How Might Archegos’ $10 Billion in Losses Affect Your Retirement?

Imagine you walked into a Las Vegas casino and you brought all the money you had, let’s say $1  million, and the casino gave you $154 million to gamble with. How smart do you think that would be for that casino?  Well, right now Goldman Sachs Bank USA has 154 times their assets in total gross derivatives!

A number of other giant financial banks are also leveraging up using credit default swaps and similar derivative contracts:

Credit default swaps were at the heart of the financial crisis in 2008 that brought down AIG. The insurance giant AIG had been selling credit default swaps for years, collecting tiny premiums, confident that the mortgage market wouldn’t collapse, and that they’d never have to pay out a claim.

In 2008, the unthinkable happened: Mortgage markets collapsed — and mortgage lenders went to AIG expecting them to make good on their contracts.  AIG didn’t have the cash and couldn’t raise it.

In 2021, non-regulated Archegos caused over $10 billion in losses. Archegos was set up as a family office, away from the oversight of the SEC. As such they were allowed to take tremendous bets by using a derivative called a swap, which were bets on stocks using high leverage. Unfortunately, when those stocks went down, massive losses ensued.  It is believed that Archegos had $10 billion in assets, yet was allowed to bet on $50 billion to $100 billion of stocks!  5 to 10 times leverage spread out among a number of banks that took losses during March of 2021.