Individual investors were participating in the financial equivalent of the Capitol riot.
This also seems like partly a Martin Gurri moment. Then the government printed enormous amounts of paper wealth as “stimulus.” All of this was enough to fuel asset bubbles.Ģ. Then the virus hit, accelerating these trends. Over the past twenty years, we have seen a massive shift of wealth toward the tech sector and finance. Kindleberger’s thesis is that when there is a major shock that shifts a lot of wealth to a particular population, manias can ensue. In Manias, Panics, and Crashes, he adapts the Minsky model to major historical financial manias. This seems like partly a Charles Kindleberger moment. Once again, I am violating one of my norms, which is not to pile into the latest news. When you have a system that wants to be instantaneous but incorporates a process that hasn’t been updated in decades (or longer), this is what you get. I would bet that the two-day settlement delay in stocks is as anachronistic as the real estate title system. It had to do with the mismatch between the mortgage securities market, where the lender of record could in some sense change in seconds, and the antiquated housing title system, where records are stored at a county courthouse, often in paper format, with a cumbersome process for updating that could take.almost forever. This was not some conspiracy on the part of lenders to improperly foreclose on homes. This reminds me that back in the housing market collapse a lot of the foreclosure paperwork was flawed. This has to do with settlement mechanics of the market. It has nothing to do with the decision or some sort of closed room cigar– smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. That is the reason why these stocks are coming off. And they simply can’t afford the cost of that trade clearance. …So the brokerages or the clearing firms have to go into their own pockets to do it. And because of the volatility of stocks, DTC has made the cost of the collateral of the two-day holding period extremely expensive. In reality, what’s going on is that there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days. The unfortunately named Anthony Denier says,
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