
Rain ruins one of Norway’s richest men - ingve
https://citizen.co.za/news/news-world/2009424/rain-ruins-one-of-norways-richest-men/
======
csomar
Most people are missing an important point. From FT Website:

> That prompted Nasdaq to cut the entire trade on Wednesday and the exchange
> confirmed that the loss accounted for all of the exchange’s own default fund
> of €7m and swallowed €107m, or two-thirds, of its €166m mutual default fund
> that clearing house members must contribute to.

So a single, one person trader was able to basically bankrupt the Nasdaq
insurance fund. This fund is supposed to cover all of the margin trading
misfortunes but a single guy/position took it all away.

This means that the Nasdaq (and probably any other exchange) is not ready for
a volatility event. In the case of extreme volatility, the Nasdaq insurance
fund will be 0. Counterparties in derivatives won't get paid, and potentially
the mutual funds/etfs/other structures depending on these derivative trades
will collapse.

The next financial crisis is just one trade away.

Edit: re-reading and searching further, it looks like the fund that was
depleted was not that of the Nasdaq but rather a mutual fund for several
exchanges. The Nasdaq had only 7m euros. What a joke.

~~~
lordnacho
You're saying he traded directly with Nasdaq, not through a prime broker or
corporate entity?

For your average reader, most funds don't have an account directly with the
exchange. They go to a Prime Broker such as GS, JPM, MS, etc, who keep an eye
on the exposures of their accounts and limit what orders can go into the
exchange. So for instance I ran a couple of hedge funds, and we'd get risk
reports from the PBs which told us how much they were willing to let us trade.
Also they'd do things like allow you to cancel risks across accounts if you
owned a stock in one place but were short another. And they'd have risk models
that looked at how correlated your positions were.

Now that's not to say that Nasdaq can then just be reckless, but normally the
PBs are very large banks that have capital requirements, and even if things go
badly, chances are someone will decide they're too big to fail.

PS. This PB thing can go wrong as well, but the idea is there's a degree of
containment and incentive to keep things sensible. The senior guy at one of my
PBs was fired because he allowed an Arab sheikh to gamble with too much
leverage, and the sheikh lost hundreds of millions and ate up the bank's
capital. (You're supposed to ask for enough margin that you don't lose your
own money.)

~~~
maaaats
As I understand it, he was such a big player that he didn't need a broker /
basically was a broker himself.

~~~
runarb
Yes, as I also understands it he was a direct member of the exchange. When
this happened he owned 23 Twh of nordic and 11 TWh of german power derivatives
contracts. That is 1/4 of Norway's consume in 1 year:
[https://www.hegnar.no/Nyheter/Energi/2018/09/Derfor-tapte-
Ei...](https://www.hegnar.no/Nyheter/Energi/2018/09/Derfor-tapte-Einar-Aas-
alt)

He basically did become to big for the marked.

------
chi3
Working at one of the top 5 members of that clearing house in Scandinavia,
very few people I've spoken to about it at work earlier this week thinks he is
actually bankrupt. He's filing for bankruptcy so that he won't have to cover
his own loss.

~~~
marvin
Is that even possible under Norwegian law? To my understanding, Aas has been
trading as a private individual, meaning not through an LLC (an AS in
Norwegian terminology). If the rumors I'm hearing are correct, this was in
order to avoid publishing his trades and profits, which he would have been
required to do if he was trading through an AS.

Personal bankruptcy is a very pietistic, convoluted procedure in Norway. It
requires giving up all your assets and surrendering all of your income (above
a sustenance limit) to creditors for five years, and can only be done once in
your life. If Aas is going this route, he will not be able to save any owned
assets from the proceedings, and will more or less consent to being a debt
slave for the next half-decade. That's an extreme measure that people only do
when there is no other option. (The default option being to just not pay
anything and leave creditors hanging indefinitely, with the expected
consequences for any personal financial endeavor in the future).

So at most this is a play to negotiate with creditors, if the understanding I
have is correct. There would be no way to save any assets if actual bankruptcy
is the chosen move.

You seem to know a lot about this, though, given that you work with this. Are
there some facts here that I'm not aware of?

~~~
manquer
Would this cover assets not directly owned by him, or assets owned abroad etc
? some loophole which would allow him to retain some chunk of his wealth?

While it likely that it is negotiation tactic, it has to believable one for
creditors to think he may actually follow through, otherwise there is no
point.

~~~
marvin
I am aware of no such loopholes. Foreign assets can of course be hidden from
the authorities, but they will be confiscated if discovered. Any shares in
companies or properties will be confiscated and liquidated, as will any
payouts from life insurance policies and such. (Unless I'm very mistaken, all
income counts).

As will any primary residence if it has a higher standard or price than the
sustenance minimum, any vehicles not required to perform work, any household
items beyond a minimum of ~$10k or so in value. It's quite harsh.

If married, the spouse can keep 50% of any assets that were jointly owned.

------
adrianN
I often wonder why people who have so much money already gamble like that to
get even more money. If I had roughly a million dollars I'd put it in an index
fund and live a happy live without having to worry about work or money. Yet
people like that guy have a hundred times more money than I'd need for the
rest of my life and risk it all to become even richer.

~~~
user5994461
You can't get a 350 sq meter rooftop home in Oslo with only 1 million dollar.

That would barely get you a flat in SF/NYC/HongKong/London. It really takes
$10M to be comfortable.

~~~
jkaplowitz
Meanwhile I've done the math and 2 million USD would let me live my current
comfortable middle class lifestyle (single and childless) indefinitely here in
Montreal with excessively conservative financial assumptions, without earning
income, and without drawing down the principal. That budget includes more than
mere necessities, like vacations and tech purchases.

That's not my current net worth, to be sure, nor would I necessarily stop
earning income if it were.

It's just a nice example to highlight of a world-class city that isn't that
expensive all things considered.

~~~
comboy
How long did you assume you'd be living and how did you assume to store this
value? Because if left on it's own, just 30 years from now these $2M will
likely have much lower purchasing power (even if stored on savings account and
even no black swan financial event happens during that time).

~~~
milesvp
4% draw down on a stock index fund will likely pay 80k anually adjusted for
inflation indefinitely.

At least, this is based on historic stock data However, I was taught in
undergrad econ, that this 4% return above inflation is considered the risk
premium, over what a CD would get you. So there is a real risk of losing
everything. Which means hedging is a good idea, some of the money to buy a
reasonable house, some %age of rest in bond fund, and quarterly rebalancing
can go a long way to preserve a lot of wealth in a black swan event.

~~~
javier2
Yeah, it's more like 2M will let you live confortable indefinitely in 90% of
future scenarios. So there is still an y% chance you might have to go back to
work again.

~~~
jkaplowitz
Even if I get to that level of net worth - which, as I noted, I'm not at yet -
I'd probably still have some earned income. I could just care much less about
how much and could be a lot choosier about what work I want.

------
jacknews
He got it by gambling, he lost it gambling. So what.

The sad thing here is that it is indicative of how extremely wealthy people
often get that way. The system should reward innovation, hard work etc, but
instead it is skewed towards gambling, system-gaming, rent-seeking and so-on.

~~~
isostatic
The system never has rewarded hard work on its own.

100 people work hard. 10 of them are lucky and see the benefits. 90 of them
aren't lucky and don't see the benefits

Everyone looks at the 10 who are lucky, and they say "The key to success is to
work hard". Classic survivorship bias.

~~~
jryle70
It doesn't hurt that those lucky 10 also work hard. Or may be 9 of them do.
Lucky wouldn't appear on your door.

Also, you gave the impression that the other 90 are losers because they work
hard. Life is not an extreme. They may not become as rich, but they aren't
poor either, and they maybe lucky in other metrics. They aren't loser.

~~~
isostatic
Maybe some do. I'm lucky I don't know the meaning of the word 'work hard'. I'm
sitting here on a sunday afternoon working, or rather waiting for things to go
wrong. Sure it's a 12 hour day, but it's not hard working.

Those holding down two jobs and doing 80 hours/week of non-stop work on their
feet filling amazon deliveries or cooking burgers or picking fruit for minimum
wage know what working hard is. I doubt anyone ever became independently
wealthy through hard work.

Is it right our society is set up to reward luck above all else?

~~~
rootusrootus
Is someone making a career out of amazon deliveries or burger flipping or
fruit picking really a good demonstration that hard work is not rewarded?
That's merely hard physical labor. How about hard work like making sacrifices
today so that tomorrow you're not competing in the deep end of the labor pool?
I'm not sure that society is really just rewarding luck.

~~~
isostatic
It's not just rewarding luck, but luck is a massive part. For every college
dropout that goes on to form microsoft or facebook, there's 1000 college
dropouts whose business fails because they weren't in the right place at the
right time.

------
jkabrg
Finance jargon is impenetrable.

Aren't you supposed to gamble with a fixed percentage of your money in case a
long tail event happens? From an outsider's point of view, that seems like
rule number one.

Questions about NASDAQ:

    
    
      - What is NASDAQ? Wikipedia says they're a "stock exchange",
        which supposedly means they provide a place for people to
        trade in stocks and bonds and various other "securities".
      - How was NASDAQ affected by this guy's decisions? Are they trading something?
    

Cheers.

------
slykar
If he were successful with the gambling the news title would probably be
different.

It's not the rain that ruins him, it's his decisions.

------
alcio
One of the most important thing to learn when trading is risk management, how
to preserve your capital. Being wrong is part of trading, staying wrong isn't.

It's especially interesting to see it happen to someone that actually worked
as a risk manager in his early days ; especially so close to the anniversary
of Lehman's demise.

------
dmix
> Aas bet that the spread between energy prices on the Nordic and German
> electricity markets would narrow.

I'm not super familiar with finance but this is a 'derivative' right? Is there
a website where you can follow these types of large derivative investments?
The type that gamble on market trends like this?

I'm curious what other types of things people are gambling large funds on. Or
even large short positions...

~~~
RandomInteger4
Yes, specifically spread betting, which is illegal in the US, but more common
overseas I believe, because it basically is pure gambling. The other
variations that are legal in the US are futures and options, with the latter
being the most similar to spread betting I think.

Futures is a market to reduce risk for commodities producers. Options are
higher risk I want to say?

Search around Investodpedia for better explanations; really good site that
one.

EDIT: or maybe the spread referred to in the article is on the options market.
I'll have to reread.

~~~
lordnacho
Betting on a spread is not spread betting. You can but Coke and sell Pepsi,
you then have a position in the spread. That's not spread betting, which is
just a retail way to gamble on a price movement.

You cannot say options are more risky than futures, the two are related but
different in nature.

Whether he implemented his trade in the options or futures is irrelevant,
there was always going to be a blowout risk.

Source: I'm an ex options and futures trader.

~~~
hippich
why ex? i.e. why you stopped? (i am learning about options trading right now)

~~~
lordnacho
Moved around to other financial business, mainly quantitative trading.

------
vinni2
Living in Norway currently it is absolutely crazy to me so many electricity
companies trading middlemen making money just by trading they don’t don’t
produce or supply just pure middlemen. I heard of some scamming companies too.
I just said no to a fixed price binding contract which would have been a
disaster. Now I have the cheapest prices of the year so far! It is completely
non Norwegian from my experience. Everything else is so monopolizes and
controlled here.

~~~
qeternity
> they don’t don’t produce or supply just pure middlemen

They produce liquidity and price discovery, which are extremely important.
Most energy companies don't know what the "efficient" (market clearing) price
for power is and also want to mitigate the risks they inherently face by
supplying these markets. Speculators allow natural longs like energy companies
to hedge risk (reduce their risk) so that they can focus on the things they're
good at: building, maintaining and operating power generation and
distribution. If you're not an expert trader, which most utility CEOs are not,
how can you invest in projects for the next 5, 10 or 50 years without markets
that allow you to lay off some of the price risk of the good you're producing
(power). This dynamic is what is facilitated by so called middlemen. They are
absolutely essential, even if there are spectacular failures like this from
time to time.

------
blunte
When you're young and you can absorb total losses, big bets (high risk/high
return) are ok. Mid-life and beyond, it's nuts to be risked or leveraged to
the point where you could lose everything.

I can't say how he thinks, but some people have earned or lucky successes that
give them a sense of invulnerability... and then they take unreasonable risks.
This seems like one of those cases.

------
Animats
At least he went bust, rather than faking balance sheets to hide losses,
borrowing and getting deeper in the hole, like Enron.

------
cannabis_sam
How is this kind of derivative trading any different than online poker on
credit? Turns out the other guy had the nuts, well sucks to be a norwegian tax
payer I guess.

Yeah, sure we need liquidity and market makers do have a job, but this makes
the nasdaq look like a mismanaged casino..

------
crb002
Attorneys drafting derivative contracts need boundary conditions so this
doesn't happen. The boundary conditions would also signal to those who rely on
them to get protection if a boundary is hit. Zero and infinity are simply
ignored.

------
cosmic_ape
How did it happen that default funds of the clearing houses had to be
accessed? Did the spread change _in one day_ from normal spread to 17 times
normal? Otherwise the margin should have depleted only his own money.

------
pfortuny
Another instance of greedy forecasting gone wrong. We (all of us) never learn.

~~~
dmix
This was ultimately just a transfer of wealth between two parties. There
wasn't much of a loss for society as a whole (besides maybe to Aas's creditors
and the clearing house but they can handle this risk)...

~~~
maaaats
The fund that got depleted has to be topped off again, with money from the
other participants in the market. Fortum, for instance, will have to pay ~23M
euro, and is largely owned by the Finnish state. Same goes for lots of the
other players.

------
genericacct
Honestly I dont understand why NASDAQ could be involved if he was trading
european electricity. Even if he was trading ADRs they'd be on NYSE.. The
article must be missing a few details.

~~~
mortehu
Nasdaq Inc (as opposed to the NASDAQ Stock Market it owns and operats) has
more than a few subsidiaries, and operates many markets around the world:
[https://www.sec.gov/Archives/edgar/data/1120193/000119312512...](https://www.sec.gov/Archives/edgar/data/1120193/000119312512077518/d259668dex211.htm)

~~~
kgwgk
In particular
[https://en.m.wikipedia.org/wiki/Nasdaq_Nordic](https://en.m.wikipedia.org/wiki/Nasdaq_Nordic)

[https://en.m.wikipedia.org/wiki/Nordic_energy_market](https://en.m.wikipedia.org/wiki/Nordic_energy_market)

------
timwaagh
debtors prison? i kind of like the concept of paying in real life for things
like this. he gambled with somebody else's money. and lost. if he just goes
bankrupt and gets debt payment assistence without suffering anymore
consequence than having to live a normal persons life for once, its not quite
enough for the damage he has wrought.

~~~
rossdavidh
Historically, debtors prisons never ended up being for rich people who lost
more money than they had, they always seemed to end up primarily with poor
people who took out loans to stay alive and then couldn't pay back because
they were unlucky.

~~~
timwaagh
oh well, one can dream.

------
mobilefriendly
Rich people are a huge benefit of the system. Think of Elon Musk putting his
wealth into SpaceX or Bill Gates into charity work. The fact that people
who've demonstrated the ability to successfully manage capital investment and
innovation get to control more resources is a positive feature.

~~~
jondubois
I don't care about SpaceX. It doesn't benefit me at all in any way. In fact,
some of my tax money probably subsidizes those spaceships so that big telecom
companies can launch their satellites into space more cheaply and juice more
profits out of my current ADSL contract; which won't get cheaper.

I appreciate Bill Gate's charity work but I understand that it also doesn't
benefit me personally - It probably costs me as well. Lifting people out of
poverty means that they will be able to get an education to compete against me
in the job marketplace in the future and will lower my wage. I can cope with
that on a moral basis, but I'm pretty sure that Bill Gate's donations cost me
more (in terms of how it affects my humble net worth) than it costs Bill Gates
himself (in terms of how it affects his net worth).

~~~
indigodaddy
Bill Gates is worth ~96B as of September 1st, according to Forbes. A report
from last August noted he had so far donated ~50B. So, you would profess that
the resultant effect on your employment market from Gates' donations has
negatively impacted your salary by more than 50%? That sounds like a
preposterous claim, but obviously one that cannot be proven.

~~~
toxik
Meaningless relative comparison, and you know that.

~~~
indigodaddy
Point is, that in relative terms, Gates' donations absolutely _don't_ cost OP
more than they do Gates.

~~~
jondubois
As a software developer who works in Europe, a large proportion of my
colleagues come from developing countries and they have a great work ethic, so
it doesn't seem that far-fetched that the added competition would have a
significant negative impact on wages in my industry across Europe.

I agree that it's very complex though and we can't really measure how much
Bill Gates' philanthropy may have contributed towards this trend.

I just wanted to point out that good things tend to have negative unintended
side effects. For every deal, there is always a winner and a loser.

------
expertentipp
Good. More from among the richest should follow him.

~~~
rebuilder
Who do you think was on the other side of this bet?

~~~
rebyn
Mind if I ask who? Honest question :).

~~~
rebuilder
I don't know, it's not even exactly clear to me what kind of trade was in play
here. My point was, the other side probably wasn't Joe Average. IOW, while you
can frame this as a rich man losing due to greed, that's just another way of
saying some other rich person won big.

Exaggerating here, there were probably multiple counterparties and I'd think
they were probably institutional investors, or maybe power companies.

------
gregoriol
Poor guy, he bet money, he lost.

Hundreds do that too in casinos and lotteries.

Why do we need news about that?

~~~
tomp
This one almost bankrupted the casino too. That's pretty newsworthy.

~~~
gregoriol
You are right, I did not understand fully the article and the consequences of
his actions

