Which 1998 hedge fund collapse threatened the global financial system and prompted a Wall Street rescue?

The 1998 hedge fund collapse that threatened the global financial system was Long-Term Capital Management.

Long-Term Capital Management, or LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and Nobel Prize-winning economists. The fund used mathematical models and large positions in markets that had historically behaved in related ways.

The 1998 Russian financial crisis disrupted those assumptions. Investors rushed toward safer assets, correlations changed, and LTCM suffered enormous losses. Because major banks and other institutions were deeply connected to the fund, the Federal Reserve Bank of New York helped coordinate a private-sector rescue in September 1998. The government did not directly provide the bailout money.

LTCM’s collapse became a classic warning about leverage, model risk, and interconnected counterparties. It was not itself a stock-market crash on the scale of 1929 or 1987, but it caused severe market stress and briefly raised fears of a wider financial breakdown.