to know more about this trade?” Andy asked. Meriwether’s trusting reply deeply affected the trader. J.M. said, “My trade was when I hired you.”
Meriwether had married Mimi Murray, a serious equestrian from California, in 1981, and the two of them lived in a modest two-bedroom apartment on York Avenue on the Upper East Side. They wanted children, according to a colleague, but remained childless.
Aside from Mimi, J.M.’s family was Salomon. He didn’t leave his desk even for lunch; in fact, his noontime was as routinized as the professors’ models. Salomon did a china-service lunch, and for a long time, every day, a waiter would waft over to Meriwether bearing a bologna sandwich on white bread, two apples, and a Tab hidden under a silver dome. J.M. would eat one of the apples and randomly offer the other to one of the troops as a sort of token. The rest of the gang might order Chinese food, and if any sauce leaked onto his desk, J.M., his precious territory violated, would scowl and say, “Look, I guess I’m going to have to give up my desk and go back to my office and work there.”
A misfit among Wall Street’s Waspish bankers, J.M. identified more with the parochial school boys he had grown up with than with the rich executives whose number he had joined. Unlike other financiers in the roaring eighties, who were fast becoming trendy habitués of the social pages, Meriwether disdained attention (he purged his picture from Salomon’s annual report) and refused to dine on any food that smacked of French. When in Tokyo, he went to McDonald’s. Ever an outsider, he molded his group into a tribe of outsiders as cohesive, loyal, and protective as the world he had left in Rosemoor. His cohorts were known by schoolboy nicknames such as Vic, the Sheik, E.R., and Hawk.
Although J.M. knew his markets, his reputation as a trader was overwrought. His real skill was in shaping people, which he did in singularly understated style. He was awkward when speaking to a group; his words came out in uneven bunches, leaving others to piece together their meaning.10 But his confidence in his troops was written on his face, and it worked on their spirits like a tonic. Combined with the traders’ uncommon self-confidence, Meriwether’s faith in them was a potent but potentially combustible mix. It inflated their already supreme self-assurance. Moreover, J.M.’s willingness to bankroll Hilibrand and the others with Salomon’s capital dangerously conditioned the troops to think that they would always have access to more.
As Arbitrage made more money, the group’s turf inevitably expanded. Meriwether, eclipsing rivals such as Coats, gained command over all bond trading, including government bonds, mortgages, high-yield corporate bonds, European bonds, and Japanese warrants. It seemed logical, for the group to apply its models in new and greener pastures. But others in Salomon began to seethe. J.M. would send one of his boys—Hilibrand or Victor Haghani—to Salomon’s London office or its Tokyo office, and the emissary would declare, “This trade is very good, but you should be ten times bigger in it.” Not two times, but ten times! As if they couldn’t fail. Hilibrand and Haghani were in their twenties, and they might be talking to guys twice their age. Then they started to say, “Don’t do this trade; we’re better at this than anyone else, so we’ll do all of this trade on the arbitrage desk.”
Hilibrand was particularly annoying. He was formal and polite, but he struck old hands as condescending, infuriating them with his mathematical certitude. One time, he tried to persuade some commodity traders that they should bet on oil prices following a pattern similar to that of bond prices. The traders listened dubiously while Hilibrand bobbed his head back and forth. Suddenly he raised a hand and sonorously declaimed, “Consider the following hypothesis.” It was as if he were delivering an edict from on high, to be etched in stone.
Traders had an anxious life; they’d spend the day shouting into a phone, hollering across the room, and nervously eyeballing a computer screen. The Arbitrage Group, right in the middle of this controlled pandemonium, seemed to be a mysterious, privileged subculture. Half the time, the boys were discussing trades in obscure, esoteric language, as if in a seminar; the other half, they were laughing and playing liar’s poker. In their cheap suits and with their leisurely mien, they could seemingly cherry-pick the best trades while everyone else worked at a frenetic pace.
The group was extremely private; it seemed to have adopted J.M.’s innate secretiveness as a protective coloring. Though any trader is well advised to be discreet, the professors’ refusal to share any information with their Salomon colleagues fueled the resentment felt by Coats and others. Though Arbitrage soaked up all of the valuable tidbits that passed through a premier bond-trading floor, it set up its own private research arm and strictly forbade others in Salomon to learn about its trades. One time, the rival Prudential-Bache hired away a Salomon mortgage trader, which was considered a coup. “What was the first thing he wanted?” a then-Pru-Bache manager laughingly remembered. “Analytics? Better computer system or software? No. He wanted locks on the filing cabinet. It reflected their mentality!” Driven by fanatical loyalty to Meriwether, the Arbitrage Group nurtured an us-against-them clannishness that would leave the future Long-Term dangerously remote