Levine on Wall Street: Greed Might Be Criminal, But Not Fear

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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I guess insider traders are greedy.

Mathew Martoma's insider trading trial starts today and, I don't know, on my casual reading of the evidence it doesn't look great for him. The main defense seems to be something like "well sure I told Steve Cohen to trade based on illegal inside information, but he was gonna do those trades anyway." So it's like failed insider trading. Yesterday the judge ruled that prosecutors could tell jurors that Martoma's insider trading was motivated by "greed," which I think is a pretty unilluminating explanation for anything -- "imagine, he acted out of self-interest!" -- but I guess prosecutors think differently. They can't tell jurors that Martoma fainted when the FBI came to his house, which again I think is pretty unilluminating; you'd be kinda bummed too if you learned that the U.S. government was going to devote its considerable resources to ruining your life.

Men's Wearhouse has gone hostile.

Jos. A. Bank Clothiers tried to buy The Men's Wearhouse a while back, and then Men's Wearhouse decided instead that it should buy Jos. A. Bank, which disagreed, and now Men's Wearhouse has launched a hostile tender offer, though it's not a particularly overpowering one insofar as it relies on Jos. A. Bank waiving its poison pill. So the facts are pretty much (1) everyone agrees that these two crazy kids should get together, (2) there's no certainty that they will, (3) if they don't it'll sure look like that was driven by board-and-management ego rather than, like, compelling business reasons, but (4) they can always talk a big game about how the price was wrong. Anyway. I'll go ahead and guess that they eventually get over their inhibitions and finally merge but you never know.

Ralph Nader sticks up for shareholders.

I do not understand the thing where Ralph Nader has now devoted himself to protecting the rights of shareholders. Are shareholders oppressed? I mean, sure, probably, but compared to what, y'know? The appeal of sticking up for shareholder rights is not usually that you're the only thing that stands in the way of widespread serfdom and immiseration for millions of people. Usually the appeal is that it makes you money. It makes Carl Icahn lots of money. Does it make Ralph Nader money? How? Anyway Ralph Nader thinks that Liberty Media's efforts to buy Sirius XM for a negligible premium are unfair to Sirius XM shareholders, and I'm just going to say well of course, because, I mean, Liberty Media. (Here's a story about how it's actually an effort to buy Time Warner Cable because, again, Liberty Media!) But what does Ralph Nader have to do with any of it?

The mortgage crisis may have been rational

Here is a San Francisco Fed economic letter finding that, during the housing boom, borrowers with low credit ratings tended to choose adjustable-rate mortgages "based on economic considerations, rather than just lack of financial sophistication." And here is a preview of a Journal of Financial Economics paper finding that predatory lending didn't contribute all that much to default rates. I guess between them these papers tell a story of individually rational actions -- not "poor borrowers were tricked into risky subprime adjustable mortgages" but rather "poor borrowers took rational borrowing risks." I mean, it didn't work out great, but you can't measure everything in hindsight.

Co-op Bank was pretty naughty

"The Financial Conduct Authority and the Prudential Regulation Authority both said on Monday that they were undertaking so-called enforcement investigations" into Co-operative Bank, and you can understand why. Because Co-op Bank is pretty hilarious, is probably part of why: It's notable both for doing "a debt restructuring in which it relinquished a 70 percent stake to a group of bondholders" to avoid bankruptcy, and for the fact that "Paul Flowers, a former chairman of Co-operative Bank and a Methodist minister, was covertly filmed counting out money to buy illegal drugs just days after he appeared before Parliament to answer questions about his leadership at the bank." That's not very prudential! Some authority should regulate that! It has long been my theory that many policy and enforcement choices are driven by relative comedic value: Drug-addled clergymen, or JPMorgan cetacean schadenfreude for that matter, probably get more enforcement resources thrown at them than, I don't know, fraudulent misuses of inventory accounting.

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