Confirming Jim Rickards earlier thoughts that the Reddit-Raiders' "decentralized (but legal) pump-and-dump scheme came dangerously close to destabilizing the U.S. financial system," Interactive Brokers Chairman Thomas Peterffy admitted during an interview with Bloomberg TV this morning that financial markets came “frighteningly close” to breaking during last month’s Reddit-driven volatility.
Simply put, if hedge funds had failed (several almost did), those losses would have fallen on bank dealers and other hedge funds, which could have triggered a cascade of failing banks and funds worse than what happened in 2008. That fire is out for now, but it was an interesting sideshow at the time.
This reaffirmed his comments during a CNBC interview yesterday that "we have come dangerously close to the collapse of the entire US financial system and the public seems dangerously unaware of that including congress and the regulators"
The outspoken veteran market participant detailed the dire situation as synthetic shorts overwhelmed the float available...
Peterffy blasted the SEC for failing to intervene:
“I basically would like to ask the SEC why they didn’t act on the morning of Jan. 28,” Peterffy said.
“I was so scared.”
The IB boss continued:
"I was scared of a domino bankruptcy."
Peterffy has a simple solution for all this - publish short positions once a day (instead of twice a month) and for the SEC to force brokers to charge an additional 1% of margin for every 1% of short interest.
Interestingly, shortly after Peterffy spoke, Cantor Fitzgerald CEO appeared to mock him during a CNBC interview, saying "I think we came dangerously close to proving how amazing the U.S. financial services sector really is..."
"I think we came dangerously close to proving how amazing the U.S. financial services sector really is," says Cantor Fitzgerald CEO Howard Lutnick on the #Robinhood $GME saga. "But it was tough for a lot of people, and they have a right to be angry." pic.twitter.com/Fo8jlthEv1— Squawk Box (@SquawkCNBC) February 18, 2021
And then 5 minutes late, Lutnick was pitching his SPAC.