LTCM crisis
1998.09.23
Private financial institutions agreed to recapitalize LTCM in response to major losses and liquidation risk.
Uses the private recapitalization agreement date as the representative date, rather than the start of the crisis.
Conditions at the time
Leverage and derivatives exposure collided with market risk aversion.
How events unfolded
On 9/23, private parties agreed to inject new capital and dilute existing shareholders.
Stakeholders and impacts
LTCM, counterparties and the New York Fed participated in consultations.
Information available at the time
Greenspan’s testimony in month 10 explained concerns that fire sales could damage market liquidity.
Findings confirmed later
The testimony clarified that Federal Reserve funds were not used and that the agreement was private.
Alternative interpretations and limitations
Distinguish direct public bailouts from facilitation of negotiations; moral-hazard debates also remained.
Interpretation using later sources
Private recapitalization reduced existing owners' stakes and control; no Fed funds were invested. Subsequent Fed reporting identified counterparties' reliance on LTCM's reputation and past returns, alongside inadequate understanding of aggregate exposure and liquidation effects. ASSETCASTING interpretation: Expertise and past returns do not remove liquidity risk. Compare both funding providers and the interaction between liquidation and collateral demands with other rescues.
Evidence coverage through 1999-02-23 · Sources checked 2026-10-14
Related events and periods1
- Global economic integration, IT investment, and recurring financial crises
An event or period whose recorded start falls within this editorial interval. This does not establish that it caused or represents the characteristics of the era, nor guarantee that the entire period falls within the interval.
Historical events do not guarantee future recurrence or investment performance.