Even the most sophisticated financial strategies and Nobel Prize-winning formulas can fail catastrophically when they rely on extreme leverage and assume market conditions will remain stable, as demonstrated by Long-Term Capital Management's $4 billion loss in 5 weeks after Russia's 1998 default, which nearly collapsed the global financial system.
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Long-Term Capital (1998) #financialhistory #history #historyfacts #alberteinstein #factsAdded:
Two men won the Nobel Prize for a formula that erased risk. 11 months later, it lost $4 billion in 5 weeks.
They were not crooks. They were the smartest people on Wall Street, and the math was right. They borrowed $25 for every one they had. [music] Then Russia defaulted, and every bet on Earth broke in the same second. The Federal Reserve had to lock the banks in a room to stop the whole system from collapsing. The smartest fund in history dead in 35 days. Full story on the channel.
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