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This isn’t that big a deal. LTCM was levered up 100 to 1 when it got bailed out on its 3 billion notional. Bear and Lehman were levered up 30 to 1 on their bi

This isn’t that big a deal. LTCM was levered up 100 to 1 when it got bailed out on its 3 billion notional. Bear and Lehman were levered up 30 to 1 on their billions of assets. I don’t see that kind of leverage or counterparts risk here. A hedge fund or two blows up. Maybe they take a small investment bank with them. The system can survive that shock.

015a 6y ago
I agree; its important to keep in mind that GME's total market cap, even after all of this, is only ~$22B. A 140% short position is bad (even if that's the real number, which I doubt), but in the scope of all things, not world-ending. Some hedge funds will die from this, and we'll probably have a few weeks of overall market downturn similar to last year, but we're not talking about "the entire US real estate market" here. The US government could buy the entirety of GameStop at 3x its current price and it would barely quality for a line on the annual budget report.
- motohagiography 6y ago
  Indeed, I'm saying it's not the cost of if they do a bailout, it's the cost if they don't. Maybe I've overestimated the impact of a ~13bn fund evaporating and breaking a clearing house and the liquidity crunch from all their leverage and the linked derivatives. Not sure what hedge fund leverage is these days. Surely it can't be at 2008 levels. We know about Melvin, not sure about others in there. As I interpret it, it's not clear what institutions have exposure to these at-risk funds and their leverage who are still short GME, and this is what causes liquidity problems. Not 2008 level, but could be Fed intervention level. The admin can bail out those funds for a trivial line item by taking on the RH user shares. If they don't intervene, I'm suggesting this is the domino for a crunch.
  - mathattack 6y ago
    The Fed won’t step in if it’s 15 billion of one way bets. They care when the bets are leveraged and there’s a trillion dollar counterparty problem.
- unethical_ban 6y ago
  Let's also absorb the fact that one firm can "lose" 22B in value and no one involved feels directly hurt.
  - mathattack 6y ago
    22 billion is small compared to the sea of market moves. It’s why a small group of retail investors could push the market. If they levered up 30 to 1 that’s a different story.
rantwasp 6y ago
you believe markets are rational. they are not. if the hedge funds that messed up unload shares of other companies they own to eventually cover, this could easily escalate via a positive feedback loop collapsing the whole market (the fact that we’re in a market that ignores fundamentals is also not helping). so the fed just just force the hedge funds to cover in a controller way (ie you’re no longer allowed to short, you have 3 months to cover or you’re gone)
- mathattack 6y ago
  Not arguing rationality. Just arguing that it’s too small for the Fed to care. 14 billion on one stock doesn’t tank the market. Tesla or Apple can move the market that much on one earnings announcement.
  - rantwasp 6y ago
    it’s not this one stock. it’s the volatility and the unintended consequences these can trigger
lr4444lr 6y ago
The Fed coordinated the LTCM buyout, but it was not public money, IIRC. A federal bailing out of a completely non FDIC insured private capital firm would be uncharted territory, I think.
- mathattack 6y ago
  It was also a much bigger problem. Trillions, not billions, due to all the leverage they used.

015a 6y ago

I agree; its important to keep in mind that GME's total market cap, even after all of this, is only ~$22B. A 140% short position is bad (even if that's the real number, which I doubt), but in the scope of all things, not world-ending. Some hedge funds will die from this, and we'll probably have a few weeks of overall market downturn similar to last year, but we're not talking about "the entire US real estate market" here. The US government could buy the entirety of GameStop at 3x its current price and it would barely quality for a line on the annual budget report.

motohagiography 6y ago
Indeed, I'm saying it's not the cost of if they do a bailout, it's the cost if they don't. Maybe I've overestimated the impact of a ~13bn fund evaporating and breaking a clearing house and the liquidity crunch from all their leverage and the linked derivatives. Not sure what hedge fund leverage is these days. Surely it can't be at 2008 levels. We know about Melvin, not sure about others in there. As I interpret it, it's not clear what institutions have exposure to these at-risk funds and their leverage who are still short GME, and this is what causes liquidity problems. Not 2008 level, but could be Fed intervention level. The admin can bail out those funds for a trivial line item by taking on the RH user shares. If they don't intervene, I'm suggesting this is the domino for a crunch.
- mathattack 6y ago
  The Fed won’t step in if it’s 15 billion of one way bets. They care when the bets are leveraged and there’s a trillion dollar counterparty problem.
unethical_ban 6y ago
Let's also absorb the fact that one firm can "lose" 22B in value and no one involved feels directly hurt.
- mathattack 6y ago
  22 billion is small compared to the sea of market moves. It’s why a small group of retail investors could push the market. If they levered up 30 to 1 that’s a different story.

rantwasp 6y ago

you believe markets are rational. they are not. if the hedge funds that messed up unload shares of other companies they own to eventually cover, this could easily escalate via a positive feedback loop collapsing the whole market (the fact that we’re in a market that ignores fundamentals is also not helping). so the fed just just force the hedge funds to cover in a controller way (ie you’re no longer allowed to short, you have 3 months to cover or you’re gone)

mathattack 6y ago
Not arguing rationality. Just arguing that it’s too small for the Fed to care. 14 billion on one stock doesn’t tank the market. Tesla or Apple can move the market that much on one earnings announcement.
- rantwasp 6y ago
  it’s not this one stock. it’s the volatility and the unintended consequences these can trigger

lr4444lr 6y ago

The Fed coordinated the LTCM buyout, but it was not public money, IIRC. A federal bailing out of a completely non FDIC insured private capital firm would be uncharted territory, I think.

mathattack 6y ago
It was also a much bigger problem. Trillions, not billions, due to all the leverage they used.