Archegos: Difference between revisions

And while the goings on at this brokerage were class-leadingly chaotic — it is hard to believe that any one organisation could have made ''so'' many basic errors, in such scale, for so long, so consistently, missing so many opportunities to cotton on, without catching even ''one'' lucky break as the apocalypse unfolded around it —  the ''makings'' of all these [[joint and several liability|joint and several]] catastrophes is imprinted in the DNA of ''every'' multinational organisation. An onlooker who does not shudder and think, “there, but for the grace of God, goes my firm; go ''I''” — is showing ''precisely'' the lack of awareness that caused this situation.

After all, this broker was by no means alone in taking a hammering. It just took the ''worst'' hammering, and has been the most candid about what happened. Its special committee makes a number of excellent recommendations — but stops short of the one that must have been most tempting to the Board: ''get the hell out of the broking business altogether''.

That said, this was not an institution out of its depth in a market it did not understand. Most of the mishaps have a curiously sociological, and not systemic, cast to them: they speak of bad management, backside covering, too little communication, misunderstanding human weakness: the thrall of power, the seductive simplicity of models, the priority afforded to configuring internal models structures, reports, dashboards, processes, and calculations to accommodate the risk, rather than adjusting the risk to come within the models (though there was a fair bit of ignoring inconvenient models too). Models are a [[heuristic]]: a proxy to [[Legible|legibly]] gauge one’s ability to ''withstand'' catastrophe: to satisfy the model is not to avoid catastrophe in itself. — with arse-covering, deference to hierarchy, fiefdoms and silos, inexplicable insouciance in the face of steadily escalating risk and, when it comes to it, outright idiocy.  

This sums up how dire the whole sorry business was: In early March, 2021, the broker gingerly ''asked'' Archegos to consider a new margin proposal under which the broker would take $1.35 billion of ''funds it currently held for Archegos'' and recharacterise them as [[initial margin]]: ''asked'', that is, when it was contractually entitled to ''demand'' that, and more, on 3 days’ notice.

Archegos promised to consider the request but, meanwhile, demanded the broker pay ''out'' $2.4 billion in excess [[variation margin]] it was holding. And, two weeks before Archegos blew up causing this broker a $5.5billion loss, the broker paid the excess variation margin out.  

If that isn’t painful enough, Archegos then used that excess to put on a further billion and a half dollars in additional long positions in the same stocks with Credit Suisse.

 

Breathtaking.