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Lessons of the Fall: <I>TSC</I> Looks at LTCM's Fallout

Everyone thought the fund evidenced mind over matter. One year later, we examine the effects of the infamous brain trust.

After a tumultuous late summer of 1998, the market cracked under the pressure from the failure of highly leveraged

Long Term Capital Management

. Prodded by the

New York Federal Reserve

and deep self-interest, 14 of Wall Street's major powers stepped in to bail out the fund to which they had lent so many billions and to wrest control of its operations.

Once hailed as the best collection of financial minds ever assembled, the firm now is synonymous with excess and mismanagement. Its supertraders such as

John Meriwether

and Nobel laureates like

Myron Scholes

had dug themselves a $3.5 billion hole by using unusually high amounts of borrowed money to establish their positions.

LTCM: Talk about it on


Message Boards.

Now, one year from the day the Fed stepped in to rescue the market -- or at least the 14 banks that extended credit to Long Term Capital --

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takes a look back and ahead at the lessons learned from the hedge fund's disaster.

Today, staff reporter

Erin Arvedlund

explores the LTCM time bomb and what other potential disasters could be lurking in the shadows of Wall Street. In addition, columnist

James K. Galbraith

probes where academia and the markets diverged to hasten LTCM's fall.

Friday, senior writers

Beth Roy


Suzanne Kapner

take their shots. Roy

explains the way the hedge fund's folly impacted the way Wall Street thinks and measures leverage while Kapner brings us

up to date on what LTCM and its creditors are working on these days.