Systemic risk

Some people will say that we have too much regulation or regulatory uncertainty and that this is stifling innovation in this space.

And others will say that we need regulation and maybe we need even more regulation because there are many threats, potential fraud, and potential risk for the system as a whole, what we think of as systemic risk.

So those are issues that we want to discuss here today in this episode of the second season.

And we have two perfect guests to talk about these issues.

Part of the data is that we don't have the part of the issues that we don't have the regulations.

But, you know, there's plenty of fraud in the sort of dark corners of the equity markets, too, with very small equity securities that don't trade on exchanges.

And the other side of regulation, the other reason why we have regulation in financial markets more generally is the concern about systemic risk and the idea that if there is a problem in one type of asset, one type of institution, this is going to spill over affecting the rest of the financial system and ultimately also the real economy.

This has been mentioned in the context of cryptocurrencies and digital assets, but it's not clear that this is at this point big enough to worry us.

Incredibly cool story as well.

And now, of course, Accelerant operates this risk exchange that connects managing general agents with capital providers.

So tell me a little bit more about how this model can improve alignment and transparency and how maybe concentrating activity on exchanges could introduce new dependencies or maybe even systemic risks there.

Two, if that's okay.

The first one, what I would say is, what did we get taught in economics class? The only free lunch is diversification.

So that's how the risk exchange works.

That's the magic or the secret sauce, right, is you just you're solving it on a portfolio level as opposed to a product level.

Now, what are the systemic risks potentially that we're introducing? There's a single point of data failure, which is Accelerant operating the risk exchange.

As if, you know, um, serious, serious minds like Luke Gromen, who went off on, had a podcast and talked about the impending bank holiday that's coming, or Ray Dalio talking about the f- the impending doom in the system.

Look, you know, it, it's almost comical at this point to think that we do not have systemic risk.

And again, you know, pointing out risks, whether it's Ray Dalio, whether it's Luke Gromen, whether it's Puncher or myself, pointing out risks in the system is healthy.

And why that threatens certain people to the degree that they have to host spaces that do nothing but attack us is, it, it, it almost boggles the mind, right? Uh, you know, I've been doing, I've been talking about this for two years now, and, and I talk about a lot of different risks in the system.

So what do they care? What do they care if the rich get...

have to, have to s- get assets taken or get, get cut in half or get cut in three quarters, right? Just, just realize like that, that's a, a possibility.

I, I'm not saying it's an inevitability, right? I, I don't know what the risks are, but understanding systemic risk doesn't make you a doomer boomer dancing grandpa.

It makes you intelligent.

On the other, when the entire US healthcare system is on the brink of collapse, into an impossible corner.

It highlights a massive systemic risk.

When we concentrate so much critical healthcare infrastructure into a few too-big-to-fail megacorporations, a single missing security setting can become a national emergency.

It's a harsh lesson for every industry, not just healthcare.

Um, this is really bad.

What happens is these guys get into the system, they profit massively off of it, and we are creating systemic risk.

We are creating the risk of a contagion effect where when crypto crashes again, which it will because it has repeatedly over its brief but tortured history, when it crashes again, it could contribute to the next financial crisis, and we could end up bailing these MF-ers out again.

It is outrageous.