Which investment fund’s 1998 collapse forced a major Federal Reserve-backed rescue of the financial system?

Long-Term Capital Management’s 1998 collapse forced a major Federal Reserve-backed rescue of the financial system.

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, and it used mathematical models to trade bonds and other securities.

The Russian financial crisis of August 1998 disrupted assumptions behind many of LTCM’s positions. Losses grew rapidly, and the fund’s large borrowings raised fears that an uncontrolled failure could spread through banks and markets.

The Federal Reserve Bank of New York organized a private-sector recapitalization by a group of major financial institutions. The Federal Reserve did not directly provide the rescue money, but it coordinated the process. LTCM’s episode became a major example of leverage and systemic risk.