> This is quite funny right, people get scared of FR so they pull their money at and run to daddy (JPM) who then proceeds to take that money and... put $5Bn uninsured into FR.
A $5B loss won't collapse JPM, so this works OK. (And it wouldn't be anywhere near $5B, either; they'd get a significant portion back even in the event of a FRB collapse.)
> is that not only is this a level of co-ordination any normal industry would be barred from doing
This seems the opposite of anti-competitive behavior that gets cartels/conspiracies in trouble.
>I can't help but relate the entire industry to a ponzi scheme.
In what way is the insurance industry a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities?
Seriously, I feel that phrase to be misused so often it has lost all of its original meaning. /rant
If i go to cassino and bet my life saving on black that's rekless. If I go to cassino and bet your life savings then 50% of times I am genius investor, or 50% of times i am really really sorry for your loss.
The problem is that those corporations are playing a game they cannot loose. Its only logical for them to push risk (therefore profits) more and more. They themselves created 'too big to fail' term.
I am not trying to make excuses for them, they are the people who captured regulatory institutions, and de-facto are self regulating - and in practice we all know where that leads. They are responsible for what happened and is happening.
>I know the answer is that they are leveraging a fee across firms
Moral hazard achieved as a precedent has been set. I suspect billions, if not trillions, of dollars are rotating positioning to game this liability displacing outcome.
We will find out who gamed it best and what strategies they used in the coming months/years.
It's a nearly guaranteed loss, and and pretty much the only people who will invest in it are those that are too incompetent to realize that. It smells like a legal con to separate those people from their money.
> They also suggest that these projects look like a Ponzi scheme: A project's loss is paid by doing even crazier projects.
This seems to me to be the most interesting finding: the company was not doing all this illegal shit in a diabolical scheme to make the owners or management super rich (though they probably got some fat unwarranted bonuses over the years), but in desperate attempts to stave off bankruptcy.
A bit like Nick Leeson's Barings Bank shenanigans, just with less leverage, so it took a whole company to do half the damage a single person could do in finance...
> but it certainly seems risky going against an army of people that hate you and are willing to lose a lot of money just to spite you.
That's the part I don't understand. Other institutional investors will make money off this vindictiveness, right? It's not like they're punishing Wall Street as a collective; just the ones who have short positions.
> So, no, they don't deserve to lose their money to these assholes.
Yes they do. But for reasons other than that. They also typically have extremely poor risk management (or are completely oblivious to it), and more importantly, they are buying a financial instrument they don’t even understand.
>The idea that this just boils down to some good old boy phoning up RH and asking them to pump GME doesn't stand up to very much scrunity at all.
It's entirely possible, but do you really think that a conspiracy couldn't be possible in the financial world with all that's happened for the past 20 years?
> But seriously, human beings, lacking omniscience, require strategies to work around their blind spots and keep moving forward.
That' a very benign interpretation of what happened, and one that is naive of the nature of financial regulation. Specifically, you can't just rename "insurance" to "derivatives contract that pays out like insurance but with unregulated capital requirements (and please ignore the word 'insurance' - it has consequences)" and expect to get away with it.
Regulations are written to apply to everything that behaves like the regulated product. The people writing CDS knew exactly what they were doing. They just assumed they were so smart they would not be left holding the bag. Which is what everyone participating in a fraudulent scheme thinks.
> First, the short sellers getting taken to the wood shed absolutely deserve it for placing such an idiotic bet.
The bet was good. A lot of companies are doomed to contract drastically. The problem is that someone found out about this specific bet and rallied others around it.
I think the narrative around this trade is a bit simplistic, and a lot of people in it are likely to wind up disappointed by the details it ignores.
For instance, with potential losses this big, counter-party risk is huge. Even if everything works as the trade intends, and the losers have to chase after an ever smaller pool of increasingly expensive GME shares, it may make more economic sense for some of those losers to declare bankruptcy instead.
> So borrowing money from investors to compete with somebody is now a despicable thing, maybe even a crime?
Running at financial loss just to drive prices down so you can kill competition is at least unethical in my book. Also I believe it is illegal, for good reasons, in some countries.
>It's not fraudulent, just silly--it was built as a joke after all.
You know, I'm not sure its so crazy to disregard that part if you're a regulator. Wouldn't scams just use this as cover? "Oh it's a joke, but people are making real money off of it. wink wink. It's silly but it's going up and up!"
>yes, turns out we are the bad guys who have been continually lying and manipulating the situation for our benefit
This is *literally* what is expected of someone running a company with intitutional investors - anything other than this and investors are not interested.
What more proof do we need that there is nothing more important to a small group of humans that own all the money, than them getting more money?
A $5B loss won't collapse JPM, so this works OK. (And it wouldn't be anywhere near $5B, either; they'd get a significant portion back even in the event of a FRB collapse.)
> is that not only is this a level of co-ordination any normal industry would be barred from doing
This seems the opposite of anti-competitive behavior that gets cartels/conspiracies in trouble.
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