How exactly would you do this?…Even if you eventually grew your assets to $10B, how would you engineer a global liquidity crisis?
Pyramid scheme. I’d take up as much risk, debt and leverage as I can. Then I’d suddenly default on all of it. There are few defenses against this because rich agents in the financial system have always acted out of self-interest. Nobody has even intentionally thrown away $10 billion dollars and their reputation just to harm strangers indiscriminately. The attack would be unexpected and unprecedented.
Didn’t this basically happen with LTCM? They had losses of $4B on $5B in assets and a borrow of $120B. The US government had to force coordination of the major banks to avoid blowing up the financial markets, but meltdown was avoided.
Edit: Don’t pyramid schemes do this all the time, unintentionally? Like, Madoff basically did this and then suddenly (unintentionally) defaulted.
Yes and yes. However, pyramid schemes are created to maximize personal wealth, not to destroy collective value. Those are not quite the same thing. I think a supervillain could cause more harm to the world by setting out with the explicit aim of crashing the market. It’s the difference between an accidental reactor meltdown verses a nuclear weapon. If LTCM achieved 95% leverage acting with noble aims, imagine what would possible for someone with ignoble motivations.
Pyramid scheme. I’d take up as much risk, debt and leverage as I can. Then I’d suddenly default on all of it. There are few defenses against this because rich agents in the financial system have always acted out of self-interest. Nobody has even intentionally thrown away $10 billion dollars and their reputation just to harm strangers indiscriminately. The attack would be unexpected and unprecedented.
Didn’t this basically happen with LTCM? They had losses of $4B on $5B in assets and a borrow of $120B. The US government had to force coordination of the major banks to avoid blowing up the financial markets, but meltdown was avoided.
Edit: Don’t pyramid schemes do this all the time, unintentionally? Like, Madoff basically did this and then suddenly (unintentionally) defaulted.
Yes and yes. However, pyramid schemes are created to maximize personal wealth, not to destroy collective value. Those are not quite the same thing. I think a supervillain could cause more harm to the world by setting out with the explicit aim of crashing the market. It’s the difference between an accidental reactor meltdown verses a nuclear weapon. If LTCM achieved 95% leverage acting with noble aims, imagine what would possible for someone with ignoble motivations.