Levine on Wall Street: What's in a Name, or a Number?
Who wouldn't trust Stevie C Capital LLC?
The thing about bringing criminal charges against companies is that companies are just people, my friend, and so if a company is irreparably tainted by criminal charges, the people who make up that company can just move six inches to the left and start a new company. That doesn't work so great for banks, which have important relationships with regulators and lots of small retail customers, but it's a pretty good approach for hedge funds, which tend to be just a couple of guys and their money. SAC Capital, which has been barred from managing outside money, isn't quite doing the six-inches-to-the-left-and-reincorporate strategy, but various employees are holding "exploratory talks" about moving their teams to other hedge funds. And SAC itself, "which took the initials of its founder, Steven A. Cohen, has also had internal discussions about whether to change its name, in part to forge a new identity following its legal battles."
You can't just make up your assets under management
GLG Partners is a giant hedge fund that sometimes invests in illiquid assets without an obvious market value, and that charges investors management and administrative fees that are proportional to the value of the assets under management. There is an obvious conflict here: If you own a thing and no one knows what it's worth, and if you can charge your investors a percentage of what the thing is worth, then logically you should tell them that it's worth eight hundred trillion dollars. Logically but illegally. Anyway GLG, which, again, is a giant hedge fund, had very sensible policies which provided that "assets which were not quoted in the market and whose value could not readily be determined through outside data sources ('Level 3 assets') were to be priced monthly by an independent pricing committee ('IPC')," and that level 3 prices had to be backed up by "comprehensive documentation." But also it didn't follow those very sensible policies: It bought a 25 percent stake in a privately owned emerging market coal company for $210 million in March 2008, immediately marked that stake up to $425 million, and then never revised the valuation downwards despite receiving multiple indications -- including a free valuation provided by brokers as a favor! -- that it was worth much less. Most of those indications never went to the independent pricing committee, and "for 21 of 25 months from November 2008 through November 2010, GLG failed to document the basis for the IPC's monthly ratification and approval of the" $425 million mark. Yesterday it settled a Securities and Exchange Commission case for $9 million, most of it going to investors who were charged 2.5 percent of that inflated valuation for two years.
The EBA is suspicious of bitcoins
The European Banking Authority is issuing a statement warning consumers "of the risk of 'violent fluctuations in electronic currencies' value, the danger of 'digital wallets' being hacked, and of the lack of legal protections for users." A good way to market a risky volatile product that is prone to being hacked and that offers few legal protections is to base its appeal on a distrust of banks and governments, because then when a banking regulator tells people to maybe think about not using the product, you can just say "see? That's just what you'd expect them to say."
There were a lot of terrible subprime mortgages
Here is Matt Taibbi getting angry about some financial stuff, which is always entertaining if you find that sort of thing entertaining. The financial stuff here is Household International's mortgage marketing practices from 1997 to 2002, which were in fact quite bad, hilariously or tragically bad depending on how hard you think about them. Household was offering high-interest, shorter-term mortgages by pretending they were low-interest mortgages: Since you pay off an 18-year mortgage faster than a 30-year one, you pay less in total interest, so if you squint it almost looks like a lower-interest mortgage. Taibbi includes some Household sales training videos, which are very very smarmy; he says "I can pretty much guarantee that some readers may actually vomit with rage when they watch them," which is a pretty aggressive guarantee, he should be a mortgage salesman. The claim that these 2001 videos caused the 2007-2008 global financial crisis is somewhat unsupported but that should not take away from the fact that they really are quite bad.
The Blackstone Group's offices double as a penguin bathroom
Here is an article about some Sea World animals -- otters, penguins, owls, and for some reason huskies -- visiting the Blackstone Group along with some kindergartners. Blackstone owns a big chunk of Sea World; it does not so far as I know own any kindergartens. Blackstone has had the penguins over before, but they still haven't quite gotten used to office life: "As they did last year, the penguins left a little unsolicited present that Blackstone employees quickly cleaned up."
To contact the author on this story:
Matthew S Levine at firstname.lastname@example.org