The Week: How Leverage Broke the AI Trade
Scott Galloway and Ed Elson examine how leverage destabilized markets, tracing a hedge fund losing $35 billion in six days and South Korea's market collapsing 44% as retail investors piled into leveraged ETFs.
The gist
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A 5x leveraged position can wipe out a fund fast: one manager lost $35 billion in six days when the trade turned.
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U.S. leveraged ETF assets grew from $120 billion to $200 billion in just four months, with more than half being single-stock products.
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South Korea's crisis shows the human cost: 3.4% of adults received margin calls at once, prompting a government suicide prevention hotline.
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Galloway argues financial nihilism among young people facing real economic insecurity is what drives them toward these catastrophic bets.
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