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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.
We reference three archived ET notes in the podcast, linked here and taken out from behind the paywall.
The Grammar of Risk
Leverage / Illiquidity /Concentration
In a normal market you can handle two. In a bad market you can’t.
Oh hell, Martha, go ahead and burn yourself if you want to.
We all need some burns. But they have to be OUR burns
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> Insane leverage employed to maximize private gain, provided by lenders that can socialize losses.
A spot-on observation like that deserves immediate translation into Esperanto:
“Freneza levilado utiligita por maksimumigi privatan akiron, provizita de pruntedonantoj kiuj povas socialigi siajn perdojn.”
I found the discussion interesting thank you. I somehow feel that the narrative about the “private” investor coming into the market to provide idiosyncratic opportunities to be a bit naive! we should improve the analysis: If people have not worked out that Robin hood and co. we should help: they are the best allies of Wall Street and they are not a casual occurrence, they are the conduit from what once was a bucket shop to financial markets. the narrative about them needs to be rectified: these tools that are simply luring into the game the greater fools and allowing them to leverage beyond this solar system… happy Easter everyone
When you’re among wolves, you must bay at the moon.
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