Which 1998 hedge fund collapse forced the Federal Reserve to help coordinate a private rescue?

The 1998 hedge fund collapse that prompted the Federal Reserve to help coordinate a private rescue was Long-Term Capital Management.

Long-Term Capital Management, or LTCM, was founded in 1994 and employed prominent traders and academics, including Nobel Prize-winning economists Myron Scholes and Robert Merton. It used highly leveraged mathematical strategies designed to profit from small price differences between related securities.

The Russian financial crisis in August 1998 disrupted those relationships. Investors sought safer assets, correlations changed, and LTCM suffered enormous losses while its borrowing magnified the damage. The Federal Reserve Bank of New York organized meetings that led fourteen financial institutions to provide a private recapitalization of about $3.6 billion.

The Federal Reserve did not directly bail out LTCM with public money or take ownership of it. The episode nevertheless raised major concerns about leverage, complex derivatives, and the danger that one large institution could destabilize many counterparties.