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Superstonk DD Summary: The Bigger Short

Whale

Whale

The global financial market crash of 2008 was not fully resolved and the same practices that caused the crash have continued in the unregulated derivatives market. This has led to the creation of a much larger speculative bubble, not only in the stock market and derivatives market, but also in the cryptocurrency market, with some companies using up to 100x leverage. The recent COVID-19 pandemic has exacerbated the situation, with the Federal Reserve now facing a difficult decision. The government implemented protective measures, such as mortgage forbearance and exemptions from the Supplementary Leverage Ratio (SLR), which expired in 2021, in an effort to buy more time. However, the market was going to crash regardless of these measures. The derivatives market is potentially a $1 quadrillion market and the prices of certain assets, known as “meme prices,” are not as high as they seem due to the large amounts of money in circulation. The Depository Trust & Clearing Corporation (DTC), International Swaps and Derivatives Association (ISDA), and Options Clearing Corporation (OCC) have implemented rules and regulations in an effort to consolidate power and eliminate competition, similar to the actions taken in 2008. These rules are also aimed at preventing retail investors from achieving similar success in the future. The COVID-19 pandemic exposed many banks’ reliance on leverage, with some banks almost defaulting due to their high levels of borrowing. The SLR exemptions allowed these banks to boost their ratios and avoid default, but now they must extract treasuries from the Federal Reserve to avoid defaulting on SLR requirements, leading to an increase in the reverse repo market. This situation is not just a conflict between retail investors and hedge funds, but rather a conflict between retail investors and major banks, who are trying to protect their decades-long manipulation of the market and prevent retail investors from taking trillions of dollars away from them.

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