Track 11 of 25

Deleveraging case histories

Twenty-four public, widely reported episodes between 1993 and 2022. What the position was, what moved, what the sequence was, what the outcome was. The lesson in each is the sequence, not the villain.

25 lessons

Mark a lesson complete and it is remembered here.

How to read a deleveraging episode: the sequence, not the villainEvery collapse has the same skeleton, and the last step is always a sale that deepens the fall.8 min
A convergence fund, 1998: what the positions wereThe trades were individually small bets on spreads narrowing, and almost every one of them widened at once.7 min
A convergence fund, 1998: leverage multiples and why they compoundedA twenty-five to one balance sheet turns a two percent price move into a forty-five percent loss of capital.7 min
A convergence fund, 1998: the sequence after AugustOnce the market could infer what a distressed holder had to sell, the exit price stopped being the quoted price.7 min
An industrial hedger, 1993: a hedge with a margin clockA hedge can be economically correct and still fail, because the two legs settle on different calendars.7 min
A commodity fund, 2006: one concentrated natural gas positionWhen your position is a large share of the open interest, your exit is itself the price move.7 min
An investment bank's two funds, 2007: the financing underneath themThe assets were illiquid and the financing was overnight, so the marks were set by the people lending against them.6 min
That same bank, 2008: a run on short-term fundingSecured funding vanishes as a decision by counterparties, not as a market price, and it vanishes in days.7 min
A prime broker's failure, 2008: client assets and rehypothecationAssets you thought were yours became a claim in an estate, because the agreement allowed them to be lent on.6 min
Money-market funds, 2008: redemption pressure at scaleWhen a fund prices at exactly one dollar, the first investor out is paid more than the fund is worth.7 min
Credit funds, 2008 and 2009: gates, side pockets and suspensionsA gate does not stop a loss; it converts a liquidity problem into a wait priced at unknown future values.7 min
An automaker's shares, 2008: a short squeeze read as a margin eventPrice stopped clearing because the stock available to buy was smaller than the stock that had to be bought.6 min
A futures broker, 2011: a sovereign position and a customer shortfallSegregation is an operating promise kept by the same institution that is running out of cash.7 min
A currency peg removed, January 2015: overnight gaps and retail marginA stop order is an instruction to trade at a price, not a guarantee that the price will exist.7 min
Open-ended property funds, 2016 and 2019: a liquidity mismatch gatedDaily dealing on assets that take months to sell works until it is asked to work.6 min
An inverse volatility product, February 2018: termination by its own termsSome losses are not market judgments; they are clauses, executed exactly as written, on schedule.7 min
A single retail-heavy share, January 2021: the margin episodeThe collateral requirement on a short rises with the same move that creates the loss, and covering pushes the price further.7 min
January 2021: why several brokers restricted purchasesThe constraint was not on the customer's order; it was a two-day clearing deposit sized by volatility and concentration.7 min
A family office, 2021: what the position wasTen names of exposure can be five times a balance sheet when the exposure is rented rather than owned.6 min
A family office, 2021: how swaps concentrated the risk invisiblyEach lender priced the position it could see, and the position that mattered was the sum none of them saw.7 min
A family office, 2021: the sequence over one weekWhen several sellers hold the same hedge, the first block sets the price and the rest receive what is left.7 min
Bond and credit funds, March 2020: why the liquid holdings sold firstIn a cash squeeze the price that falls is the one that could be traded, not the one that was risky.7 min
Liability-driven pension investment, 2022: collateral calls on rate hedgesThe schemes became better funded and still ran out of cash, because solvency and collateral run on different clocks.7 min
A base-metal market, 2022: a short position and a suspended marketA short's loss has no ceiling, and the venue that prices it can also stop pricing it altogether.7 min
Seven patterns that repeat in every episodeThe arithmetic of a forced sale is scale-invariant: the same percentage of the same book, at any size.8 min

Educational only. Nothing in this track is investment, legal or tax advice, or a recommendation to enter into any transaction. Completion is stored in this browser and nowhere else.