Actually LTCM would have been OK had they not been way over leveraged. They were expecting the yield curve to return to its normal relationship between long and short term interest rates, as it eventually did, but they couldn't hang on long enough because they were over leveraged. They apparently didn't know the market can stay irrational longer than they could stay solvent.
That LTCM thingy was classical. They had a strategy that stopped working, they weren't paying attention, they had effectively doubled their leverage when they rebated.. Probably something similar happened to some HFT outfits when the downgrade occurred, no?