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Is this firm big enough to cause a financial crisis on its own? Has the leverage situation gotten so dire? Is this just postponing the inevitable at this point?

yeah, especially given that the bulk of that is supposedly Anthropic which is just paper gains that could evaporate when traded publicly. everyone's a genius in a bull market, my fund is up 145% ytd after the big 50% drawdown this June.

"Citadel" is a name that makes headlines, for better or worse. Ken Griffin hasn't exactly lived his life in such a way as to avoid the limelight. But you're right, this is just the sort of thing that Citadel and similar firms do once in a while, when the opportunity arises.

(Spicier claim: When Citadel bailed out Melvin at the hype of the GME craze, that was also just business as usual, not a conspiracy as the redditors believed.)

Another way to parse it when they put "Citadel" in their headlines, is that they're trying to communicate to knowledgeable investors that there's no need to panic. The book is in experienced hands now, with enough capitalization to weather any further attacks, and the contagion probably won't spread.

> $45 billion was AUM

Do you have a credible source specifically claiming this? I want to know whose data they're looking at. (Specifically, I want to unpack how they're marking their private positions.)

> Oversee: to be in charge of how an amount of money is invested or spent

No. "Oversee" can refer to the gross or net position. If I raise $10bn and use that to buy $100bn in assets, I absolutely control and thus oversee the latter.

> why does involvement with EA imply being ethically challenged?

Because almost everyone prominent in the movement has had some combination of lack of judgment and morals. There various terms for rationally pursuing philanthropy; associating with effective altruism involves embracing its ideas, people and culture.

1) What

As per the article, he formed a trading company without any background in investing, and once his investments tanked, he sold the stocks for pennies on the dollar to a financial firm, leaving investors holding the bag while pocketing trading fees associated with a $45B USD portfolio.

Effective Altruism is one of those things that sounds smart on the surface, but in practice is a yellow flag. The fact that he started the club is a red flag.

In short, Effective Altruism says you don't engage in charity until you have sufficient means to actually make a difference. Basically, you leverage capitalism to accumulate enough wealth to actually be able to solve a big problem, then you go all in on solving that problem. Sounds great right?

In the real world these people never accumulate enough wealth to actually start solving problems. Even when they become billionaires. In practice it is a convenient excuse to act like the most depraved capitalist while still pretending to sit on the high horse and talk down to people who simply try to help with the means available to them.

You are right to ask. Nothing in this story, or any of the other reporting would indicate a lack of basic ethics.

What the story indicates is more like a set of character flaws. Hubris, and a belief that since he is so smart at one aspect of running the fund, picking the stocks, that he's automatically good enough at the other parts, like risk management. This is a blind spot, but not a crime.

I'm no big fan of EA and do agree that EA can be a "yellow flag" for worse stuff, as some have commented here. But more commonly, it's an indicator for some of these sorts of flaws. A fetishization of the quantitative model without a practical sense for real world tactics and experience, or something along those lines.

(And then sometimes they use it to justify actual crimes. But that is where SA diverges sharply from FTX, and we should be super clear about that distinction. This was an error and a setback, not a crime.)

> If Citadel hadn't bailed him out, Situational Awareness very likely could have triggered a cascade of fire sales.

Citadel didn't bail him out/rescue him. This was a distressed purchase, made at auction. Citadel believes it will eventually make money on the book, which was only around $16 billion.

If Citadel and Millennium (the other bidder) hadn't stepped in, the prime brokers would have liquidated the collateral themselves. The collateral here was mostly liquid mega-cap semi stocks. Probably the best and easiest collateral to deal with. And the exposure was split across three of the most highly capitalized banks (BofA, Goldman and JPMorgan) and they were already managing the wind-down when Citadel stepped in opportunistically.

If AI is going to take down the market, it isn't this. It's all the private credit exposure that isn't getting marked to market daily.

But there was no "close call". His fund was not systemically important. It was mostly public equity investments in some of the largest names in the market that were highly leveraged.