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The Special Committee makes a number of excellent recommendations — all worth heeding — but stops short of the one that must have been most tempting to the Board: ''get the hell out of the broking business altogether''. | The Special Committee makes a number of excellent recommendations — all worth heeding — but stops short of the one that must have been most tempting to the Board: ''get the hell out of the broking business altogether''. | ||
What is interesting is that almost all of the most egregious errors were sociological: they speak of human foibles, the thrall of power, obsession with models and capital calculations and not risk, with arse-covering, deference to hierarchy, fiefdoms and silos, insouciance and, when it comes to it, idiocy. In a period when Credit Suisse gingerly asked Archegos to consider a new margin proposal, Archegos responded by requesting CS pay it $2.4 ''billion'' in excess variation margin it held with Credit Suisse. And Credit Suisse ''paid it'' without question. | |||
===Concerns about Archegos=== | ===Concerns about Archegos=== | ||
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You read variations of the following a ''lot'' in the Archegos report: “if we increase margins [to risk-acceptable levels], we will lose the business”. Indeed, you will hear variations of that theme, every day, uttered by anxious [[salespeople]] in every brokerage in the City. Salespeople ''would'' say this: their ''role'' is to say things like this: they speak for their clients, and their own bonus prospects, at the table where business is discussed. But others at that table — notably risk — should be taking the other side of that conversation. | You read variations of the following a ''lot'' in the Archegos report: “if we increase margins [to risk-acceptable levels], we will lose the business”. Indeed, you will hear variations of that theme, every day, uttered by anxious [[salespeople]] in every brokerage in the City. Salespeople ''would'' say this: their ''role'' is to say things like this: they speak for their clients, and their own bonus prospects, at the table where business is discussed. But others at that table — notably risk — should be taking the other side of that conversation. | ||
So should your risk team be led by ex-salespeople with no experience in risk management? Probably not. Should it be business-aligned at all? Interesting question. | So should your risk team be led, as CS’s was, by ex-salespeople with no experience in risk management? Probably not. Should it be business-aligned at all? Interesting question. | ||
In any case it seems the fears of CS risk executives, that they might be uncompetitive if they raised margins, was flat out wrong. To the contrary, Archegos directed business to CS ''because'' it was margining swaps more cheaply than anyone else. | In any case it seems the fears of CS risk executives, that they might be uncompetitive if they raised margins, was flat out wrong. To the contrary, Archegos directed business to CS ''because'' it was margining swaps more cheaply than anyone else. | ||