3min chapter

Clearer Thinking with Spencer Greenberg cover image

The FTX catastrophe (with Byrne Hobart, Vipul Naik, Maomao Hu, Marcus Abramovich, and Ozzie Gooen)

Clearer Thinking with Spencer Greenberg

CHAPTER

The Risk of Correlations in the Financial System

The traditional financial system has separated into completely different companies. They're all done by one company. It does create, one, it creates opportunities, conflicts of interest. So if Alameda is a trader on FTX and FTX is an exchange that knows things like if doge going goes down 10%, how many people get liquidated, what happens? If FTX knows that, they can tip off Alameda and tell Alameda, hey, there's an opportunity to short some doge here and then buy it back and make a profit. The other problem is this correlated risk problem where you don't have everyone thinking exactly the same way about risk.

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