How do geniuses with Nobel Prizes almost destroy the entire financial system?

How do geniuses with Nobel Prizes almost destroy the entire financial system?

A hedge fund run by Nobel Prize winners collapsed – not because they were stupid, but because their models assumed markets would behave rationally.

The story: LTCM was founded by two Nobel economists (Myron Scholes & Robert Merton) and a team of PhDs. They made supposedly “risk‑free” trades using complex math. Three years of 40%+ annual returns. Banks begged to lend them money.

The twist: In 1998, Russia defaulted on its debt. Investors panicked and sold everything – even safe assets. LTCM’s “risk‑free” bets all blew up at once. The fund lost $4.6 billion in weeks.

But here’s the real kicker – LTCM had borrowed over $100 billion (plus $1 trillion in derivatives). Its collapse threatened to bring down the entire global financial system. The Federal Reserve had to organize a $3.6 billion bailout just to save the world economy.

The gain: Even geniuses can be wrong. Mathematical models can’t predict human fear. The story led to greater oversight of hedge funds and derivatives.

👇 Do you think smart people with models are more dangerous than amateur traders? Drop your take below.

#ltcm #hedgefund #nobelprize #financialcrisis #riskmanagement #markets

Видео How do geniuses with Nobel Prizes almost destroy the entire financial system? канала The Ten Percent | SMC x PA Trader