The 1998 collapse of Long-Term Capital Management is known as the LTCM crisis.
LTCM was a highly leveraged hedge fund founded in 1994, with prominent partners including Nobel Prize-winning economists Robert Merton and Myron Scholes. It used mathematical models and convergence trades that assumed price relationships would return toward historical norms. After Russia defaulted on domestic debt in August 1998, investors fled risky assets, and those relationships moved farther apart instead.
LTCM’s losses threatened disorderly unwinding because major banks and securities firms were its counterparties. The Federal Reserve Bank of New York organized a private-sector rescue consortium in September 1998; the U.S. government did not directly provide the fund’s bailout money. The episode became a warning about leverage, correlated positions, and institutions whose failure could destabilize markets even without being traditional banks.