Leverage and its discontents
Repost from 4-3-2021
“Three blow-ups in three months: Archegos, Greensill, and Melvin Capital. What do they have in common? Insane leverage employed to maximize private gain, provided by lenders that can socialize losses.”
USAGOLD note: So……What else is out there? Hunt and Guinn dig into cause, effect and commonality in the Melvin Capital, Greensill and Archegos blow-ups. When banks like Credit Suisse and Nomura takes losses in the billions on a single failure, questions of systemic risk naturally arise. The notional value of the derivatives market is over $1 quadrillion – all of it leveraged and all of it subject to counterparty risk.