Which hedge fund’s 1998 collapse threatened global markets and prompted a rescue organized by the Federal Reserve Bank of New York?

Long-Term Capital Management was the hedge fund whose 1998 collapse threatened global markets.

LTCM was founded in 1994 by John Meriwether and employed renowned traders and academics, including future Nobel laureates Myron Scholes and Robert Merton. It used highly leveraged mathematical strategies that assumed prices would eventually converge toward historical relationships. The Russian financial crisis of 1998 disrupted those assumptions and caused large losses.

Because LTCM had borrowed heavily and traded with many major institutions, an uncontrolled failure could have forced rapid sales across financial markets. The Federal Reserve Bank of New York helped arrange a private-sector recapitalization in September 1998. The central bank did not directly bail out the fund with taxpayer money. The episode became a major warning about leverage, interconnected counterparties, and risks outside the traditional banking system.