So, let the post-mortems begin! This one in the NYT, finally, ties Hwang to Blythe, although not by name.
During the 2008 crisis, the insurance giant AIG nearly collapsed under the weight of unregulated swaps contracts it wrote.Those "swaps contracts" were made up by Blythe, who called them Credit Default Swaps. That tale has been chronicled here more than once.
As shown in the last episode, these are a different sort of swap from CDS, but, given the fact that they're untraceable by regulators, and of unknown control by the banks (individually or en masse), it may turn out that there are more Archegos out there, ready to immolate at any moment.
But, back to Archegos.
As banks tally up their losses and shareholders smart over the hit to their portfolios, the tactics that Archegos employed will draw the eye of regulators and renew calls for further regulation of swaps and similar financial products, called derivatives.Ya think? The horses are out of the barn, once again.
There are, at least, two categories of derivatives: those that hedge an owned asset, and those that hedge somebody else's owned assests. And one might point out that the latter also births an evil twin, where the weight of the asset out weighs the assets of the holder of the derivative. That's the beauty, as they see it, to the finance wizards: leverage, aka Other People's Money. The key to being Instruments of Mass Destructions is when such derivatives are not just not regulated, but their volume and ownership is untracked. Multiple 'owners' of such instruments 1) unthered to the real asset, 2) there's no limit to how many 'swap owners' may bet on other peoples' assets, and 3) there's no guarantee that the 'sellers' of such swaps each, indivicually, keep track of how many bets are being made on each real asset.
Whether Archegos is a Lone Outlaw, or, as the Great Recession unfolded, one of many pulling the same stunt isn't known as I type. You'd better hope Hwang is a Lone Outlaw. Keep in mind that the players who enabled this stupidity were among the crew that fueled the fever dreams which led to the Great Recession.
"The disclosure system doesn't cover any of this," said Dennis Kelleher, chief executive of Better Markets, a Wall Street watchdog group. "These derivatives are designed for synthetic exposure which de facto conceals ownership interests."
Credit Suisse check Nomura Securities check Morgan Stanley check Goldman Sachs check Mitsubishi UFJ check (although mostly from bailing out MS)
Prepare for interesting times.
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