05 April 2021

Quants' Hubris - part the seventh

Blythe Masters rides again! Again! And again!!

So, let the post-mortems continue! This next one also in the NYT, puts more meat on the bones of the issue. Doesn't, alas, provide any insight into whether Hwang's shenanigans are widespread by others. Better hope not. Remember, Blythe's CDS scam happened in full view of regulators, more or less; derivatives have never been much regulated.
"That whole affair is indicative of the loose regulatory environment over the last several years," said Charles Geisst, a historian of Wall Street. "Archegos was able to hide its identity from regulators by leveraging through banks in what has to be the best example of shadow trading."
Couple that with the fact that Archegos is, officially, a non-public entity and thus not subject to SEC oversight... Regulators could, more or less, see the CDS situation among all those public entities. Didn't motivate them to keep the herd from stampeding.

Not all the banks chose to jump later, after his spanking by regulators
Goldman later changed course, and in 2020 became a prime broker to the firm alongside Credit Suisse and Morgan Stanley. Nomura also worked with him. JPMorgan refused. [my emphasis]
The rest of the story amounts to: once the avalanche starts rolling down the mountain, most everything gets scrubbed out.

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