Matt Levine

As Congress looks increasingly likely to force a default on U.S. government debt for no real reason, there are two possible approaches for a rational outside observer to take, which are (1) despair and (2) hare-brained scheming. Option 1 is probably correct, honestly, and you can get your fill of it elsewhere; Martin Wolf's despair is eloquent. But Option 2 -- coming up with creepy tricks to avoid reality, reality being the debt ceiling and a pointless default -- is more fun so let's talk about it here.

The creepy trick that has swept the nation* is the platinum coin option, in which Treasury mints a $1 trillion platinum coin, deposits it at the Fed, and suddenly has an extra $1 trillion of money to spend without incurring any debt (and, thus, without breaching the debt ceiling). This is a good trick as tricks go, and it's been extensively advocated by Josh Barro, Paul Krugman, Matt Yglesias, Joe Weisenthal, basically every economics blogger really. I am unaware of any good arguments that the platinum coin wouldn't work, but it does have the problem that it is really really really really obviously a trick. I mean, it's a trillion dollar coin, come on. So it's sort of sub-optimal symbolically, and would make people really mad. It's a crisis-enhancer, although with the benefit of avoiding immediate default.

France is making its takeover law more French

France is set to adopt a law that gives employees input into approving takeover bids and restricts companies from shutting down plants without looking for a buyer. M&A types are not happy about this; one says "The measures were clearly thought up by people living in the last century." At least! He could have said the 1850s. But they have a certain appeal. American takeover law makes takeovers hard by taking power away from shareholders and giving it to managements and boards, who have obvious incentives not to want to be taken over. One justification for this is that, while it is shareholder-unfriendly, it is important to let managers protect the interests of other stakeholders, like employees. But if that's the justification then it makes sense to do it more directly by just giving the workers a vote, as the French law sort of kind of a little bit does.

Fabrice Tourre, the former Goldman Sachs vice president recently found liable by a jury for, like, the financial crisis, wants a do-over, which is understandable enough. Yesterday he filed a motion asking the judge to throw out some bits of the SEC's fraud case against him, and grant him a new trial on the other ones. It's sort of boring but the gist of it is mostly "no jury could have decided against me so ignore the jury's decision against me and put it in the hands of another jury." That sort of thing usually sounds better to lawyers than to judges, so I'm short Fab's chances here.

Still there's a fun bit here that I did not know about.* The schematic story of Fab goes something like this:

The lawsuits are coming from inside JPMorgan

Here's a story about how the criminal case against JPMorgan for securitizing bad mortgages is based largely on information from a whistleblower inside the bank, including an email from her "warning her superiors that they were vastly overstating the quality of the mortgages being bundled into securities." There is interesting game theory to be mapped out about whether you should send that sort of email. On the one hand it is traditionally considered a bad idea: If you disagree with your boss, you should discuss it live, rather than create a paper trail of your initial negative impressions that can later be used against you. ("You said these mortgages were terrible, but you sold them anyway, and now you are in jail.") On the other hand, sending the email sets you up for a future whistleblower reward. ("Jane here said these mortgages were terrible, but you sold them anyway, and now she's on our side of the table.") Recently senders of these emails have tended to be more rewarded than punished, shifting the calculus a bit, which I suppose is the idea.

I enjoyed this Commodity Futures Trading Commission action from last week against a trader named John Aaron Brooks. Brooks traded commodities for an unnamed bank* until October 2011, when he "exceeded internal trade limits on cattle futures" and was told to unwind all his positions and go sit in the corner and think about what he'd done. He unwound almost everything, but politely declined to unwind his ethanol futures positions, because he happened to have been fraudulently mismarking those for about a year and "liquidation would expose the losses that Brooks was offsetting and masking." You can imagine how that conversation went.**

The bank fired him and discovered that it was out of pocket to the tune of $42.4 million because of the hidden losses. So it turned him over to the CFTC, which is suing to get the money back and ban him from the industry and do all the good stuff you do to rogue traders.

There are two main ways to make money as a hedge fund manager:

1. Buy things that go up, take a cut of the profits.
   
2. Amass assets under management, take a cut of the assets.
   

It's hard though not impossible to do much of No. 2 without a track record of No. 1, but once you have that track record all the obvious incentive problems apply. If you run a small hedge fund, your incentive fees pay for your vacations and your kitchen renovations and maybe your lunch, so you are very very focused on maximizing returns. If you run a big hedge fund, your management fees pay for everything your heart desires. So why stress yourself out pushing for returns? Just be average, avoid big losses, clip your 2 percent, and go on TV a lot to make sure the money keeps rolling in.

I would not have expected Alex Pareene of Salon to be the best CNBC guest since Carl Icahn, but here we are. I hope you caught his performance on Friday, telling an incredulous CNBC crew that JPMorgan Chase & Co. should fire Jamie Dimon and replace him with any guy plucked off the street, but if not do check it out. Also check out this very good Felix Salmon post from yesterday on the topic.

The story, as you probably know, is that Jamie Dimon runs JPMorgan, and JPMorgan is negotiating to pay $11 billion or so in fines to settle some regulatory investigations. These fines are on top of the billions of dollars of other fines that JPMorgan has already paid to settle other investigations, and the other billions of dollars of fines that JPMorgan will presumably pay to settle the investigations not settled in this $11 billion-ish settlement. Lotta fines is the point. Some people, like Pareene, think that Dimon should fall on some swords for all the fines, while some people, like most of CNBC, don't. Their disagreement is edifying.

America's main creditors aren't too worried about the debt ceiling

Asia's central banks have $5 trillion in foreign exchange reserves, much of it in Treasuries, and "consider a U.S. debt default unthinkable and see the eventual tightening of U.S. monetary policy as a bigger issue." That's sensible enough, but U.S. politicians seem to be taking the other side of that bet. Really, if you were designing a world financial system from scratch and someone was like "well, here is an instrument where a bunch of people vote every year or two about whether they should pay it back," you might choose something else as the main store of value underpinning the global economy. But we're not starting from scratch, and here we are, and I guess it's good that the people who have made Treasuries the main instrument of foreign reserves haven't yet changed their minds.

Jamie Dimon takes a meeting

Dimon met with Eric Holder yesterday to negotiate about all the things JPMorgan Chase is being sued for. The headline on this DealBook piece is "JPMorgan Urged to Pay More in Mortgage Deal," which I guess is how deals work. But actually "the size of the fine is not the central negotiating point for the bank: JPMorgan is instead focused on using the wide-ranging pact to resolve many of the mortgage-related investigations it faces." DealBook has a good rundown of all those investigations, as does Matt Yglesias, who puts it this way: "The problem Morgan is running into is that right now instead of settlements cauterizing investigations and letting the company move on with its life, each investigation seems to spawn new investigations." JPMorgan is a perpetually renewable resource for regulators and plaintiffs: It seems to have done more bad things than you could sue it for in one lifetime, and it has essentially unlimited money. Regulators have to have something to fill their days, and how could they give up such a juicy source of activity for a mere $11 billion fine?

Here is an almost impossibly delightful securities fraud case.

ChinaCast Education Corporation is, or was, "a leading post-secondary education and e-Learning services provider in China" run by Chan Tze Ngon and Jiang Xiangyuan. It went public in the U.S. in 2006 (by means of a merger with a blank check IPO company, always a bad sign), and was listed on Nasdaq, under the symbol CAST, from 2007 until 2012, when it was de-listed for being very very tiny and very very terrible. At its peak, its market capitalization was over $200 million; now it's $4.9 million.