Long-Term Capital Management

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Long-Term Capital Management L.P. (LTCM) was an American hedge fund which used highly leveraged strategies. In 1998 when LTCM was on the verge of collapse, the fund received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York, due to fears the collapse of LTCM would have disastrous effects on the larger financial system. LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron Scholes and Robert C. Merton, who three years later in 1997 shared the Nobel Prize in Economics for having developed the Black–Scholes model of financial dynamics. LTCM was initially successful, with annualized returns (after fees) of around 21% in its first year, 43% in its second year and 41% in its third year. However, in 1998 it lost $4.6 billion in less than four months due to a combination of high leverage and exposure to the 1997...

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