If you, like me, are a casual consumer of financial news, many of 2021’s biggest stories have felt dumb, even by our increasingly high standards for things to feel dumb.
GameStop’s stock exploded for reasons unconnected to its underlying business, nosedived when a stock trading app decided to lock out its devoted customers from trading that hugely popular security, then rose again later. Something called a SPAC has become all the rage in mergers and acquisitions. What is a SPAC? Well, it’s nothing—a blank check inside of a shell, more or less. But then Alex Rodriguez or Paul Ryan (they are the same) gets involved and whoosh—there’s a special purpose acquisition company allegedly worth $300 million. Something called a non-fungible token has helped unremarkable pieces of the internet sell for huge sums—anything from a LeBron dunk anyone could watch on YouTube ($208,000) to a screencap of a newspaper column ($560,000) to JPG file of some art ($69 million). Additionally, a big boat got stuck in a canal, causing billions upon billions of dollars in shipping problems.
All of that was bizarre, but in retrospect it wasn’t exactly dumb. Those tales have a certain simplicity. GameStop boomed because a bunch of people realized if they bought something over and over, the price would go up. NFTs capitalized on a timeless human desire to own something “exclusive,” even if it looks like countless other versions of the same thing. Even SPACs are just following in an American tradition of people having money thrown at them because they are rich, cool, or well-connected. And the Suez Canal shipping saga makes immediate sense even to our youth. A big thing got stuck, and money stopped moving.
In fact, the dumbest money story of the year happened only in the last few days, when something most of us had never heard of collapsed and dragged some of the world’s most esteemed financial institutions into the mud alongside it. The swift fall of Archegos Capital Management is one of the most embarrassing financial plotlines in years, not just for a handful of banks but for an entire financial and governance system that really shouldn’t have let any of this happen. It takes a lot of malfeasance for giant banks to do something in 2021 that would make a neutral observer think, Wow, it’s legitimately shocking they did that. But life is full of surprises.
To get across how absurd this story is, we might start in 2012. At the time, Bill Hwang was the portfolio manager of Tiger Asia Management, a hedge fund he founded. That year, Hwang pleaded guilty to insider trading and agreed to a $44 million Securities and Exchange Commission fine. The SEC said Hwang and his business had short-sold three Chinese bank stocks based on inside information—borrowing the shares, selling them high, and aiming to buy them back low and pocket the difference.
It wasn’t just insider trading, though. According to…