How did a room containing two Nobel laureates in risk management build a money machine that nearly destroyed the global financial system? Long-Term Capital Management launched in 1994 with a billion dollars, a board that included Myron Scholes and Robert Merton, and annualized returns of 21, 43, and 41 percent in its first three years. Four years later it lost $4.6 billion in under four months, and the Federal Reserve had to organize a rescue to keep the wreckage from taking Wall Street down with it.

This episode dissects the machine: convergence trades that picked up nickels in front of a bulldozer, the repo-market pawn shop loop that stacked $25 of debt on every dollar of equity, and the derivative book whose notional value reached $1.25 trillion. Then comes the lesson that outlived the fund, the moral hazard of the “Greenspan put” and the phrase that would echo through 2008: too interconnected to fail.

• The financial Avengers: John Meriwether, two Nobel laureates, and a billion dollars of instant credibility
• Convergence trading explained: betting on financial gravity between nearly identical Treasury bonds
• 25-to-1 leverage and the repo pawn shop: how nickels became billions, and billions became exposure
• The 1998 death spiral: Russian default, fleeing liquidity, and a portfolio everyone had copied
• Moral hazard’s long shadow: the Fed-brokered bailout, Meriwether’s second act, and the warning about trusting models