Which hedge fund collapse in 1998 prompted a major rescue organized by Wall Street banks?

The 1998 hedge fund collapse that prompted a major Wall Street rescue was Long-Term Capital Management.

Long-Term Capital Management, or LTCM, was founded in 1994 and used highly leveraged trading strategies based partly on mathematical models. Its partners included prominent financial experts, including Nobel Prize-winning economists Robert Merton and Myron Scholes.

The Russian financial crisis in August 1998 disrupted assumptions behind many of LTCM’s trades. Losses mounted, and the fund’s enormous leverage raised fears that forced liquidation could destabilize global markets. The Federal Reserve Bank of New York organized discussions that led 14 private financial institutions to provide a recapitalization package.

The Federal Reserve did not directly bail out LTCM with public money. Instead, the private-sector rescue was designed to unwind the portfolio in an orderly manner. The episode became a landmark example of how leverage and interconnected positions can create systemic risk even without a conventional stock-market crash.