LTCM’s near-collapse was commonly blamed on blind faith in financial models

Evidence

Chapter 8 turns to an episode with echoes of 1987: the 1998 crisis surrounding the hedge fund Long-Term Capital Management (LTCM). Because the partners who ran the fund included the finance-theory Nobel laureates Robert C. Merton and Myron Scholes, its near-failure (it was re-capitalized by a group of the world’s leading banks) has often been blamed on blind faith in finance theory’s models and has been seen as suggesting fatal flaws in those models. — Donald MacKenzie, An Engine, Not a Camera, 152

Categorization

• XREF: connects to: Correlation assumptions in CDO design collapsed when housing markets proved linked. — Mark Blyth, Austerity: The History of a Dangerous…, 91; LTCM’s failure was a self-fulfilling prophecy like that described by Robert Merton — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 156; LTCM’s partners treated models as engines of inquiry, not exact market reproductions — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 153 (+2 more)

Broader Connections

• LTCM’s crisis did not stem from blind faith in mathematical models. #contradicts (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1017
• LTCM’s collapse was read as vindication of the efficient-market hypothesis #complicates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1120