Which 1998 hedge fund collapse forced a Federal Reserve-supported rescue to prevent wider financial-market turmoil?

The 1998 hedge fund collapse that prompted a Federal Reserve-supported rescue was Long-Term Capital Management.

Long-Term Capital Management, or LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent financial professionals and Nobel Prize–winning economists Myron Scholes and Robert C. Merton. The fund used mathematical models and large positions in financial markets.

The Russian government’s default on domestic debt in August 1998 and the resulting global turmoil caused many of LTCM’s trades to move against it. Because major banks and investment firms were counterparties to the fund, officials feared that a disorderly liquidation could spread instability through the financial system.

The Federal Reserve Bank of New York organized a private-sector rescue in September 1998. The Federal Reserve did not provide the fund with a taxpayer-financed bailout; participating banks supplied the capital and took control of the portfolio.