The Hedge Fund That Nearly Froze the Financial System | LTCM

Long-Term Capital Management (LTCM) nearly collapsed in 1998 after the highly leveraged hedge fund, with about $1.4 trillion in notional derivatives exposure, was caught in a global market panic. You’ll see how convergence trades, 28-to-1 balance-sheet leverage, and correlated positions turned small pricing gaps into a self-reinforcing loss spiral after Russia’s default. I walk through the fund’s 1994–1997 returns, its roughly $129 billion balance sheet, the $550 million August 21 loss, and the $3.6 billion private-sector rescue with actual numbers. I also examine the Federal Reserve’s role, the competing explanations for the failure, why LTCM did not cause the 1998 stock-market drop, and the warning the episode offered before 2008. Whether you’re an investor studying leverage or a student of financial history, this video gives you everything you need to understand the rise, near-collapse, rescue, and legacy of LTCM.

Chapters
0:00 – The Night Wall Street Faced LTCM
0:48 – The Dream Team and the Convergence Trade
2:39 – Russia’s Default and the Global Panic
3:43 – LTCM’s Leverage Death Spiral
4:52 – The Fed Visit, Buffett Bid, and Bank Rescue
6:18 – Congress, Rate Cuts, and the Market Recovery
7:44 – Why LTCM Failed
8:36 – The Warning Shot for 2008

*Seeking Alpha Deals:*
💰 *Get $50 OFF Alpha Picks:* https://ryano.finance/alpha-picks
📈 *Get $159 OFF Seeking Alpha Premium and Alpha Picks Bundle:* https://ryano.finance/seeking-alpha-bundle
🔥 *Get $30 OFF Seeking Alpha Premium:* https://ryano.finance/seeking-alpha

🎓 *Get 25% Off CFA Courses (Featuring My Videos!) — Use code RYAN25 here:*
👉 https://ryano.finance/cfa

🎓 *Ivy League Certificate Programs by Wall Street Prep — Save $300 with code RYANOC*
1. Columbia & Wall Street Prep AI for Business & Finance: https://ryano.finance/columbia-ai
2. Wharton & Wall Street Prep Real Estate Investing & Analysis: https://ryano.finance/wharton-real-estate
3. Wharton & Wall Street Prep Private Equity (PE): https://ryano.finance/wharton-pe
4. Wharton & Wall Street Prep Financial Planning & Analysis (FP&A): https://ryano.finance/wharton-fpa
5. Wharton & Wall Street Prep Value Investing: https://ryano.finance/wharton-avi
6. Wharton Restructuring & Distressed Investing Certificate: https://ryano.finance/wharton-rdi

*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.