Consider This Before You Buy Lemonade
Archegos Capital Management's recent meltdown shines a light on a fact of life that financial companies don't like to talk about: counterparty risk. Briefly, Archegos was a hedge fund that used derivatives to add leverage to its positions. When Archegos' investments plunged and the fund blew up, the banks that lent to it were on the hook for their counterparty's losses. Credit Suisse ended up losing $4.7 billion.
Financial crises have a way of taking out even firms that are supremely confident in their risk management systems. Financial models often create a sense of security, but just because a risk is hard to model doesn't mean it doesn't exist.
Source Fool.com
