To The Moon

Cause of Collapse

Key Learnings

Long-Term Capital Management (LTCM)

1998

~$4.6B

Excessive leverage (25–30x), reliance on models assuming normal markets, liquidity

crunch during Russia default

Limit leverage, stress-test for extreme events, don’t rely solely on models

Amaranth Advisors

2006

~$6B

Concentrated bets on natural gas futures that moved against them

Avoid concentration risk, size positions to survive volatility

Barings Bank (Nick Leeson)

1995

~$1.4B (bankruptcy)

Rogue trader hiding losses, massive leveraged bets on Nikkei futures

Strong risk controls, independent oversight, no unchecked traders

Archegos Capital (Bill Hwang)

2021

~$20B (banks lost ~$10B)

Extreme leverage through swaps, concentrated bets on a few media/tech stocks

Transparency with counterparties, monitor synthetic leverage, diversification

Société Générale (Jérôme Kerviel)

2008

~$7.2B

Unauthorized trading, hidden positions in index futures

Importance of internal controls, detect unusual trade patterns

MF Global (Jon Corzine)

2011

~$1.6B

Overexposure to European sovereign bonds with repo leverage

Liquidity buffers, avoid excessive exposure to risky sovereign debt

Bear Stearns Hedge Funds

2007

~$1.6B

Heavy exposure to subprime mortgage CDOs, illiquidity during credit crunch

Don’t overinvest in opaque structured products, beware liquidity freezes

Orange County, CA

1994

~$1.7B

Use of leveraged derivatives bets by treasurer Robert Citron

Don’t speculate with borrowed public funds, match investments to liabilities

Knight Capital

2012

~$440M (bankruptcy in 30 min)

Software glitch unleashed erroneous trades

Technology risk controls, circuit breakers, test systems before release