Derivatives Can Cause Financial Panic

Introduction by the Blog Author

 This is how a huge financial crash is likely to happen: banks acting as "counterparties" (which means they guarantee -- underwrite -- derivative contracts) as the contracts, which are really just bets, toboggan to worthlessness.  The banks can wind up terrifying each other!  Worldwide, the "notational value" of derivatives (the amounts stated in the contracts) is estimated to total 2.4 quadrillion dollars.  That is 2,400 trillion dollars, or 70 times the gross domestic product of the entire world.

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 Archegos Implosion is a Sign of Massive Stock Market Leverage that Stays Hidden until it Blows Up and Hits the Banks

by Wolf Richter • Mar 29, 2021 • 104 Comments

Banks, as prime brokers and counterparties to the hedge fund, are eating multi-billion-dollar losses as they try to get out of these secretive stock derivative positions..

Archegos Implosion is a Sign of Massive Stock Market Leverage that Stays Hidden until it Blows Up and Hits the Banks