Which 1998 hedge fund collapse forced a Federal Reserve-organized rescue of LTCM?

The 1998 hedge fund collapse that prompted a Federal Reserve-organized rescue was Long-Term Capital Management, or LTCM.

LTCM used highly leveraged trading strategies, including convergence trades that assumed related prices would move back toward one another. The fund initially performed strongly, but the Russian financial crisis of 1998 caused extreme market movements and large losses.

Because LTCM had extensive positions with major financial institutions, its disorderly failure was feared to threaten wider market stability. The Federal Reserve Bank of New York helped organize a private-sector recapitalization by a consortium of banks; the central bank did not directly provide the rescue money.

The episode became a landmark warning about leverage, interconnected derivatives, and the danger that a relatively small institution can have a large systemic footprint. LTCM was liquidated after its portfolio was unwound.