Which 1998 hedge fund collapse forced a Federal Reserve-facilitated rescue of Long-Term Capital Management?

The 1998 hedge fund collapse that forced a Federal Reserve-facilitated rescue was Long-Term Capital Management, commonly abbreviated LTCM.

LTCM was founded in 1994 by traders and academics, including Nobel Prize-winning economists Myron Scholes and Robert C. Merton. It used highly leveraged trading strategies based on mathematical models that assumed price relationships would converge. The Russian financial crisis of 1998 disrupted those assumptions and produced major losses.

Because LTCM had extensive positions with major financial institutions, U.S. regulators feared that a disorderly failure could spread through global markets. The Federal Reserve Bank of New York helped arrange a private-sector recapitalization by a consortium of banks in September 1998. The Federal Reserve did not directly provide the bailout money. The case became a classic warning about leverage, complex derivatives, and interconnected counterparties.