12 May 2021

Quants Hubris - part the ninth

Blythe Masters rides again! Again! And again!! And again!!!

After all this time, one might surmise that the Regulators That Be would pay attention to the practice of creating and selling synthetic assests. It isn't as if such shenanigans haven't been fatal in the past. Well, guess again. The only saving grace, to the extent one could feel so, is that the dim bulb Regulators That Be are Brits. Wait... These are the same folks dumb enough to be flummoxed into Brexit by a few snake oil salesmen, playing on latent jingoism.
Greensill Capital's supply chain finance business wasn't regulated in Britain but the Financial Conduct Authority did have supervision of the company to ensure it complied with anti-money-laundering rules.
Drop the ball much? This is what Greensill was doing:
[B]ut Greensill added a twist. It packaged the invoices and other receivables by the suppliers into assets that were then sold to investors through funds. The company also provided financing to companies based on "future receivables," which were based on transactions that hadn't yet happened.
Ah, c'mon Man! Social Darwinism Finance. One might wonder how many billions Greensill socked away up to the collapse, just like the Sacklers? Regulators That Be have a vital role in macro policy: disallow behaviours which can fail far beyond the assets of the bad/stupid actors to cover. They get away, at least, scot-free or maybe with a tidy nest egg that'll keep them in a small villa in the South of France in perpetuity.

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