Which hedge fund’s near-collapse during the 1998 market turmoil led to a Federal Reserve-brokered rescue?

Long-Term Capital Management’s near-collapse during the 1998 market turmoil led to a Federal Reserve-brokered rescue.

LTCM was founded in 1994 by traders and academics, including Nobel Prize-winning economists Robert Merton and Myron Scholes. It used highly leveraged mathematical strategies that initially produced impressive returns.

The Russian government’s August 1998 default on domestic debt and the resulting flight from risky assets caused LTCM’s positions to move sharply against it. Because the fund had extensive relationships with major banks, regulators feared that an uncontrolled failure could disrupt financial markets.

The Federal Reserve Bank of New York did not provide the rescue money directly. Instead, it convened 14 financial institutions, which supplied a private recapitalization of about $3.6 billion in exchange for control of the fund. LTCM was later wound down.