LTCM’s models weren’t prepared for several shocking events in the summer of 1998, however, including Russia’s effective default on its debt and a resulting panic in global markets. As investors fled investments with risk attached to them, prices of all kinds of assets reacted in unexpected ways. LTCM calculated it was unlikely to lose more than $35 million in a day, but it somehow dropped $553 million on one Friday in August of that year. Billions evaporated in a matter of weeks.
