Levine on Wall Street: Ratings, Inflation, Beer Prices

People like their bonds to have high ratings and high yields

People like their bonds to have high ratings and high yields

"S.&P. Bond Deals Are on the Rise Since It Relaxed Rating Criteria," reads the world's least surprising headline, and it's the story you'd expect: Standard & Poor's revised its criteria for rating certain residential mortgage-backed securities, S&P was then hired to rate more deals, some people cluck that this shows that they lowered their standards for commercial reasons, while S&P implausibly asserts that they don't care at all about making money and are just in it for the love of the ratings or whatever. In theory there should be some sort of equilibrium here: Just lowering your standards shouldn't necessarily get you more deals; banks should weigh the difficulty of working with a stickler rating agency versus the gold-standard seal of approval such a rater can give. In practice that doesn't seem to work out. One possibility is that investors don't want accurate ratings; they want high ratings, combined with high yields. They can make their own decision about what investments are safe or good or whatever, but they'd prefer that an official arbiter slap an investment-grade rating on whatever they choose to buy. In that model, advertising that a deal is held to a higher standard than other deals is counterproductive.

People like TIPS though maybe not as much as they should

Here you can read a review of the question: Are Treasury Inflation-Protected Securities a more or less expensive way for the government to borrow money than regular old Treasury bonds? People disagree, with one member of the Treasury Borrowing Advisory Committee estimating that the government has blown $30 billion on TIPS because actual inflation (which the government pays on TIPS) has overall run higher than inflation expectations (which the government effectively pays on regular Treasuries). But there are clever counterarguments. I suppose there's also the possibility that TIPS issuance -- which makes it marginally more expensive for the government to inflate away its debts -- itself lowers inflation expectations, which would then make the government's non-TIPS borrowing that much less expensive.

Lloyds Banking Group got better

Since a bailout by the UK government, Chief Executive Officer António Horta-Osório "has presided over a transformation of Lloyds into a purely British retail bank" and enabled the government to sell down its bailout shares faster than expected and at a profit. Previously, he was known mostly for taking a leave of absence for exhaustion shortly after joining the bank. Per the Journal,

Mr. Horta-Osório attempted to apply his trademark micromanaging style to the bank, but the scale of the problems overwhelmed him, he has said.
In November 2011, after failing to sleep for five nights running, he checked himself into the Priory, a U.K. rehab clinic often visited by celebrities.
Two months later, Lloyds's board gave him his job back. Mr. Horta-Osório agreed to a new management structure that would give more responsibility to his lieutenants.

I don't know, I just find that sort of charming. A bank where the CEO takes two months off to recover from pulling some all-nighters -- and then comes back and does great -- is a bank with an unusual culture. One perhaps better suited to a back-to-basics, British-retail-banking approach than its competitors. Though I guess when celebrities go to rehab for exhaustion it usually means drugs, so, maybe?

"Did US beer mergers cause a price increase ?"

News you can use. The answer is "mostly no."

Lehman Brothers house bands cover songs with on-the-nose names

Did you know that there are two bands, each with a name that is some variant on "Fifth" for some reason, made up of 30- and 40-something Lehman Brothers alumni? You probably did not. Did you know that they played a reunion show last night? You probably did not. Can you guess what songs they played? You probably can, if you give it some thought. If you're going to wreck a bank, you might as well then form a band and play Tom Petty's "You Wreck Me." I imagine they spent the last five years cooking up this setlist.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

    To contact the author on this story:
    Matthew S Levine at mlevine51@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.