And as a bonus question, how have we fallen into the same problem we did just 14 years ago, how did no one think “let’s do it differently this time guys!”
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To fight inflation, central banks are decreasing the amount of money that exists. As it turns out, a lot of banks, shadow banks, and hedge funds are in positions where they have to pay certain amounts of money, but they have uncertain amounts of money getting paid to them. Previously they made a nice profit since uncertain amounts of money come with a premium for coping with the uncertainty. Now they make losses. If they make much of a loss they go bankrupt, and then everyone they owed money to doesn’t get paid and goes bankrupt too, and so on. Yeah, this happened 14 years ago, although the reason that time was because people couldn’t pay their mortgages, not because the central bank started deleting money.
Why do we keep doing it? Because it makes a profit for the fund! … most of the time, and when it makes a loss the fund goes bankrupt so it’s not the fund manager’s problem ant more. He or she can start another fund and resume making profits from that one. It’s not really obvious whether a fund is doing this, either. It’s not like you could have said to avoid those funds.
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