Archegos Got Too Big for Its Banks
Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit.
Programming note: Money Stuff will be off tomorrow, back on Monday.
Generally speaking, in the U.S., if you want to borrow money from your broker to buy stocks, you are capped at 2-to-1 leverage. If you have $100, you can buy $200 worth of stock. Back in the olden days, you could have bought $300 or $500 or $1,000 of stock with your $100, borrowing the rest from your broker, but then a Great Depression happened and regulators clamped down on margin lending.
If you are a hedge fund, or a big institutional family office, you can get more leverage, maybe 5 or 10 to 1. There are different mechanisms (using derivatives, etc.) to do this, and different justifications for it. But a key component is usually “portfolio margining”: A prime broker will generally lend …
More on: www.bloomberg.com