What Credit Suisse can learn from Santa Banta?

Credit suisse to reveal losses from Archegos ; estimate $7.5 bn losses. ( Article)

If any of you have ever played live poker with me, you are bound to hear a specific joke of Santa Banta from me -Slipping over a banana peel. The joke goes like this: Once Santa Slipped over a Banana peel and fell. Later he saw another banana peel and cried out ” Oops! I have to slip again”. This joke I immediately say after I see a repeated dumb play from a poker player where he ends up gifting most of his stack.

Credit Suisse is going to potentially take $7.5 bn loss in Archegos. The reason I see the loss of credit Suisse and other bankers as dumb is based on past record of Bill Hwang. In 2012, Bill Hwang had pleaded guilty to insider trading and agreed to a $44mn fine to SEC. The SEC said Hwang and his business had short-sold three Chinese bank stocks based on inside information—borrowing the shares, selling them high, and aiming to buy them back low and pocket the difference.  There are a lot of crooks in financial markets, but based on the SEC’s description of Hwang’s actions, he was less a garden-variety fraudster than a triple-crown winner of financial cheating: an insider trader who got unfair market discounts and tried to manipulate prices through other means.

Goldman Sachs which had blacklisted Hwang till 2018, also gave in to the greed of commission. The same year, Goldman was embroiled in a corruption scandal related to 1mdb. The greed among investors is so high that they somehow always forget very recent history and repeat the dumb mistakes. While there are no records of any wrongdoing here prima facie and being seen as a case of just margin call, I am pretty sure that leverage standards were bypassed.

I have seen a very similar behavior among Indian investors supporting companies that have earlier short-changed investors. There were enough people backing companies like Deccan Chronicle and Manpasand Beverages despite enough data of wrongdoing.

I wish someday people can learn from Santas mistakes and not slip again.

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