More liquidity means more instability on Wall Street

NEW YORK – The collapse of the Archegos fund is only the most recent example of how extreme liquidity can make financial markets more volatile and sometimes lead to bizarre outcomes.

Another dramatic instance came in late January, when shares of GameStop suddenly skyrocketed following a buying frenzy coordinated by retail investors eager to defend the video game retailer from funds betting against the company.

Shares of GameStop have since retreated, but the episode shined an uncomfortable light on online trading platforms and speculative investment funds involved in the financial melee.

In the case of Archegos, leading banks appear poised for hefty losses following billions of dollars in sudden stock liquidations by…