Levine on Wall Street: Fencing Masters and Card Counters

"Chronic pain, insomnia, endocrine disorders set in. Pain is really common." Investment banking is awful even if Tim Geithner isn't taking you into a dark alley and slitting your throat.

Tim Geithner's Secret Service code name was Fencing Master.

Andrew Ross Sorkin profiles the former Treasury Secretary and current guy flogging a book, and there is much to enjoy (and more here). One highlight:

“I was crossing Lexington Avenue and some guy said, ‘You’re one of the Goldman [expletive] who ruined the country.’ ” Geithner said he replied, “Thanks for sharing.” At another point, he cheerfully relayed a story that also appears in his book about the time he sought advice from Bill Clinton on how to pursue a more populist strategy: “You could take Lloyd Blankfein into a dark alley,” Clinton said, “and slit his throat, and it would satisfy them for about two days. Then the blood lust would rise again.”

Also Geithner says he's 5-8 at the end of the piece, but Sorkin says he's 5-9 at the beginning. But the most interesting bit might be this:

“I did not view Wall Street as a cabal of idiots or crooks,” he writes in “Stress Test.” “My jobs mostly exposed me to talented senior bankers, and selection bias probably gave me an impression that the U.S. financial sector was more capable and ethical than it really was.” During his first few months in the job, Geithner fought with Summers, who felt that his protégé had become overly solicitous of the banks. Geithner dismissed Summers as espousing “the hedge-fund view.” (“Hedge-fund executives tended to see the banks as dumb, lumbering giants,” Geithner writes.)

This will enrage people who do view Wall Street as a cabal of idiots and crooks (which: most people!), but the important thing is the terms of the internal debate: the bank view versus the hedge-fund view. It turns out to be surprisingly hard to be against "the financial industry"; tightening restrictions on one area of finance tends to make another happy.

Secret trading, secret charity.

This is Bloomberg Businessweek story about TGS Management, a secretive and successful quantitative prop trading firm whose founders anonymously give away heaps of money, is pretty much amazing. The graphics, for one thing: Come for the animated business-suited paper-bag-faced angels spewing money, stay for the intricate circuit diagram of how the money was actually distributed. But also it is hard to resist a trading firm so secretive that only Ed Thorp -- mentor to the TGS founders and perhaps the coolest man in financial history, the guy who invented card counting, convertible arbitrage, and maybe the Black-Scholes model -- will talk about it. These guys should be everyone's role models: Make a ton of money by being really smart, give billions away to charity, and never tell anyone about either part.

Capital regulation is hard.

You want banks to have enough capital to support their assets. Riskier assets require more capital. How do you measure an asset's risk? There are three important options, which are (1) have regulators do it, (2) have banks do it, or (3) don't do it. All of those are self-evidently dumb, and the Basel capital rules correct for that problem by, loosely speaking, using all three. (You use internal model-based risk weightings, regulatory standardized weightings serve as a backstop, and there's a leverage ratio that uses more or less unweighted assets.) But:

But in a speech on Thursday, Daniel K. Tarullo, the Fed governor who oversees regulation, said he believed that regulators should consider stopping the banks from using their own estimates. “The I.R.B. approach has little useful role to play,” he said, referring to the internal ratings-based approach, the official term for this self-assessment.

You can see why banks grading themselves, on its own, would not be appealing, but I'm not sure why a monoculture of regulator-driven risk assessment is obviously better.

Avoiding taxes is hard.

Everyone seems to think that Pfizer wants to buy AstraZeneca for the tax inversion -- by relocating to the UK, Pfizer would cut its corporate tax rate -- but the tax code is on it:

Under the U.S. rules, Pfizer shareholders with stock in taxable accounts would owe capital-gains tax on the appreciation in their shares when they are converted into stock in the merged company, said Robert Willens, an independent tax expert based in New York.

So Pfizer gets a tax benefit but Pfizer's shareholders get their taxes accelerated. In general if you are a corporate manager you have lots of incentives to shift tax from the corporation to its shareholders: You tend to be measured on corporate numbers (net income, etc.), which are unaffected by the shareholders' tax rate, plus many of your shareholders are in fact tax-indifferent. On the other hand, you are also probably a shareholder, so you tend to care quite a bit about your own tax rate.

Omnicom and Publicis broke up.

This is bad news for Moelis & Co., and a good reminder that M&A banking is an elephant-hunting business and sometimes the elephants get away. I hope Maurice Lévy and John Wren will still get together periodically to pose for pictures in front of the Arc de Triomphe, because they were really the best part of this deal.

Investment banking is terrible.

I mean, read this:

“On year four, physical breakdowns occur, initially minor,” she says. “Chronic pain, insomnia, endocrine disorders set in. Pain is really common.” Weight gain, hair loss, anxiety, depression and generalized low energy are also common complaints, Michel says.

Come on, no one wants that. I lasted four years, for what it's worth.

Things happen.

Athenahealth's catty comments are not as good as David Einhorn's. The FTC settled with Snapchat for not keeping sexts secret enough. Cat picked up. Headline perfect. There are still cronuts. "They have floor-to-ceilings — with a ladder on a track.” "Competitors playfully called the avuncular Dobkin 'Okey-Dokey,' in a nod to his cheerful demeanor." Finding Satan at Harvard.

No persiflaging.

You may never see a better investment bank prank e-mail than this, glorious in its restraint and its verisimilitude and its deep throbbing crazy. Anonymous analyst prankster, I salute you.

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