Archegos & Credit Suisse – Tip of the Iceberg, by Egon von Greyerz

The old saying is that there’s never just one cockroach, and in a highly leveraged and interconnected global financial system, there’s never just one blowup. From Egon von Greyerz at goldswitzerland.com:

Bill Hwang, the founder of the hedge fund Archegos that just lost $30 billion, probably didn’t realise when he named his company that it was predestined for big things.

Archegos is a Greek word which means leader or one who leads so that others may follow.

ARCHEGOS THE FIRST OF MANY TO COME

This, until a few days ago, unknown hedge fund is a trailblazer for what will happen to the $1.5+ quadrillion derivatives market. I have warned about the derivatives bubble for years. Archegos has just lit the fuse and soon this whole market will explode.

I know that technically Archegos was a Family Office for favourable regulatory reasons. But for all intents and purposes I consider it a hedge fund.

Warren Buffett called derivatives financial weapons of mass destruction and he is absolutely right.

Greedy bankers have now built derivatives to a self-destructive nuclear weapon. Archegos shows the world that an unknown smaller hedge fund can get credit lines of $30 billion or more that quickly leads to contagion and uncontrollable losses.

And when the hedge fund’s bets go wrong, not only do the investors lose all their money, also the banks which have recklessly financed Archegos’ massively leveraged speculation will lose around $10 billion of their shareholders’ funds.

It obviously will not affect the bankers’ bonuses which will only be reduced when the bank  has gone bust. Remember the Lehman crisis in 2008. Without a massive rescue package by central banks, Morgan Stanley, Goldman Sachs, JP Morgan etc would have gone under. And still the bonuses that year in these banks were the same as the previous year.

Absolutely scandalous and the very worst side of capitalism. But as Gordon Gekko said in the film Wall Street – Greed is Good! Well when it all finishes, it might not be as good as they think.

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