Risk management mistakes associated with Bill Hwang's blow-up

[JSOP]

I don't have special insights. What I'm going to say is obvious.

Main cause of Bill Hwang's blow-up is too much leverage. What surprised me about the leverage is why did multiple prime brokers extend him so much leverage that all of them died together? Shouldn't there be some established risk management process to prevent such things from happening in financial institutions?

I would like to hear from other elite-traders on what are some other risk management mistakes that were made in this blow-up.

This is what happened: https://www.ndtv.com/world-news/the...hegos-and-how-it-collapsed-in-a-blink-2401987

Well you know banks only decline loans to those who are poor. Donald Trump was able to declare bankruptcies FOUR times. Need I say more??? If the investment market is like a casino and this Bill Hwang is like a whale, when have you ever seen a casino saying "no" to whales??

That's how. Risk management is for us small traders. These "Big Boys" or "Big Investors" are gods and are invincible. How can gods have risk?? LOL

 

[ironchef]

Much worse, however, is the fact that PB desks lent this guy many more billions after his equity investments went up many hundred percent with UNREALIZED PROFITS as collateral. You can't make this up. Pure greed and zero appreciation for risk management.

????

How is this different from us retails, broker extends us margin based on the value of our holding's market value instead of cost base: Cost base is $25, broker doesn't extend margin based on $25 but on $230, the current market price?

 

[DiceAreCast]

It's called risk concentration. You don't extend additional loans to someone who ends up constantly at the very cliff edge and the slightest wind would blow him over the edge. Unless of course you want that entity to blow up. But that's not the case here because the pb desk has a vested interest not to issue margin calls to their clients.

????

How is this different from us retails, broker extends us margin based on the value of our holding's market value instead of cost base: Cost base is $25, broker doesn't extend margin based on $25 but on $230, the current market price?

 

[deepfkvalue]

Wonder hope much revenue was attributed to Bill Hwang's business. Charge enough for the swaps and you can probably make your risk department look the other way during some red flags.

 

[Master Pu]

The way to stay in the game is by having a RM strategy that assumes you will lose more than 50% of the time. The more the risk, the more the potential gain as well as likelihood or blowing up.