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IPFS News Link • Housing

Warning: Trading houses set for collapse as 'margin call doom loop' is about to go global

•, by: JD Heyes

As reported by Zero Hedge, Zoltan Pozsar, a former senior adviser in the U.S. Treasury's Office of Financial Research and currently Credit Suisse AG's head of short-term interest rates, forecast a "margin call doom loop" in early March — that is, a cycle "of vulnerability where a country's banking system can be severely hurt by volatility in the price of the sovereign bonds they hold for reserves resulting in a contraction in lending provided by the banks," according to a definition from Greenleaf Trust. Specifically, Pozsar warned that "commodity traders and clearinghouses could be facing a liquidity crisis of historic proportions," Zero Hedge explained further.

Last week, Bloomberg News reported that one of the world's biggest energy merchants, Trafigura, a secretive firm that trades hundreds of billions worth in commodities annually, was set to face "margin calls in the billions of dollars," meaning that the doom loop predicted by Pozsar was actually coming to fruition. What's more, in spite of attempts by Barclay's, a British multinational universal bank, to mitigate the impact, the doom loop crisis very well could spread globally, and to additional markets and indices.

The following day, Pozsar was proven to be right again, according to a Financial Times report noting that Europe's biggest energy traders have replaced the continent's insolvent banks in calling on various governments and central banks to give them "emergency" assistance in a bid to stave off a cash shortage amid steep price moves that were triggered by the war in Ukraine, which is straining commodity markets.