TYLER DURDEN, 01 May 2021
Just about three months ago, I wrote a blog post which featured this quote, from Charles P. Kindleberger’s Manias, Panics and Crashes: “Swindles are a response to the appetite for wealth (or plain greed) stimulated by the boom.” Since then, the number of frauds, or swindles, that has been revealed has soared, a clear testament to both the breadth and degree of greed inspired by the current boom.
Most recently, we saw the collapse of Greensill Capital as the result of fraud. Like WireCard, Greensill was a relatively young finance company looking to disrupt its more mature competitors which took a few (illegal) short cuts in the process.
Then we saw the implosion of Bill Hwang’s family office, Archegos. While this may not look like your typical fraud, I would argue its failure was the result of market manipulation, enhanced by an obscene if not illegal amount of leverage, gone wrong. And isn’t market manipulation, “an act of deceiving or misrepresenting“?
What’s more, the Hwang playbook sounds a lot like what we have been seeing in the options markets for the past 18 months or so. It’s almost as if he, discovered his own, “perpetual motion machine,” for a time.