Macroscope | Archegos chaos raises the spectre of the 2008 financial crisis
- The 2008 crash brought home the need for regulators to monitor and deter extreme financial engineering. Is the Archegos hedge fund blow-up a one-off event, or a warning of worse to come because the world has not learned the lesson?
Despite all the due diligence and rigorous stress tests of the global banking system in recent years, there may be a greater need for regulators to probe a lot deeper for potential threats in bank loan books and prime brokerage exposures, especially to the highly-leveraged hedge fund world.
Archegos might be a one-off, but it could also be the tip of a very dangerous iceberg of toxic risk at a time when the world’s bailout resources are stretched to the limit. The world’s regulators can ill afford to keep turning a blind eye to the financial market’s overindulgence.
If the 2008 crash was supposed to have taught the world one thing, it was a need for much tougher regulation and better transparency in the industry that brought the global financial system close to complete collapse.