Levine on Wall Street: Borrowing to Buy Stock

Distressed mortgages and transaction taxes and secret loans to shareholders to prop up failing banks; it's a very crisis-retro linkwrap.

Apple is going to sell a lot of bonds.

Apple is planning to sell a lot of bonds to fund its new expanded capital return plan. You may remember that Apple sold a lot of bonds a year ago to fund its (at the time) new expanded capital return plan, so this is getting to be a thing. "Nobody believes in Modigliani-Miller," is something I sometimes say to be annoying. Anyway the old Apple bonds are trading at lower prices than they were issued for, but that's due entirely to interest rates; they seem to be trading at spreads in line with where they were issued (60ish basis points for the 10-year versus 75 at issue; a bit over 100 for the 30-year versus 100 at issue). Investors can forgive you for top-ticking rates more easily than they can forgive you for top-ticking the state of your own company, and Apple looks about as healthy as it did a year ago. Though more levered.

Anglo Irish Bank was bad.

"Lending money to people to buy your own stock" is pretty much the worst way to run a bank, but Anglo Irish seems to have done a ton of it, first lending billions of euros to Irish billionaire (at the time!) Sean Quinn to pay margin calls on his giant Anglo Irish stake, and then lending money to a bunch of other businessmen so they could take the shares off Quinn's hands. This went about as poorly as you'd expect, and two Anglo Irish executives are facing sentencing for their role in setting it up.

Guy who bet against mortgages wants to bet on mortgages.

"Donald R. Mullen Jr., who was the architect of Goldman's trade against the housing market just before the financial crisis, is seeking to raise as much as $1 billion for a new fund" to buy distressed mortgages and either restructure them to become current or else foreclose and rent the properties. Surely someone elsewhere will write about evil banksters profiting from misery, so enjoy that. An important measure of investing acumen is being able to call both the top and the bottom, or at least points near them: It's easy to bet against mortgages just before the financial crisis if you're always betting against mortgages, and it's easy to buy cheap and profit from the recovery if you're always buying mortgages, but the guy who's short just before the top and long just after the bottom is impressive.

Will there be an EU transaction tax ?

You don't get the sense that the European Union's proposed financial-transaction tax is being carefully designed by sophisticated economists to maximize revenue and/or deter unwanted transactions:

The 11 participating countries remain divided on whether to tax all derivatives, only equity derivatives or no derivatives at all, EU documents show.

An Oxfam guy is quoted saying "The FTT has to be used to tax the richest people to give to the poorest," but that doesn't tell you whether you should be taxing equity derivatives or also interest-rate derivatives.

Will the U.S. get mad about foreign swaps done abroad?

There are U.S. rules that apply to swaps done by U.S. banks, or foreign affiliates of U.S. banks if the swaps are guaranteed by the U.S. parent. So the banks have stopped getting parent guarantees on their foreign swaps, to avoid the rules. This is some sort of outrage:

Marcus Stanley, policy director for Americans for Financial Reform, a public-interest coalition, warned that if U.S. banks trade swaps out of unguaranteed affiliates abroad, on platforms that aren't overseen by the CFTC, they could "avoid Dodd-Frank rules completely...while trading with other unguaranteed affiliates of U.S. entities."

I don't know. The thing is, your rules can't just be, like, "everything is banned." You have to pick things to regulate, and then you have to expect banks to do more of the things that aren't regulated. That doesn't seem so bad to me, but I guess it wouldn't.

Things happen.

Paul Krugman is skeptical about banning banks. (Izabella Kaminska also has interesting views.) Marty Lipton still doesn't like activism, or hostile takeovers, or activists facilitating hostile takeovers. The way to win a stock market game is concentrated positions in high-volatility assets; this is not necessarily the way to win at life. "An oil and gas giant, several banks and Switzerland-based food megacorp Nestle are among more than a dozen financial backers of" the canonizations of Popes John XXIII and John Paul II. Russia could maybe accelerate Ukraine's bonds. Bernie Madoff's apartment is up for sale again.

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

    To contact the editor on this story:
    Toby Harshaw at tharshaw@bloomberg.net

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