Paolo Savona, FTX and the systemic danger, and the need to return to
Today Professor Paolo Savona, president of CONSOB, speaks on an issue that few of his colleagues dare to address, and he does so with a vision that very few have the audacity to adopt. So far we have considered the immediate effects of FTX, perhaps the more folkloric ones, but in any case FTX is a slice of an important financial system that acts almost separately from the controls. For example, FTX is based in the Bahamas, but with a separate license in Cyprus it operates in the EU and then has entities in the USA and the United Kingdom, the latter, among other things, found to be regular and in possession of the declared assets, also because they were correctly submitted to the control of their national authorities. However, the fact that the headquarters was located in a legal and tax haven, unable to carry out adequate budgetary control, was at the root of the disaster.
Now what Prof. Savona is that FTX has the basis for creating an even wider crisis than its assets. What would happen if it were discovered that some large investment house, some important hedge fund, has, at the same time, lost important money in FTX and therefore has strong exposures to other centralized exchanges, which in turn risk losing important figures? Currently what we know is that the top fifty creditors are exposed for $3.1 billion and the top creditor needs to get $226 million. These are important figures, but not dangerous on a systemic level (even if someone could lose their job ..). However, we do not know if the exposed companies are also exposed in a similar way to other "Uncertain" institutions such as FTX, also because the company has obtained that, for now, the names are kept secret. This poses a certain level of systemic risk.
FTX then shows the umpteenth failure of modern finance also from another point of view: the insufficiency of controls or of relying exclusively on the "naivety" of the administrators. Wirecard has shown how, in the presence of administrators with delinquent behavior, there is no control system that holds. Now FTX proves that having young, naive administrators, not "touched" by the evil of finance, doesn't work. What Bankman-Fried and Caroline Ellison of Alameda did are imprudence far beyond the limit of legality, but they were "Young" "Good", they adhered to the precepts of the WEF, and therefore accepted by the financial world, even if evidently totally unprepared for the their role. Maybe it's time to go back to the basics, to the selection of those who have experience on the one hand (and some white hair), but have demonstrated in a certain professional and personal life that they have not abused the assets entrusted to them. It sounds trivial, but in the modern world this seems to be an increasingly rare feature.
Thanks to our Telegram channel you can stay updated on the publication of new articles from Economic Scenarios.
The article Paolo Savona, FTX and the systemic danger, and the need to return to comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/paolo-savona-ftx-e-il-pericolo-sistemico-e-la-necessita-del-ritorno-alla/ on Mon, 21 Nov 2022 17:01:41 +0000.