Which 1998 hedge fund collapse prompted a Federal Reserve-coordinated rescue because of fears about global market stability?

The 1998 collapse of Long-Term Capital Management prompted a Federal Reserve-coordinated private-sector rescue because of fears about global market stability.

Long-Term Capital Management, or LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and economists, including Nobel Prize-winning economists Robert Merton and Myron Scholes. The fund used complex strategies that expected price relationships to converge.

The Russian financial crisis in August 1998 disrupted those relationships, while investors rushed toward safer assets. LTCM suffered enormous losses and faced the possibility of disorderly failure. On September 23, 1998, the Federal Reserve Bank of New York helped arrange a consortium of major financial institutions that injected capital and took control of the fund. The Federal Reserve did not directly bail out LTCM with taxpayer money. The episode became a major warning about leverage, interconnected markets, and risks outside traditional banks.