On today’s show we are taking a look at counter party risk. This is a term that every investor should be familiar with.
It’s an issue that we investors face on a daily basis. We are waiting for another transaction to close before a loan can be paid off. That’s counter party risk. We’re waiting for materials to arrive in order to complete a certificate of occupancy in order to switch from construction financing to permanent financing. That’s counter party risk.
Your cousin who you loaned $10k to lost their job and now you need that $10k for something else. That’s counter party risk.
Virtually everyone became familiar with counter party risk in the wake of the 2008 financial crisis, and again in the wake of the Greek Sovereign debt crisis that threatened to topple banks in continental Europe.
Here we are again.
Two weeks ago, crypto lending platform Celsius froze user accounts. The idea behind crypto is that if you are holding assets in your own wallet, then nobody can take them from you. But what happens if you are holding assets in a lending platform, or perhaps in the account at a crypto exchange? What happens if that crypto exchange goes bust?
Host: Victor Menasce