Originally published in April 2021.

“Daddy was a bankrobber, but he hurt nobody. He just liked to live that way, stealing all your money…”

As Greensill and Archegos roil markets and cause losses, it brings the question: Who is next? Why is 2021 turning into the year the scams are unravelling? Will leverage on leverage trigger wider implosion or will it be something else, like liquidity?

Back in the day… Archaos was a terrifying alternative French circus. They were brilliant and shocking – anarchy on steroids as they juggled chainsaws, played with fire on motorbikes, and ignored the conventions of gravity on the high-wire!

In contrast, the collapse of Archegos Capital is anything but brilliant. It seems to be a developing theme for 2021: the year the shysters of finance are being revealed as their get-rich-quick schemes unravel. Bill Hwang of Archegos and Lex Greensill share a common trait – being able to insert themselves seamlessly into the game. They have both been exposed – raising the question: Who hasn’t? What other shocks are still embedded in the system?

I could have started this morning’s porridge with a comment about there being “something rotten in the state of global finance”, but that would be too easy. Everyone in the financial markets is just an actor in the bigger picture, but to understand why market participants act in certain ways and their motivations, or why banks and funds are willing to provide unlimited leverage to clients in overcooked markets, or why bright young bankers enable it, you need to understand the way the institutions work.

There isn’t time for a full sociological analysis of the business, but for the last month we’ve seen a deluge of stories about how unfairly young intern bankers are treated – 100-hour weeks and no sleep, while their bosses use the company jet to holiday in the Caribbean and as a taxi back to the big house in the Hamptons. The bosses play that way because that’s what they learned back in the 1980s. They got rich on big bonuses from extracting value from the system by supplying solutions to financial problems. Everyone wants to be the boss. The interns may whine it’s unfair – welcome to finance.

In investment banking, no one is listening when you scream. These same put-upon interns today will be the salespeople and bankers of tomorrow looking for opportunities (and commensurate bonuses) from selling their firms’ solutions to extract value. The markets move very quickly to the next thing: the hedge funds that were once gaming bank capital, before switching into distressed assets, are now offering to provide leverage – and charging for it. In a world of 0.15% bond yields, clients need leverage to pay the bills. They’ve discovered that leverage on leverage generates returns and big pay-checks.