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by thephyber 2201 days ago
Your appraisal seems fair... of the data you are working with.

But how many other financial instruments they own are tied up in CLOs on the books of other banks?

The whole point of The Big Short and Margin Call was that the banks aren't resilient, independent silos. When one bank shakes or falls, it can impact the neighboring bank which causes a domino effect. They all invest in slices of the things that the other banks invest in, they all do it with lots of leverage, and they all think they've hedged against the downside risk, but that still didn't prevent the 2008 collapse.
1 comments
clairity 2201 days ago
that's literally herding behavior, which is the loss of independence among market participants, so that risks start to align, rather than cancel each other out.

it's disgusting that we haven't learned anything from 2008.

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thephyber 2201 days ago
To be fair, I think every financial instrument works this way (the transitive property of assets which own assets) all the time.

Having regulations which restrict which companies are allowed to trade specific classes of instruments/services (eg. Glass Steagall) helps mitigate this, but doesn't even approach eliminating it.

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clairity 2201 days ago
it does work that way far too often, and that's exactly the problem. financiers are no smarter than other kinds of market participants, and that's what this shows.

markets require relative participant independence for pricing and allocation to function properly, otherwise we get bubbles. and now, we get constant bailouts (of capital, not labor), so on top of that, there's no downside risk to provide any counterbalance. it's corrupt.

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