Levine on Wall Street: Bulletproof Vests and Hoards of Gold

The most useful place to keep gold is in a foreign government's vaults, so it can readily be swapped for that government's fiat currency. I'm just going to leave that sentence here. Enjoy!

Do you think he'll carry a gun?

Neil Barofsky, the former prosecutor and TARP inspector general about whom Tim Geithner wrote:

Barofsky's desire to prevent perfidy was untainted by financial knowledge or experience. He assumed our motives were self-evidently sinister, as if we had helped banks for fun and profit rather than to cure a metastasizing financial crisis. He was outraged by every program, uninterested in context, unmoved by evidence of success, never burdened by having to examine alternatives. He would hire a staff to scrutinize TARP that was almost as large as the staff we had to manage TARP, and he would requisition firearms and bulletproof vests for his antifraud troops.

... is about to be appointed as the New York Department of Financial Services' corporate monitor for Credit Suisse. So that will be fun, and expensive, for Credit Suisse. Prosecutorial zeal is, I suppose, a useful habit for overseeing TARP, or a penitent bank, but it is surely not the only one; you might want someone who's interested in getting the right answer instead of just the angriest answer. Also:

The New York regulator’s decision to select Mr. Barofsky and Mr. Barkow, both partners at Jenner & Block in New York, caps weeks of competition for the monitor role. More than 15 consulting companies and law firms applied, according to the people briefed on the matter, underscoring the allure of collecting a paycheck, often a hefty one, for helping to put a company on the straight and narrow.

Any useful model of the regulatory revolving door needs to consider the rise of the corporate monitor, in which current prosecutors demand that companies hire former prosecutors to be "the government's post-settlement proxy," at very un-governmental pay rates. What incentives does this create?

Sad day for gold bugs.

Germany has a lot of gold stored at the New York Fed, and nothing feeds paranoid fantasies like not being able to see -- and, if it comes to that, fondle -- your gold at all times. Just ask "the anti-euro Alternative for Germany party, which says all the gold should return to Frankfurt so it can’t be impounded to blackmail Germany into keeping the currency union together." Or, more simply, you might worry that someone would run off with it, so in 2012 some German lawmakers demanded that the government, like, go to its gold stashes abroad and look at them and check that they're all there. They're all there:

“The Americans are taking good care of our gold,” Norbert Barthle, the budget spokesman for Merkel’s Christian Democratic bloc in parliament, said in an interview. “Objectively, there’s absolutely no reason for mistrust.”

And now Germany has decided to continue to keep about half of its gold reserves in New York and London, so that they can easily be swapped for foreign currency -- fiat currency -- in an emergency.

Cocos are great.

Here is a story about how European banks' contingent capital securities -- high-coupon debt that poofs into stock, or nothing, if the bank's capital levels get too low -- are outperforming other European high-yield debt securities. This is good news: Cocos are loss-absorbing capital that arguably have a useful disciplining effect on bank management beyond what common equity provides. The fact that investors love them suggests (1) that banks are having a relatively easy time of rebuilding capital and (2) that investors believe that the banks are becoming more stable. Or, I mean, this:

“Other sectors of the bond market are not offering the type of yield that instruments in the CoCo market currently do,” said Robert Montague, a senior credit analyst at ECM Asset Management Ltd. in London. “It’s as simple as that.”

The unexamined yield might still be worth taking. Meanwhile cocos are "becoming a much more institutional asset class and moving away from hedge funds and private banks that used to be the main buyers," which is nice for returns but also might mean that they're migrating from hedge funds who can take losses to more mass-market oriented investors who might have a more sympathetic case for a bailout if the cocos ever get close to triggering. Meanwhile Fannie Mae and Freddie Mac are issuing risk-sharing securities, but "the low yields suggest investors don't believe very much risk is being transferred at all."

Argentina wants more time.

It's asked Judge Griesa, in New York, for a stay to allow it to pay the coupons on its exchange bonds in, umm, a week, to "allow for the commencement of good faith negotiations" with Elliott et al. (Some background here.) Here Joseph Cotterill subjects that request to a close reading: If "good faith negotiations" means, roughly, giving Elliott the deal that exchange bondholders got, then that's a non-starter; if it means giving Elliott the deal that Paris Club governmental creditors got, then it's pretty good. Either way Argentina has a week or so -- there are grace periods in the exchange bonds -- to convince a very ornery judge, and the special master he's appointed to oversee negotiations, to grant another stay for those negotiations to happen.

What's going on with that Phil Mickelson investigation?

I'm going to go with "nothing, but it keeps being in the news anyway." The latest news-ish is that New York federal prosecutors subpoenaed Dean Foods to see if it, I guess, told anyone about its plans to do a spin-off before announcing it. It does seem somewhat unusual for prosecutorial fishing expeditions to play out quite so publicly.

Things happen.

There's a really big new activist investor. Point72 has a Boston office. Some startups fail. Allergan and Valeant are still fussin' and feudin'. Don't e-mail yourself sensitive documents from your work account just before quitting your job. Just spend the summer playing. France is willing to break the internet over wine labeling, seems right. 11 funny economics papers. The way you're sitting at work will probably kill you. 51 Wall Streeters Who Are Ridiculously Cut.

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    Matthew S Levine at

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