Levine on Wall Street: Good Investors, Bad Traders
High frequency trading is bad.
So says my Bloomberg View colleague Michael Lewis, which I guess makes it official. The book is out today. He likes IEX, a new market designed to limit abusive trading. Tell your broker you want your orders executed on IEX and that Michael Lewis sent you.
Activism is good.
The latest result, which I suspect will not change too many minds but which is nonetheless a result, is that "often noisy investors such as Carl Icahn, Bill Ackman and Nelson Peltz -- who urge corporate heads to rethink their strategies and expedite stock-boosting changes -- generated a 48 percent average gain for shareholders of the companies they've preyed on in the last five calendar years, according to an analysis of 81 companies by Bloomberg News." But that's only five years and so I guess you can still argue that activists are bad for companies in the really long run. Marty Lipton does just that, while Carl Icahn gets to crow, "It shows Marty Lipton is completely wrong, he's been wrong for 30 years."
Are you on Marty Lipton's naughty list or his nice list?
I worry sometimes that I'm on the naughty list, though I worry even more that I'm on the "who?" list. Anyway, wouldn't it be great if the Tulane Corporate Law Institute consisted solely of financial titans telling Andrew Ross Sorkin whom they like and dislike? Marty Lipton is down with Ralph Whitworth, David Batchelder, Nelson Peltz, Peter May, and Barry Rosenstein; he's not so into Paul Singer, Dan Loeb, Bill Ackman, or, as you'd expect, Carl Icahn. There is other good stuff here too, as when Lipton says "The poison pill was developed because of my frustration with the inability of subjects of hostile takeovers to deal," and it's nice to tie that major development in corporate law to one lawyer's emotions.
"For years after the financial crisis, European banks resisted selling their corporate loans for fear of having to record heavy losses," but now they're seeing better prices and starting to sell. If you take a strongly cyclical view of bank asset prices then you could imagine two ways to bail out a bank. In one way, the government or whoever pumps in a lot of money and gets ownership or preferred stock or whatever in return, and as the asset prices recover the government and the bank split the benefit. In the other way, everyone just sits very quietly and pretends not to notice that the bank is operating with negative net worth, and eventually the assets recover and the bank gets the benefit, without ever using government money. Not saying that that's what happened to European banks, but it is a perhaps somewhat illuminating model.
What goes up etc.
"We find that credit expansion, measured by the three-year change in bank credit to GDP ratio, predicts a significantly increased crash risk in the returns of the bank equity index and equity market index in the subsequent one to eight quarters." Via Tyler Cowen, who points out that "No one made you put so many bananas on your roof." And do low interest rates prop up asset prices if the assets are Bruegel paintings?
How's Greece doing ?
"Greece's parliament has approved a structural reform package agreed with international lenders, opening the way for disbursement next month of a €8.3bn aid tranche," is a sentence that I feel like I've read a lot of times. The structure must be pretty reformed by this point.
Do ratings agencies
compete with banks
Here, from a Federal Reserve researcher, is a fun model of how ratings agencies might work: "The rating agency's action trades off low-quality issuers' desire to pool against the threat that high-quality issuers may borrow from private lenders (banks) if ratings do not allow them to separate. High-quality customers' defection affects the rating agency directly through lost revenue from these customers, and indirectly by reducing the value of ratings for all customers." So when bank lending is more competitive with bonds -- for instance when the high-yield market shut after the collapse of Drexel Burnham -- then ratings become more informative.
Omaha hotel markets are efficient. "You can't build an Olive Garden and say it's Little Italy." There are food trucks on boats. Don't hold your breath for a Swiss smartwatch. Anthony Weiner is still terrible. Jérôme Kerviel's ex-boss has also opted for the simpler life. I ... I don't know what this is, but it happened.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
(Matt Levine writes about Wall Street and the financial world for Bloomberg View.)
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