(published in Financial Times, April 8, 2021 under the title “Archegos boosts case for bank intermediation”).
Laurence Fletcher reports in „Hedge funds review bank ties following assets fire sale by Archegos“ (FT, April 4, 2021) that „Many (hedge funds) are baffled as to how the blow-up of a little-known family office could have led to billions of dollars of losses for lenders“. They are „baffled“, isn‘t that cute? Does a case like Archegos not finally lead to a wholesale review by regulators of the shenanigangs and other dealings of hardly-supervised financial market actors? We have this situation time and again: individual risks are wrongly assessed, individual actors look only at their own risk (if incompletely) and sudden margin calls or other changed risk perceptions lead to large potential losses (here for Credit Suisse and Nomura) which might turn into systemic losses, These are not aberrations of individual actors (which they also might be with or without criminal intent), but „part of the game“. How much longer can we let frenzied trading activities in the financial markets destabilize our economies? Where is the overall risk assessment that pits the purported liquidity provision of trading against its destabilization of the economies? When will we finally come to the conclusion that the purported „perfect“ financial markets ruin the „real“ economy, the incomes of hardworking labor and small businesses at the expense of excessive fortunes of a few market actors?
It is high time to revert to bank intermediation, thus safeguarding real investment into the future. Capital markets certainly can play an important role, but logarithmic continuous trading must be stopped.
Kurt Bayer, former Board Director at the World Bnnk and the European Bank for Reconstruction and Development