The LTCM collapse was the 1998 hedge fund crisis that led to a Federal Reserve-arranged private-sector rescue.
Long-Term Capital Management used highly leveraged mathematical trading strategies and had prominent partners, including Nobel Prize-winning economists Myron Scholes and Robert C. Merton. After Russia defaulted on domestic debt in August 1998, markets became unusually volatile and many trades moved against the fund.
The Federal Reserve Bank of New York organized meetings that resulted in fourteen financial institutions contributing capital to recapitalize LTCM. The Federal Reserve did not directly provide the rescue money, but officials feared that an uncontrolled liquidation could destabilize already stressed markets.
The episode became a classic warning about leverage, interconnected counterparties, and the danger of assuming that diversified positions are safe under every market condition. LTCM’s failure was not a stock-market crash by itself, but it amplified global financial anxiety after the Asian crisis and Russian default.