3. Long-Term Capital Management
Long-Term Capital Management is a big reason why the nation's regulators are forcing hedge funds to fill out Form PF, which was designed as part of the Dodd-Frank bill to give regulators a sense of how much risk such firms pose to the nation’s financial system. Launched in 1994 with slightly more than $1 billion under management, LTCM used high-risk arbitrage trading strategies to earn healthy sums. At its height it had around $5 billion in assets, and amassed positions worth more than $1 trillion. But it used a massive amount of borrowed money to make bets, and when those bets went bad they nearly took the global economy down the drain with them. Only a bailout funded by the Federal Reserve Bank of New York prevented a full-scale meltdown.
