Long Term Capital Management.

Long Term Capital Management was a hedge fund managed by two Nobel Prize winners that tanked because of over-leveraged aggressive postions. They have roughly $5 billion capital in with about $150 billion aggregate positions. The volatile market movements triggered the collapse of a debt-enabled house of cards. The fund management team's credibility in the industry and the spectacular performance (30-40% net annual return for about 5 years) helped dispell creditors' misgivings about giving loans. The collapse threatened to spread to creditors but was averted by the intervention of the then Fed Reserve Chairman Alan Greenspan.

Whats frustrating for the managers is that their market positions were generally sound and would have made them a lot of money if only the fund had the additional fund to offset volatility.

LTCM is a favorite hedge fund story. In this Market, no one is infallible.