Matt Levine: belief

Transcript context

…There’s a certain centralization of risk with derivatives, so you put a lot of risk into a clearinghouse. Maybe you can bail out the clearinghouse — if you have to — more efficiently than individual investors, but that also increases moral hazard. At the margin, do you think we’ve centralized derivatives risk too much or too little? We’re a little bit in early phases of doing it. I’m among those who are a little skeptical of the notion of centralizing derivatives risk into clearinghouse. Seems to me that a clearinghouse has more moral hazard than a bank. A clearinghouse is often a member association, where you’re ultimately relying on the members for your capitalization and for your protection against blowing up. Whereas a bank, if you’re on a desk, obviously banks have a lot of moral hazard. Those notions that banks have moral hazard is a lesson that has been learned and probably overlearned from the financial crisis. If you’re on a desk, you don’t want to lose a lot of money. If you’re a clearinghouse, your concerns about losing a lot of money are a little more attenuated, I think. Does your experience with derivatives make you feel better or worse about CryptoKitties being priced at 117,000K per pop? Were they just a derivative?…

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