The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It (51 page)

On a spring afternoon in 1985:
The Liar’s Poker account is taken from
The Poker Face of Wall Street
, by Aaron Brown (John Wiley & Sons, 2006), as well as interviews and email exchanges with Brown.

The Culver Spy Ring sprang up:
“Setauket: Spy Ring Foils the British,” by Tom Morris,
Newsday
, February 22, 1998.

As a toddler growing up:
Despite numerous requests, James Simons declined to grant me an interview. Details of Renaissance Technologies were learned through interviews with former employees Elwyn Berlekamp, Robert Frey, Nick Patterson, Sandor Straus, and others who asked not to be identified. Other details were found in “Simons Doesn’t Say,” by John Geer,
Financial World
, October 21, 1996, and “Simons at Renaissance Cracks Code, Doubling Assets,” by Richard Teitelbaum, Bloomberg News, November 27, 2007.

In December 2003, Renaissance sued:
“Ex-Simons Employees Say Firm Pursued Illegal Trades,” Katherine Burton and Richard Teitelbaum, Bloomberg News, June 30, 2007.

7
THE MONEY GRID

Griffin’s fortress for money:
A number of details about Citadel’s performance and assets were taken from Citadel offering documents and other Citadel documents.

One of Citadel’s early trades:
Griffin interview.

Muller and Elsesser:
Interviews with Kim Elsesser.

A founder of Prediction Company:
Interviews with Doyne Farmer.

In 1995, a young quant named Jaipal Tuttle:
Interviews with Jaipal Tuttle.

When Cliff Asness took a full-time job:
Accounts of Asness’s time at Goldman and the rise of AQR were taken from news articles previously listed, as well as interviews with John Liew, David Kabiller, Cliff Asness, and others who asked not to be identified.

Black believed in rationality:
Many details of Black’s life derive from interviews with people who knew him, including Asness, Emanuel Derman,
and others, as well as his biography,
Fischer Black and the Revolutionary Idea of Finance
, by Perry Mehrling (John Wiley & Sons, 2005).

One day Weinstein was strolling:
“Young Traders Thrive in Stock, Bond Nexus,” by Henny Sender,
Wall Street Journal
, November 28, 2005.

8
LIVING THE DREAM

Griffin was quietly building:
Some information about Tactical Trading’s performance derives from testimony in Citadel’s 2009 lawsuit against Malyshev and two other ex-Citadel employees filed in the Chancery Division of Cook County, Ill., Circuit Court.

A $10 billion hedge fund called Amaranth Advisors:
“How Giant Bets on Natural Gas Sank Brash Hedge-Fund Trader,” by Ann Davis,
Wall Street Journal
, September 19, 2006.

They also like to party:
“The Birthday Party,” by James B. Stewart,
New Yorker
, February 11, 2008.

But one evening a colleague:
“Going Under, Happily,” by Pete Muller as told to Loch Adamson,
New York Times
, June 8, 2003.

In May 2002, he attended the wedding:
The wedding account is based on interviews with Nassim Taleb, John Liew, and Neil Chriss.

His peripatetic life had shown him:
The brief account of Taleb’s life is based on numerous interviews with Taleb and his longtime trading partner Mark Spitznagel, as well as the articles “Blowing Up: How Nassim Taleb Turned the Inevitability of Disaster into an Investment Strategy,” by Malcolm Gladwell,
New Yorker
, April 22 and 29, 2002, and “Flight of the Black Swan,” by Stephanie Baker-Said,
Bloomberg Markets
, May 2008.

Once or twice a month:
The subjects of this book did not discuss this poker game
often
. A number of details were learned from people familiar with the game.

The frenzy that greeted the IPO:
“Newest Hot Internet Issue Raises Question: How to Price It Fairly?” by Dunstan Prial,
Wall Street Journal
, November 30, 1998.

AQR’s flagship Absolute Return Fund would gain:
“The Geeks’ Revenge,” by Josh Friedlander,
Absolute Return
, July/August 2006.

One day in 2005, Boaz Weinstein:
The chess match is based on several interviews with Deutsche Bank employees who witnessed the match. Weinstein corroborated the account.

Boaz Weinstein dealt crisply:
The account of the game is based on interviews with people who attended. Some incidental details, such as Muller’s victory and the amount bet, were created to add verisimilitude to the account. Muller is known to be the ace of the group, Asness the rookie. Other fund managers not named also frequently played in the game.

9
“I KEEP MY FINGERS CROSSED FOR THE FUTURE”

Growing up in Seattle, Brown had:
Interviews with Aaron Brown.

Enter the credit default swap:
“The $12 Trillion Idea: How Blythe Masters and the ‘Morgan Mafia’ Changed the World of Finance,” by Gillian Tett,
FTMagazine
, March 25–26, 2006.

The first Bistro deal:
“Credit Derivatives: An Overview,” by David Mengle, International Swaps and Derivatives Association, published for the 2007 Financial Markets Conference held by the Federal Reserve Bank of Atlanta, May 15, 2007.

That solution came from a Chinese-born quant:
“Slices of Risk: How a Formula Ignited Markets That Burned Some Big Investors,” by Mark Whitehouse,
Wall Street Journal
, September 12, 2005.

Magnetar’s presence in the CDO world:
“A Fund Behind Astronomical Losses,” by Serena Ng and Carrick Mollenkamp,
Wall Street Journal
, January 14, 2008.

The carry trade was fueling:
“Global Credit Ocean Dries Up,” by Ambrose Evans-Pritchard,
The Telegraph
, February 28, 2006.

Regulators lent a helping hand:
“Agency’s ’04 Rule Let Banks Pile Up New Debt,” by Stephen Labaton,
New York Times
, October 2, 2008.

news emerged that a pair of Bear Stearns hedge funds:
The Bear Stearns meltdown has been extensively covered and I used multiple sources. The best were a series of articles written by
Wall Street Journal
reporter Kate Kelly, who also wrote an excellent book documenting Bear’s meltdown,
Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street
(Portfolio, 2009).

10
THE AUGUST FACTOR

Cliff Asness walked to the glass partition:
Virtually all of the information in this chapter derives from dozens of interviews with the participants, including many who requested anonymity. A number of details of PDT’s turmoil were first reported in “August Ambush: How Market Turmoil Waylaid the ‘Quants,’” by Scott Patterson and Anita Raghavan,
Wall Street Journal
, September 7, 2007.

At the headquarters of Goldman Sachs:
Most of the information about GSAM is based on an interview with Katinka Domotorffy, who took over Global Alpha and several other quant funds at GSAM after Mark Carhart and Raymond Iwanowski left Goldman in 2009.

Matthew Rothman was still groggy:
Interviews with Matthew Rothman.

“A massive unwind is occurring”:
“Behind the Stock Market’s
Zigzag—Stressed ‘Quant’ Funds Buy Shorted Stocks and Sell Their Winners,” by Justin Lahart,
Wall Street Journal
, August 11, 2007.

“These shocks reflected one of the most”:
“Loosening Up: How a Panicky Day Led the Fed to Act—Freezing of Credit Drives Sudden Shift,” by Randall Smith, Carrick Mollenkamp, Joellen Perry, and Greg Ip,
Wall Street Journal
, August 20, 2007.

11
THE DOOMSDAY CLOCK

“We need to focus on this fast”:
Part of the Citadel-E*Trade deal details derive from “Why Citadel Pounced on Wounded E*Trade,” by Susanne Craig, Gregory Zuckerman, and Matthew Karnitschnig,
Wall Street Journal
, November 30, 2007.

Cliff Asness leapt from the card table:
Asness’s poker-playing rampage is based on accounts from people familiar with the games. As with the other poker game, some incidental details were created to add verisimilitude to the account.

One quant gadfly:
The account is based on interviews with Nassim Taleb and Aaron Brown.

Dick Fuld was putting on a classic performance:
The account is based on an interview with a person who attended the meeting.

There was a yell, a smash:
The account is based on interviews with people who were present.

“I want to throw up”:
Several details of Lehman’s last days, including this quote, derive from “Burning Down His House: Is Lehman CEO Dick Fuld the True Villain on the Collapse of Wall Street?” by Steve Fishman,
New York
, December 8, 2008.