Greensill Capital Tumbles Into Insolvency, Spreading Financial Pain

Link: https://www.wsj.com/articles/greensill-capital-tumbles-into-insolvency-spreading-financial-pain-11615216346

Excerpt:

Greensill Capital filed for insolvency protection Monday, days after regulators took over its banking unit and Credit Suisse Group AG froze investment funds that were critical to the startup’s operations.

The unwinding has rippled to holders of the Credit Suisse funds, German municipalities that deposited money with Greensill’s bank, and a high-profile duo of venture-capital investors.

Greensill specialized in supply-chain finance, a type of short-term cash advance to companies to stretch out the time they have to pay their bills. The firm was once worth $4 billion based on investments from SoftBank Group Corp.’s Vision Fund. The collapse marks a high-profile blow for the mammoth Japanese investor.

Author(s): Julie Steinberg, Duncan Mavin, Patricia Kowsmann

Publication Date: 8 March 2021

Publication Site: Wall Street Journal

5 Pandemic Mistakes We Keep Repeating

Link: https://www.theatlantic.com/ideas/archive/2021/02/how-public-health-messaging-backfired/618147/?mc_cid=0edceb332a&mc_eid=983bcf5922

Excerpt:

Five key fallacies and pitfalls have affected public-health messaging, as well as media coverage, and have played an outsize role in derailing an effective pandemic response. These problems were deepened by the ways that we—the public—developed to cope with a dreadful situation under great uncertainty. And now, even as vaccines offer brilliant hope, and even though, at least in the United States, we no longer have to deal with the problem of a misinformer in chief, some officials and media outlets are repeating many of the same mistakes in handling the vaccine rollout.

….

Amidst all the mistrust and the scolding, a crucial public-health concept fell by the wayside. Harm reduction is the recognition that if there is an unmet and yet crucial human need, we cannot simply wish it away; we need to advise people on how to do what they seek to do more safely. Risk can never be completely eliminated; life requires more than futile attempts to bring risk down to zero. Pretending we can will away complexities and trade-offs with absolutism is counterproductive. Consider abstinence-only education: Not letting teenagers know about ways to have safer sex results in more of them having sex with no protections.

Author(s): Zeynep Tufekci

Publication Date: 26 February 2021

Publication Site: The Atlantic

An Ancient Greek Approach to Risk and the Lessons It Can Offer the Modern World

Link: https://theconversation.com/an-ancient-greek-approach-to-risk-and-the-lessons-it-can-offer-the-modern-world-154139

Excerpt:

While the earliest generations lived life free of worries, according to Hesiod, life in the current iron generation is shaped by risk, which leads to pain and sorrow.

Throughout the poem, Hesiod develops an idea of risk and its management that was common in ancient Greece: People can and should take steps to prepare for risk, but it is ultimately inescapable.

As Hesiod says, “summer won’t last forever, build granaries,” but for people of the current generation, “there is neither a stop to toil and sorrow by day, nor to death by night.”

Author(s): Joshua P. Nudell

Publication Date: 22 February 2021

Publication Site: The Conversation

Melvin Capital, GameStop and the road to disaster

Link: https://www.ft.com/content/3f6b47f9-70c7-4839-8bb4-6a62f1bd39e0

Graph:

Excerpt:

It was a routine regulatory filing, the kind hedge funds must make every three months, where Melvin Capital first showed its hand.

The “Form 13F” filing that landed on August 14 last year listed 91 positions it held at the end of the second quarter, including shareholdings in household names from Microsoft and Amazon to Crocs and Domino’s Pizza. Halfway down the list: an apparently innocuous bet against GameStop, a struggling video game retailer.

That the New York hedge fund should think GameStop’s shares were going lower was hardly remarkable — many others were betting the same way. Wall Street analysts had sell ratings on the stock and the retailer’s prospects looked grim as gamers switched to downloads. But by using the options market for the bet, which forced it to disclose the position, Melvin had put a target on itself.

Author(s): Ortenca Aliaj and Michael Mackenzie in New York and Laurence Fletcher in London

Publication Date: 6 February 2021

Publication Site: Financial Times

GameStop Frenzy Lessons: Don’t Bet the Milk Money

Link: https://marypatcampbell.substack.com/p/gamestop-frenzy-lessons-dont-bet

Graph:

Excerpt:

The failures we hear about are when staid institutions that have existed for centuries have done something incredibly risky, leading to serious consequences.

When it comes to institutional money management…. this kind of speculation is not really in keeping with professional standards, depending on the institution.

We may find that some institutions were betting the milk money by putting too much of their cash in very risky investment strategies. But really, only if they have to absorb the losses. Perhaps various players will save Melvin Capital et. al. You never know.

Author(s): Mary Pat Campbell

Publication Date: 6 February 2021

Publication Site: STUMP

GameStop insurgency is just the latest rebellion against ‘the Big Guys’

Link: https://nypost.com/2021/01/28/gamestop-insurgency-just-latest-rebellion-against-the-big-guys/

Excerpt:

Writing for The Post this week, Charles Gasparino explained why the little guys got together to buy GameStop: “Mostly, they’re out to hurt the big guys.”

The Big Guys’ problem is that nobody likes them much. From Silicon Valley to Wall Street, they’re deeply unpopular with ordinary Americans, on both the left and the right, resentment they’ve stoked with selfishness, arrogance and condescension. Their solution to this unpopularity has been to use their control over online platforms, and their influence over the government, to silence their critics.

But they can’t stop the signal. No sooner did the tech giants collude to shut down Twitter alternative Parler than a new revolt sprang up somewhere else entirely among stock traders on Reddit. What will it be next? Truck drivers refusing to deliver food to Silicon Valley? Plumbers boycotting “woke” executives? It’ll probably be something cleverer and less foreseeable than that, but it’ll be something. The more the techno-elite tightens its grip, the more Americans will slip through its fingers.

Author(s): Glenn H. Reynolds

Publication Date: 28 January 2021

Publication Site: NY Post

Building robust and ethical vaccination verification systems

Excerpt:

The rapid development of an effective COVID-19 vaccine provides hope that the pandemic might be brought to an end, but as societies roll out vaccines and begin to open up, policymakers face difficult questions about how to best verify individuals’ vaccine records. Building vaccine record verification (VRV) systems that are robust and ethical will be vital to reopening businesses, educational institutions, and travel. Historically, such systems have been the domain of governments and have relied on paper records, but, now, a variety of non-profit groups, corporations, and academic researchers are developing digital verification systems. These digital vaccine passports include the CommonPass app developed by the World Economic Forum to verify COVID-19 test results and vaccine status, as well as similar systems several major tech companies are actively exploring.

VRV systems present both opportunities and risks in tackling the COVID-19 pandemic. They offer hope of more accurate verification of vaccine status, but they also run the risk of both exacerbating existing health and economic inequalities and introducing significant security and privacy vulnerabilities. To mitigate those risks, we propose a series of principles that ought to guide the deployment of VRV systems by public health authorities, policymakers, health care providers, and software developers. In particular, we argue that VRV systems ought to align with vaccine prioritization decisions; uphold fairness and equity; and be built on trustworthy technology.

Author(s): Baobao Zhang, Laurin Weissinger, Johannes Himmelreich, Nina McMurry, Tiffany Li, Naomi Schinerman, and Sarah Kreps

Publication Date: 26 January 2021

Publication Site: Brookings

Credit Suisse Was Alerted to Private Banker’s Misconduct Years Before Criminal Charges

Link: https://www.wsj.com/articles/credit-suisse-was-alerted-to-private-bankers-misconduct-years-before-criminal-charges-11612462705

Excerpt:

Credit Suisse Group AG overlooked red flags for years while a rogue private banker stole from billionaire clients, according to a report by a law firm for Switzerland’s financial regulator.

The private banker, Patrice Lescaudron, was sentenced to five years in prison in 2018 for fraud and forgery. He admitted cutting and pasting client signatures to divert money and make stock bets without their knowledge, causing more than $150 million in losses, according to the Geneva criminal court.

The regulator, Finma, publicly censured Credit Suisse in 2018 for inadequately supervising and disciplining Mr. Lescaudron as a top earner, and said he had repeatedly broken internal rules, but it revealed little else about the bank’s actions in the matter. Credit Suisse said it discovered Mr. Lescaudron’s fraud in September 2015 when a stock he had bought for clients crashed.

Author: Margot Patrick

Publication Date: 5 February 2021

Publication Site: Wall Street Journal

Inside the Reddit army that’s crushing Wall Street

Link: https://edition.cnn.com/2021/01/29/investing/wallstreetbets-reddit-culture/index.html

Excerpt:

This past week has been a banner one for Reddit’s island of misfit investors.

WallStreetBets exploded into the mainstream, moving from the front page of Reddit to the front page of the New York Times and nearly every other major news site. The subreddit’s short-squeeze of GameStop helped shoot up the price of the video game retailer’s stock a mind-boggling 1,700% from the beginning of January to Wednesday (before it fell again Thursday), captivating the minds and wallets of investors — both casual and institutional — and financial regulators.

But while millions are now discovering WallStreetBets for the first time, it has been building momentum throughout the pandemic. One can trace its epic rise to a perfect storm of favorable conditions: the exponential growth of the app Robinhood and its no-fee options trading, the extreme volatility Covid-19 brought to the markets, the stimulus checks mailed to millions of Americans, the lack of televised sports for much of the year, and the unwanted free time stuck at home the pandemic has forced on many people.

Author: Jon Sarlin

Publication Date: 30 January 2021

Publication Site: CNN

GameStop’s Reddit-fueled rally, explained

Excerpt:

Bloomberg has a fantastic rundown:

  1. $GME was first pitched as an investment on r/WallStreetBets about 2 years ago, but the current craze built up over the past 12 months.
  2. Members on the subreddit r/WallStreetBets believed that GameStop, with 5k+ brick ‘n’ mortar locations, could turn around its fortunes by going digital.
  3. On Aug. 31, 2020, Ryan Cohen — the billionaire founder of pet company Chewy — bought up a big position in $GME (he now owns 10%+ of it) with plans to modernize the company.
  4. In the months since, a number of prominent hedge funds (Citron, Melvin Capital) revealed they were betting against (AKA short selling) $GME.
  5. Typically in short selling, you: 1) borrow a stock; 2) sell it to a buyer; and 3) if the price of the stock falls, you can buy it for a cheaper price you sold it at and return the stock to the person who lent it to you.
  6. One risk of short selling is called a “short squeeze.” Since you have to eventually return the stock you borrowed, problems can arise if there is a limited supply of the stock.
  7. In a “short squeeze,” the underlying stock will get bid up as short sellers try to get their hands on stock that they have to return.
  8. Options trading — the right, but not obligation, to buy a stock at a certain price — is also driving $GME up as institutions that sell these options are buying $GME stock to hedge their position.
  9. $GME stock is on an upward tear as these market mechanics play out and r/WallStreetBets traders coordinate their efforts.

Author: Trung T. Phan

Publication Date: 26 January 2021

Publication Site: The Hustle

Hedge fund Melvin sustains 53% loss after Reddit onslaught

Link: https://arstechnica.com/gadgets/2021/01/hedge-fund-melvin-sustains-53-loss-after-reddit-onslaught/

Excerpt:

Melvin Capital, the hedge fund that was wrongfooted by retail traders who drove up shares in GameStop and other companies it had bet against, lost 53 percent in January, according to people familiar with the firm’s results.

The New York-based hedge fund sustained a $4.5 billion fall in its assets from the end of last year to $8 billion, even after a $2.75 billion cash injection from Steve Cohen’s Point72 Asset Management and Ken Griffin’s Citadel.

Authors: ORTENCA ALIAJ AND ERIC PLATT

Publication Date: 31 January 2021

Publication Site: Ars Technica