This is the 25th anniversary of the September 1998 collapse of Long-Term Capital Management. That was one of the most stunning events in Wall Street history, as the firm allowed its leverage to grow to more than 100 to 1. But it was shocking beyond the sudden evaporation of $4 billion in value—that was a lot of money 25 years ago— but also because the firm had been put together specifically on the basis of its supposed genius for understanding and managing risk. The firm was dominated not by great traders but by intellectual supermen, including Robert Merton and Myron Scholes. Merton and Scholes had won the Nobel prize just…
SEC Chairman Gary Gensler in an official government photo from his service as Chairman of the Commodity Futures Trading Commission. (Photo: CFTC)
