Are we letting the greedy boys play with matches again?

Archegos. Given that an archbishop is a super bishop, doesn’t that just sound like hugely inflated self-importance? You know, as in “people with arch egos tend to overestimate their own talents and get a lot of others into trouble”? 

Well, it’s hard to imagine a better name for the latest hedge fund to crash.

Bill Hwang, the man who would be prince
and, apparently, overreached

It turns out that Archegos is a biblical Greek word for prince or leader, which perhaps underlines the point: the man who runs, or perhaps we shall soon be saying ran, the hedge fund Archegos, Bill Hwang, clearly saw himself as a prince of finance and world leader, destined to show the world how fortunes are made.

He certainly made himself one, but now, like so many who over-indulge in hubris, seems to have lost it. Spectacularly. Bigly, if I can make use of the one contribution Donald Trump has made to English culture.

What’s worse, the discreetly-placed bets that Hwang has now lost are also exposing some leading banks to serious losses. The trick in an operation like his is that you do your business on borrowed money. When it all goes belly up, you can’t repay your debts, and the banks that backed you end up taking a hit. Japan’s Nomura Bank may have lost some $2 billion. Crédit Suisse may have suffered even more.

This is all a bit painful, but by no means the first time that financiers greedy for still further billions have come unstuck. A pain for Archegos employees, of course, and for the exposed banks, but not perhaps a serious problem for the world. If, that is, it’s an isolated event. 

Which makes it a bit worrying that, actually, it isn’t. As Crédit Suisse can testify. The Swiss Bank was sadly implicated in the previous debacle, just a few weeks ago. This is when the Lex Greensill’s bank, Greensill, got into trouble.  

Lex Greensill with one of the high-level contacts
so key to this rag-to-riches (and now to rags) character

The bank’s business was centuries old. Imagine a company owed significant sums by its clients, who are paying too slowly, which is preventing the company making necessary investments. A bank steps in and advances the company loans available immediately, to be covered by the expected payments, in return for a cut. The company gets the money it needs now, for a small reduction in its payments later. For many, the loss of revenue is a price worth paying for not having to wait for the investments it wants to make today.

That was Greensill’s game. But it unfortunately got things wrong. It tried to grow too fast, didn’t maintain sufficient transparency to manage its business intelligently and made itself far too dependent on a small number of major clients. The French have a lovely expression: trying to go faster than the music. Both Greensill and Archegos had tried to dance faster than the music was going, and both came unstuck.

Crédit Suisse, apparently reputed to be far too relaxed about risk, came unstuck in both failures, facing serious losses in both.

Some of this may sound familiar to you. It was the kind of thing that happened back in 2008. The fast-car, fast-buck, high-octane set got high on its own sense of importance, decided that the mortgage market would never stop growing, and invested far beyond any sensible assessment of risk would allow. The crash when it came was devastating, and it didn’t by any means affect only the people responsible for it – many of whom emerged unscathed – but did lasting damage to lots of others around the world.

That seems to be a lesson we haven’t learned.

These two cases are also linked by their relaxed approach to behaviour that is criminal or at least unethical. In 2012, Bill Hwang of Archegos pleaded guilty to criminal charges of insider trading and agreed to pay fines and civil damages to the tune of $60m. Apparently, that isn’t enough to bar you from returning to this world and playing for high stakes again, with other people’s money.

In many ways, the Greensill story is still less appetising. Lex Greensill was a close adviser to David Cameron, when the latter was UK Prime Minister. Greensill had an office inside 10 Downing Street. And, when Cameron lost office, he was quickly appointed to a senior position himself within the bank.

Then as things began to unravel, Cameron bombarded Rishi Sunak, the present Chancellor of the Exchequer with text messages to his private phone, pleading for government aid to the bank to bail it out. Now Cameron held large numbers of option shares in the bank, so if the government had intervened, he might have gained substantially himself.

There is a shady process known as the ‘revolving door’, whereby people in government help out one or more companies and then, when they return to private life, join those same companies on good salaries and use their residual influence to help them again. It isn’t illegal, but it doesn’t smell good. And when the bank the former politician has been helping goes under, it smells still worse.

Excessive greed. Unfounded belief in oneself. Behaviour that floats around the unethical to the downright criminal.

Yes, there are echoes of 2008 here. As Nils Pratley points out in the Guardian, we’d better just hope that these are one-offs. If it’s the greedy boys out again with the matches, there could be a conflagration ahead.