Borrowing against unproduced electricity created the 2022 energy crisis doom-loop

Evidence

Here is what they do: to reduce their losses from a fall in electricity prices tomorrow, they bet serious money that the price will fall tomorrow. But because they do not want to use money they have, they borrow money to place these bets using as collateral electricity that has not been produced yet. If prices fall, their bet wins and they are compensated for the loss of revenue now that electricity prices fell. But when in 2022 electricity prices went through the roof, the financiers against whom they bet that prices would fall demanded a lot more collateral in exchange for keeping their bets alive. So the electricity companies had to sell a lot more of their future electricity to raise more collateral. That reduced the price of the future electricity which, in turned, pushed down their shares to such a level that they needed to post more collateral to back their bets. A vicious, demonic cycle had begun from which they could only get out with the help of a government bailout. — Yanis Varoufakis, Technofeudalism, 985

Categorization

• DEFINE: A very concrete illustration of how collateralized derivatives borrowing can force a fire-sale doom-loop.
• corroborated: 2 independent passages support this claim — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 985
• XREF: connects to: Electromagnetic grids forced the creation of big banks and big finance — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 135; Central banks were trapped into a doom-loop of falling interest rates — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 415; Truss’s market crash was a collateral-driven doom-loop from prior derivatives bets — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 950 (+1 more)

Broader Connections

• Truss’s market crash was a collateral-driven doom-loop from prior derivatives bets #corroborates (0.85) — Yanis Varoufakis, Technofeudalism, 950