Long-Term Capital Management Bank

About Long-Term Capital Management Bank

Long-Term Capital Management was a hedge fund that operated like a bank, borrowing over 100 billion against 5 billion in capital. Founded by John Meriwether, former head of bond trading at Salomon Brothers, with Nobel laureates Myron Scholes and Robert Merton. LTCM used arbitrage strategies that worked until the Russian default in August 1998 caused markets to behave in ways the models did not predict. The Federal Reserve Bank of New York organized a 3.6 billion bailout by 14 major banks. The bailout avoided systemic collapse but raised concerns about moral hazard. LTCM was liquidated by 2000. The episode foreshadowed the 2008 crisis in showing how leverage and mathematical models can fail catastrophically.