The Hedge Fund, the Bank and the Broker: How It All Fits Together

Plus: Countercyclical Buffers, Central Bank Stocks, Augmentum Fintech

Fifteen years ago, as the financial system began to crumble, I sat at my desk in the heart of London’s hedge fund district trying to make sense of it all.

By summer 2007, the subprime crisis was already in full flow – mortgage originators like New Century had gone bankrupt and investors in securities backed by their and others’ mortgages were nursing losses. Initially, policymakers thought the challenges isolated. Ben Bernanke, chairman of the Federal Reserve, testified before Congress that “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” A few months later, he put a number on it: “Some estimates are in the order of between $50 billion and $100 billion of losses associated with subprime credit problems.”

We now know of course that subprime was far from contained. First, a pair of hedge funds went down. Bear Stearns had run a ‘high-grade structured credit strategies fund’ from within its asset management divisi…