The U.S. SEC has opened an investigation into Archegos Capital's Bill Hwang and trades that led to $20 billion in losses for his firm and perhaps billions more for various banks. What kind of perverted system allows such chaos? Bill Black on theAnalysis.news with Paul Jay.

Paul Jay

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The U.S. Securities and Exchange Commission has opened an investigation into Archegos Capital's Bill Hwang and the margin call trades that led to a $20 billion liquidation of his family office, according to a report from Bloomberg.

The investigation is "routine" following such a high-profile market event, and the probe may not lead to allegations of wrongdoing. Archegos Capital was hit with several margin calls last week that it was unable to meet, prompting several banks that had prime brokerage relationships with the family to liquidate its stock positions in names like ViacomCBS,  Baid,  and Tencent Music Entertainment, among others. The trades led to extreme volatility in a handful of stocks on Friday, with ViacomCBS and Discovery notching their biggest daily declines on record.

Banks like Goldman Sachs and Wells Fargo managed to escape potential losses by quickly liquidating their exposure to Archegos, but others, like Nomura and Credit Suisse, are facing billions in potential losses from the trades, and of course, there's all kinds of ordinary people's money that is tied up in all of this as well. Now, joining us to make sense of more Wall Street nonsense is Bill Black. Bill's an American lawyer, academic, author and former bank regulator with expertize in white collar crime, public finance, regulation and other topics in law and economics. He is the author of the book The Best Way to Rob a Bank is To Own One, and he's associate professor of economics and law at the University of Missouri, Kansas City.

Thanks very much for joining us again, Bill.

Bill Black

Thank you.

Paul Jay

So what is this all about? The billions of dollars of losses. Break this down for people that don't understand some of the terminology. What happened here?

Bill Black

OK, so this one is a demonstration of how completely screwed up modern finance has become, but not necessarily anything criminal in this transaction, which is  good news, bad news, that you can destroy 20 billion dollars in wealth without committing any crime is perhaps a disturbing as opposed to a non-disturbing fact, but remember that the problems were the government, right?

The government made banks make bad loans to poor people with dark skins and that's why we had the great financial crisis supposedly, right? That that series of racial tropes and myths. Here has none of those. This is supposedly in the absolute best circumstances where nothing catastrophic could possibly go wrong. So the theory that you would be taught in modern finance schools is that the key was to have skin in the game, and that's a weird phrase, and it just means you have something personally to lose.

A lot personally to lose, and Bill Hwong was investing his own family money almost exclusively. So he should have been at his absolute most careful. He should have had all the right incentives, and the banks, there were only about seven of them, they were all massive, the allegedly most sophisticated financial players in the world. So they should have never allowed themselves to be exp...