Here’s What ‘Billions’ Gets Wrong About the Municipal Bond Market

Not quite how it works.

Damian Lewis as Bobby "Axe" Axelrod in Billions.

Photographer: Jeff Neumann/Jeff Neumann/SHOWTIME

People believe what they see on television. They even take social cues from both reality and entertainment programs. I remember a guy who thought it was acceptable to drop in unannounced pretty much because he saw Kramer, Elaine and George do it so many times on Seinfeld.

Watchers of the Showtime hit Billions can be excused, then, if they think that creditors can squeeze broke or defaulting municipalities by seizing buildings, pension funds, police cars or artworks.

As the hedge funds who hold Puerto Rico’s bonds now know, that’s not quite how it works.

One of the Billions plotlines this season has involved municipal bonds. You just don’t find many references in popular culture to state and local securities, which may be one reason why municipal market participants are watching the show with a mixture of fascination and horror.

Billions follows the careers of the U.S. Attorney for the Southern District, Chuck Rhoades, played by Paul Giamatti, and Bobby Axelrod, a hedge fund titan, played by Damian Lewis. The show, conceived in part by New York Times reporter (and author of Too Big To Fail) Andrew Ross Sorkin, will conclude its second season Sunday night. I mention Sorkin in particular because his presence was almost like a seal of approval that the show would have a high degree of verisimilitude. Showtime told me that he had no day-to-day involvement with the program.

“We spoke to experts in order to craft a storyline that would be credible but wouldn’t lose the audience in minutia,” said Brian Koppelman, Billions executive producer and co-creator. “Many people in the business have reached out to say we got most of it right.”

One of this season’s plotlines revolves around the town of Sandicot, New York, one of those sad Upstate towns in the Land That Time Forgot. Axe meets the county chief executive, buys the town’s distressed muni bonds “for pennies on the dollar,” buys land, and awaits the award of a gaming license and casino. He is assured Sandicot will be the winner.

Except that it’s not, and Axe is left with $400 million in bonds on the brink of default and the loss of $100 million in fresh capital he put up.

At least I think that’s how it works, because while the personal lives of the principals are examined in some detail, their professional lives are more just hinted at. Billions is a very well done show, with excellent “production values,” as they say, but it’s often difficult to make sense of precisely what’s going on and what the numerous characters are talking about. There’s an almost disjointed, otherworldly quality to some of the financial dialog.

Actors Paul Giamatti and Toby Moore on the set of "Billions."
Actors Paul Giamatti and Toby Moore on the set of "Billions."
Photographer: Bobby Bank/GC Images

The key episode in the Sandicot tale was Episode 7, Victory Lap, in which Axe charges a specially convened war council. He is conflicted. There must be a way, he says, to get repaid and not destroy the place. One of his analysts says that austerity looks like the only option.

And then we hear about the “note exchange.” This requires the town to pay Axe Capital first, even before teacher and police salaries. He can “seize their assets” and even “pillage the pension fund.”

That’s the moment I thought, That’s not how it works. I was particularly interested in the “note exchange,” because it seemed to me “ultra vires,” that is, the town couldn’t legally set up such an arrangement. That’s what caused the Washington Public Power Supply System to default on $2.25 billion in bonds in 1983. A judge ruled that the contracts of some participants in the project were ultra vires.

There are two quotes in particular that bear a closer look. The first is by Taylor, a new, sort of intersexual character this season, a young analyst who declares, “My pronouns are They, Theirs and Them.”

Taylor tells the reconvened war council, which has also heard that perhaps the company could create a food hall in Sandicot or “bring in a minor-league team,” that “A town is like a business. And when a business operates beyond its means, when numbers don’t add up, and the people in charge continue on heedless of that fact, sure that some sugar-daddy, usually in the form of the federal government, will come along and scoop them up and cover the shortfalls, well, that truly offends me.”

Taylor turns to Axe: “People might say you hurt this town. But in my opinion, this town put the hurt on itself. Corrections are in order. There’s a way to make this work, and that way is hard, but necessary. Taleb said, become anti-fragile, or die.”

Two things struck me about this bit of dialog. I liked it as a nice articulation of philosophy. But first, towns in the modern era don’t die. Second, it would come as a surprise to those public officials wrestling with municipal finances to be told that “some sugar-daddy” will come to their rescue.

The meeting ends. Axe is still unconvinced, and asks his wife, Lara, her opinion. She advises him, “Did anyone ever look out for us?” The final scene shows Axe roaring off in some fast and impractical sports car to buy his sons Chinese takeout, all the while barking into his phone, “Seize all their assets—property, utilities, machinery, vehicles, buildings, everything—even town ----ing hall. And don’t stop until we get what we’re owed.”

Well, as I’ve found out over the course of the last 36 years of covering the market, this is what happens when you think of munis in terms of equities. It’s different in MuniLand. Because there have been so few instances of municipalities blowing up in the modern era, there’s almost no precedent; every major municipal bust up is bespoke.

There’s a lesson here, and it may be that most television doesn’t hold up on close examination. After all, most of the characters in Billions also seem to wake up when the sun’s out, and we all know that’s not true in the world of finance, either. So don’t believe everything you see on TV.

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