The 1998 crisis triggered partly by the collapse of Long-Term Capital Management was the LTCM crisis.
Long-Term Capital Management was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and Nobel Prize-winning economists. The fund used complex arbitrage strategies that depended on relatively small price differences converging.
Russia’s August 1998 default and ruble devaluation caused investors to flee risky assets worldwide. Instead of converging, many positions moved apart, producing huge losses for LTCM. The Federal Reserve Bank of New York helped arrange a private-sector rescue in September 1998, with major banks supplying capital; the U.S. government did not directly bail out the fund.
The episode alarmed regulators because LTCM’s counterparties and borrowing links could have transmitted losses through the global financial system. The fund was eventually liquidated, and the crisis became a classic warning about leverage, crowded trades, and systemic risk.