This is pretty much what happened to LTCM (http://en.wikipedia.org/wiki/Long-Term_Capital_Management http://en.wikipedia.org/wiki/Long-Term_Capital_Management)

This is pretty much what happened to LTCM (http://en.wikipedia.org/wiki/Long-Term_Capital_Management http://en.wikipedia.org/wiki/Long-Term_Capital_Management) in 1998. They owed so much money that the Fed had to help organize a bailout from their creditors (although no government money was involved.) This didn't cause a market crash, though. I don't think hedge funds have ever played a major role in causing a market crash. If you were to assign blame for the 2008 crash I think that hedge funds played a smaller role than banks, mortgage originators, AIG, Fannie and Freddie, the ratings agencies, and the US Congress.