Levine on Wall Street: Argentine Bonds and Sudanese Oil

If there's one important takeaway here, it's: Never leave voice mail. Also try not to overcharge charities for investment services. Or, I guess, default on your bonds.

Rough day for Argentina yesterday.

Here at Bloomberg View, Noah Feldman has a good explanation of Argentina's loss to its holdout creditors in the Supreme Court, and what it might mean for international law and finance. (Nothing great!) And Bloomberg News explains Argentina's need to negotiate a settlement with the holdout creditors in the next two weeks, before an interest payment comes due on its restructured bonds. Cristina Fernández is not happy. Anna Gelpern predicts that Argentina will reach a settlement, though she's not super-optimistic that they'll be done by June 30; she also flags the difficulties that European courts will face reconciling the U.S. decision with their own laws. Joseph Cotterill is in a similar place; he notes that Argentina can seek a rehearing from the Supreme Court -- which wouldn't work, but which might allow it to pay the June 30 coupon without being in contempt of court. Here is Peter Eavis on the precedent for bond markets. Stephen Bainbridge rounds up some issues, including the problems of boilerplate contracts. Alison Frankel explains who might be in trouble if Argentina tries to get around the ruling.

Banks Are Where The Liquidity Is.

Here's an NBER paper by Oliver Hart and Luigi Zingales. It fits into the safe-assets literature about finance and financial crises, and tries to explain why banking crises are bad for everyone and not just banks:

A bank failure disproportionately hits agents who are liquidity constrained (more so than if an industrial firm was to fail), causing a larger drop in the demand for labor services that was supported by that liquidity, and a larger fall in GDP. ... We show that, when a shock hits senior tranches, the macroeconomic effect of this shock is more severe and so is the welfare loss associated with it. Losses borne by senior tranche holders deprive the agents who need liquidity of collateral. In so doing, they reduce the effective demand of these agents for the services of other agents, decreasing the amount of income these other agents can make. Unable to sell their labor services on favorable terms, the other agents will curtail their own demand for services, further reducing the overall level of economic activity. This effect is more limited or even completely absent when a junior tranches face a loss, because junior tranches are held disproportionately by agents with low liquidity needs.

It goes on to fairly conventionally explain things like "why the bursting of the internet bubble had relatively mild macroeconomic effects, while the (milder) loss in subprime mortgages had a devastating impact." On the other hand this seems like a somewhat novel (for the banking literature) recommendation:

Note that the optimal fiscal response consists of bailing out people not banks. To the extent that people with liquidity needs can be identified, it is cheaper to bail them out directly rather than indirectly through banks, since bailing out banks will typically also transfer resources to agents who do not have pressing liquidity needs.

Meanwhile here is some mild craziness from the Fed about imposing exit fees on bond mutual funds.

Door revolves.

What is your model of the incentives here?

"The equity markets as they exist are too complicated, too opaque and too conflicted," he said in an interview. "Those are problems that can be addressed in large part by the private sector."

That's the guy who was in charge of regulating the equity markets, John Ramsay, the former acting director of Trading and Markets at the Securities and Exchange Commission. He left the SEC in March and is joining IEX, the trading venue that is taking advantage of the opacity that Ramsay oversaw by marketing itself as a more pro-investor exchange. Imagine if he'd addressed those problems in the public sector! What would he do now?

Don't steal from charities.

This probably isn't as bad as it sounds? But it sounds terrible! Way back when, Merrill Lynch had a policy of waiving some fees for some mutual fund investments for small business retirement plans and charities. But then it forgot to waive those fees a bunch of times. Eventually Finra caught it, and made it pay $24.4 million in restitution and $8 million in fines. It seems to have been more or less an accident, but it is not a good look. Elsewhere, the Pope is not a fan of modern finance.

BNP Paribas is cutting a deal.

Of some sort anyway:

A dozen former BNP insiders and senior trading executives said it had in recent months handed over a host of documents relating to its oil dealings with Sudan and Iran, including details on trading houses' and oil majors' involvement in the trades. .... "The information that it has provided certainly includes all counterparties," a senior trading source said.

It's unclear whether this will reduce the infinity-gajillion-dollar fine, criminal guilty plea, and suspension from dollar clearing that BNP is in line for. But it'll be awkward for those counterparties if they were violating U.S. sanctions and, you know, using dollars to do it. That seems to be not allowed.

Leave no document behind.

Under SEC rules, Alibaba is not yet allowed to market its stock to U.S. investors, but it can "hold a series of informal meetings with investors in several American cities":

Lawyers for Alibaba contend that the gatherings are not formal pitches to prospective investors, which would violate securities rules governing I.P.O.s. Executives will meet with representatives from several major institutional investors without bringing presentation materials and they will leave no documents behind.

Oh well in that case. It is hard to imagine what purposes are served by not handing out documents, besides, like, environmental conservation. But then they get back on their private jet to the next informal chat, so not even that really.

Things happen.

Greenpeace is not great at currency trading. Neither is bitcoin, ha. "The SEC’s order finds that the conflicts committee itself, however, was conflicted." "Cancer poses notable investment opportunities." "When Shropshire was questioned, he admitted that he had won the Salesperson of the Month at South Tacoma Mazda." Don't leave voice mail, come on. Angela Merkel seems fun. Cool moves. Dog watching the World Cup. Cat sitting in a chair. "Do we live in order to be happy?"

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

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