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.
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.