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Illustration: Annelise Capossela/Axios

The bubble didn't burst. That's the main lesson to be drawn from the failures of Greensill and Archegos — headline-grabbing implosions that were certainly bad for Credit Suisse, among others, but that did nothing to slow the broader market's surge to new all-time highs.

The big picture: Speculative financial bubbles tend to be self-fueling. Investors using cheap borrowed money invest in assets that go up in value, generating paper profits that in turn get levered up even further and invested even more aggressively.

  • It's a strategy that works until it doesn't. When one or two big lenders or speculators go bust, that can cause the cycle to get thrown into reverse, with credit suddenly tightening sharply and a rush to the exits as investors realize the greater fool is no longer going to appear.

Driving the news: Archegos, a large and highly-levered fund, imploded last week, sending share prices of its stockholdings plunging and causing multi-billion-dollar losses across various banks.

  • The Archegos blow-up came on the heels of the bankruptcy of Greensill, a finance house based in London.
  • The two collapses were unrelated except for the fact that Credit Suisse seems to have lost billions in both of them, and the fact that neither could have happened without a broader market environment of banks who are happy to lend freely to anybody who seems to be making money.

Background: Greensill stretched the definition of supply-chain finance well past its natural breaking point. Eventually it lost the backing of a key insurer, which meant that it could no longer access markets itself.

  • Archegos, similarly, lost the backing of its prime brokers, who exercised their prerogative to sell the fund's holdings. While some of the banks were reportedly willing to try to sell the stock slowly, so as not to perturb the market, Goldman Sachs and Morgan Stanley announced enormous block sales before the market open, precipitating some massive declines.
  • The episode is reminiscent of the movie "Margin Call" — except this time, the fire sale didn't cause the broader market to crash. Quite the opposite.

Go deeper

Congress hunts for shortcut to pass defense funding, debt limit combo

Senate Majority Leader Chuck Schumer returned to his office Monday. Photo: Anna Moneymaker/Getty Images

The scramble in Congress to pass the National Defense Authorization Act is being complicated by an effort to tie it to a needed hike in the federal debt limit.

Why it matters: The House and Senate are rapidly coming up against a series of deadlines they must address before the end of the year — or risk disrupting crucial military funding and upending the economy. Congressional leaders are now hoping they can knock out both "must-pass" priorities in one, complex swoop.

Scoop: Inside Jake Sullivan's call with U.S. hostages' families

Photo: Jim Lo Scalzo/EPA/Bloomberg via Getty Images

National security adviser Jake Sullivan spoke last week with relatives of U.S. hostages and others wrongfully detained abroad, after more than two dozen families expressed frustrations about their inability to get a meeting with him or President Biden, Axios has learned.

Why it matters: Participants on the video call, which began at 7pm ET Friday and lasted more than an hour, told Axios they didn't get satisfactory answers to many of their questions. Nonetheless, they were encouraged by Sullivan's commitment to follow up and pledge to be personally available to them and others going forward.

2 hours ago - World

Biden huddles with European allies on Ukraine ahead of Putin call

Putin in the Kremlin. Photo: Grigory Sysoyev/Sputnik via Getty

President Biden will seek to convince Russia's Vladimir Putin in a phone call Tuesday that the price of invading Ukraine would be steeper than anything he's faced in the past.

Driving the news: Biden held a call on Ukraine this evening with the leaders of France, Germany, Italy and the U.K., while Secretary of State Tony Blinken called Ukrainian President Volodymyr Zelensky to offer America's "unwavering support."