Levine on Wall Street: Dangerous Connections
Don't be LinkedIn friends with the guys you insider trade with.
I guess the word is "connections." They were also Facebook friends though, and that is also a bad idea. Come on. No names, no paper trail, meet at the clock at Grand Central, this is not that hard. (Via.)
How the euro was saved.
Peter Spiegel is telling the story of the eurozone crisis and here is part one. This is a story that starts with Angela Merkel crying, which gives you a sense of how bad things get. Much of this part concerns Greece's surprise decision to hold a referendum on its bailout package, and how angry it made Merkel and, especially, Nicolas Sarkozy:
Mr Papandreou was taken aback. “He goes there and he starts ranting and raving on the referendum,” he said of Mr Sarkozy. Added Mr Venizelos: “The position of Sarkozy was very offensive. It was not polite. Very, very strong and very offensive, in order to put Greece in a dilemma: in or out.”
And there is this:
Yet when eurozone leaders were summoned again by Mr Sarkozy at 9.30pm that night in Cannes, several were surprised to find Mr Obama chairing the meeting. “It was strange,” said a member of the German delegation. “It was also a signal that Europe was not able to do that; it was a sign of weakness.”
BNP Paribas and Credit Suisse don't want to go to jail.
That's what happens when banks are indicted, right? You cart their corporate records off to jail? Anyway this idiocy continues:
To avoid the fallout from pleading guilty — no giant bank has done so in more than two decades — BNP Paribas and Credit Suisse made last-ditch appeals to prosecutors and regulators in recent weeks, according to people briefed on the talks. The private meetings came after prosecutors sought guilty pleas from the parent companies of both banks: BNP of France over doing business with countries like Sudan that the United States has blacklisted, and Credit Suisse for offering tax shelters to wealthy Americans.
While BNP and Credit Suisse proposed more modest guilty pleas from their subsidiaries rather than parent companies, the people briefed on the talks said, prosecutors appeared to balk at those overtures, challenging broader public concerns that banks have grown so important to the economy that they are effectively “too big to jail.”
Credit Suisse cleverly (and after the fact) put all its illegal doings into a new subsidiary, but "prosecutors have privately indicated that they are unwilling to charge the newly formed unit." Others can see their point: "'Fish stinks from the head down, more precisely, that’s the head of CEO Brady Dougan,' Ernst Schmid, a shareholder wearing a traditional Swiss edelweiss shirt, said at the bank’s annual meeting."
Barclays has its own jail problems.
This investigation has been going on for a while, but somehow Barclays is even more under investigation by the UK Serious Fraud Office for maybe paying bribes to get Qatari investors to commit capital in 2008. Some find this a bit unfair:
For Barclays, which launched a restructuring plan last week to improve profitability, the news is an unwelcome reminder of the issues hanging over the bank. “They’ve just sliced off two arms and a leg, and still someone’s out to get them,” said one person involved.
Cliff Asness thinks momentum trading is underrated.
If you like Cliff Asness on efficient markets, this is a good thing to read. Asness and his firm, AQR Capital Management, are proponents of using momentum -- basically, long stocks that are up over the past year, short stocks that are down -- as a signal in building an equity portfolio, arguing that it's a better signal (higher returns, better Sharpe ratio) than more traditional signals like value or size. But it gets a bad reputation, and here Asness and crew refute some of the "myths" about momentum investing. In their telling, momentum suffers in part because some people view it as a "behavioral" factor, and so less robust than risk-compensation factors that fit more neatly into an efficient-markets theory. But they argue that momentum might in fact have a risk rather than a behavioral explanation, and that anyway, even "under the behavioral explanations, as long as the biases, behaviors and limits to arbitrage remain stable, the premium will as well."
Appraisal litigation is good.
Here is an article on the rise of "appraisal arbitrage," in which hedge funds buy stakes in public companies with announced merger transactions, vote against the merger, and seek appraisal rights in Delaware court when the merger goes ahead anyway. The news is good:
[A]ppraisal suits—in contrast to fiduciary suits challenging the same universe of transactions—bear multiple indicia of litigation merits, targeting transactions with lower deal premia and also going-private transactions, where minority shareholders are most likely to face expropriation. Appraisal petitioners, in other words, are focusing on the right deals.
In light of these empirical findings, we argue that the rise of appraisal arbitrage is, on balance, a beneficial development. Much as the market for corporate control generates a disciplining effect on management, a robust market for appraisal arbitrage could serve as an effective back-end check on expropriation from stockholders in merger transactions. Appraisal can protect minority holders against opportunism at the hands of controlling stockholders, and in third-party transactions appraisal can serve as a bulwark against sloth, negligence, or unconscious bias in the sales process.
"Bond trade execution becomes more like a brokered transaction."
Here is sort of a sad story of how bonds have stopped trading because banks are being pushed out of market making by regulation, and no one is stepping up to take their place. This is fine as long as you can broker trades, but in theory (in theory!) the role of the market maker includes dampening volatility by stepping in to buy when there are no "natural" buyers. And that function may be disappearing from the market. Also disappearing is interbank lending, which makes the Fed Funds rate less relevant.
Tim Geithner has a book out.
You may have heard. Here is the New York Times review ("It wasn’t until he saw 'The Hurt Locker' ... that he found something that really captured what 'the terror of those days' felt like for insiders trying to contain the unspooling crisis"). Brad DeLong has ten questions for Geithner ("Why in the spring of 2008 did the Federal Reserve not require all the peers and near-peers of Bear Stearns to substantially increase their equity?").
Steve Cohen can't sell his apartment. Unrepentant con man Jordan Belfort doesn't like being accused of hiding income. Bitcoin for campaign finance. Bitcoin for strippers. Nazi detergent. "There is no limit to our outrage." You can see why the New York Attorney General's office doesn't like high-frequency trading; it keeps all its real estate records on handwritten (until recently, typewritten) index cards. Butter-Cake Dick's was the cronut bakery of the 1840s. Generation Salad.
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Matthew S Levine at firstname.lastname@example.org
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