Comment by daniel-cussen | Hacker News Reader

Comment by daniel-cussen | Hacker News Reader

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If your team loses the basketball game, the rest of your high school hates you.

If you lose your job, you lose your health insurance.

If you bet on the wrong part of the roulette wheel, you lose your chips.

If you miss your rent, you get evicted.

In all these endeavors, if you screw up you suck up the consequences, end of story. I feel literally no pity for traders who got margin called, they're forced to buy nickel to cover their short positions but they're just not worthy victims, they're debtors. And these are expensive people, these traders took out those loans to buy proof of their superiority, like cars, houses, jewelry for wives and affairs, investment-type goods like watches...maybe one of them was smart enough to buy Magic cards, but if they get short-squeezed, I doubt it.

To my knowledge these traders are consenting adults, 18 and up surely, they gambled and won and took their money, this time they gambled and lost. They have to pay, with nothing but silence from them.

In commodity markets it's usually the producers of commodities who hold short positions as hedges.

If the price of Nickel skyrockets, their shorts will lose money but their inventory will also become more valuable. But due to the nature of the instrument, they need to come up with additional margin for mark to market losses. This isn't a question of solvency but of liquidity.If there's a short squeeze and the price gets completely disconnected from fundamentals, the producers and the brokers might go under and speculators who held long positions will make a massive profit. I don't see how that is more socially useful than the exchange stepping in to correct a market failure.

The participants in commodity markets produce literal tangible goods, it's not a casino.

If the price of nickel goes up, nickel miners go out of business because they hedged their bets? I guess they were consenting adults who should have realized they could fold if their assets became too valuable? Because nickel is so expensive we just have to produce less of it, because they deserve punishment for gambling.

Or we can just act like real consenting adults and agree that markets break every once in a while leading to outcomes that are bad for everyone. And thus we can reverse these outcomes. Even casinos have rules, and have reversed winnings or losses.

That logic runs both ways, you could just as easily say:

Well, the short squeeze traders knew the risks - they knew that LME had the legal authority to cancel trades in extraordinary circumstances, they made the trade anyway and boom that's exactly what happened. They gambled and lost; they have to pay.

This version has the advantage that it respects the actual rules under which trading is done, rather than inventing a new set of rules which aren't used, as a vehicle of ressentiment.

Why do traders need to be insulated from their risk more than everyone else in society?

No. The nickel trading is designed to insulate nickel mining and nickel consumption from prices. The nickel miner has nothing to do with the short squeeze unless of course he is also a nickel trader, but by design the short squeeze has nothing to do with the mining, the explosives they use, the chemicals they mix, none of it.

The consenting adult thing is a joke. These aren't 19 year old college students who are spending student loans irresponsibly, and need debt forgiveness or relief. These are 50 year old men mostly, millionaires, lots of degrees saying they're smart, and lawyered up to the teeth. And the appearances they put on, and the new jargon they are introducing (desynchronization?) is similar to how the public had to be "educated" about "toxic loans" which is really a PR move to pass their losses to others. They lost money, that's it.

They're exactly like a gambler who thinks he has a system, like the martingale, meaning double your money when you lose, reset when you win. So they make a lot of money for a while and it looks really cool, they look like badasses when they lose a bit, double their bet, lose again, then double their bet again and this time they win and they think wow, how did we come up with such a great system, we have such a bright future ahead of us, let's go squander the winnings.

The LME should be as strict as a casino. You don't want to give up your chips after you lost? Security! And six guys show up from different directions. But it won't, LME would rather play favorites, and what this loss of integrity means is the exchange will lose the appearance of integrity. Basically giving up their dignity to Shanghai.

The whole purpose of the LME is to cheat countries that are constantly being raided out of the only thing that can't be stolen in one shot, their natural resources. England can steal all the silver of the Chinese Emperor, but they can't move mountains. So they say, oh, you have a lot of natural resources! If you want manufactured goods you can sell those and buy the goods with that! What should the price of these rocks be? I know a perfect system, very prestigious and it's never gone wrong, high integrity, and it happens to be in London.

To paraphrase the head of the LME during this episode, it’s a market, not a casino. It serves a real, social purpose: move metal from producers to users, and move risk to those who can bear it. The rules and structures of the exchange are a human system built in to achieve that purpose.

If the rules have a weird interaction with world events and threaten entire artifice, they should suspend the rules.

And what happens when the biggest nickel producer in the world needs to buy nickel from someone (non-existent) else? That's not about short squeeze, that's about the market almost ceasing to exist because market is far from perfect. The point here is: if they don't rollback, there is no money for the winner.

It's an interesting reading and I think you should read.

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