Levine on Wall Street: Bank Examiners and Argentine Evasions

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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Is the New York Fed too cozy with Goldman Sachs?

Here is a big ProPublica story (also on This American Life) that is very interesting at least as a sociological document. In general, I always want to read more business reporting about the details of how people actually do the boring everyday of their jobs, and this story takes us inside an awkward performance review, so I love it. The gist is that Carmen Segarra was a bank examiner at the New York Fed who decided that Goldman Sachs didn't have a conflicts of interest policy. It obviously did -- her boss said "In light of your repeated and adamant assertions that Goldman has no written conflicts of interest policy, you can understand why I was surprised to find a 'Conflicts of Interests Section' in Goldman's Code of Conduct" -- but in her view it was so bad as to not constitute a legally sufficient policy under Fed rules. And then she and her boss argued sort of boringly about whether Goldman had no conflicts of interest policy, or whether "they have the basic pieces of a policy but they have to dramatically improve it." And then they fired her, and whether she was right or wrong -- ProPublica's experts think she was right -- you can sort of understand why they were sick of her. How annoying! Compromise a little. As with every whistleblower story, it's a little hard to tell if she's the last principled person in a world gone insane, or just a weird obsessive who disagrees with everyone because she's wrong and they're right. The fact that "she had purchased a tiny recorder at the Spy Store and began capturing what took place at Goldman and with her bosses" doesn't make her sound more normal.

On the other hand! ProPublica also refers extensively to a report from a Columbia professor named David Beim, whom the New York Fed hired to help it figure out why it had missed the last crisis. Beim's report "laid bare a culture ruled by groupthink, where managers used consensus decision-making and layers of vetting to water down findings," and urged hiring "out-of-the-box thinkers" (ugh), "even at the risk of getting 'disruptive personalities.'" In that light, firing Segarra because she vigorously disagreed with consensus is not a great look.

Will Argentina pay in B.A.?

A U.S. federal judge has told Argentina not to pay interest on its bonds until it pays off holdout bondholders, and it could not care less about this order, but the judge has also ordered Argentina's various U.S. trustees and payment agents and intermediaries not to help it make those payments, and those people care. So in one theater of operations, Argentina is apparently planning to cut out the middlemen and just pay bondholders in Buenos Aires, though this has problems:

Argentina’s plan to switch trustees “won’t work,” warned Alejo Costa, head of strategy at Puente, an investment bank in Buenos Aires. “The way things are right now, this is just going to work as an escrow account, not as a payment.” One problem Mr Costa identified is that it will not be possible for Fideicomisos to distribute the funds as it will be unable to identify the bondholders without the co-operation of BNY Mellon.

Another front is the efforts of bondholders to waive Argentina's RUFO clause, which would free up Argentina to pay off the holdouts before it expires in January. This effort has come to nothing, but then, it was always nothing:

“I would fall off my chair if they paid in January,” after the clause expires, Siobhan Morden, the head of Latin America fixed-income strategy at Jefferies Group LLC, said in an e-mailed response to questions. “It’s not a legal constraint. It’s an ideological constraint.”

And then there's a contempt of court hearing on Monday, which is even sillier; as Alison Frankel says, "Argentina’s contempt for the U.S. court system is not even debatable." But what can the U.S. court system do? Order in the battleships?

What will Yahoo do?

Here is a roundup of possibilities, and if your main dream for Yahoo is a tax-efficient monetization of the Alibaba stake that's worth about as much as the whole company, you will find it grim reading. There's a litany of stuff Yahoo could buy (BuzzFeed! SoundCloud! AOL, lol!), and an acknowledgment of the fact that the Alibaba stake can be a crutch:

Still, others in Silicon Valley think the Alibaba stake will keep Yahoo independent for now, with Ms. Mayer able to point to the promises of future riches to buy herself more time.

On the other hand, "Yahoo’s biggest priority may simply be finding more tax-efficient ways to sell its stakes in its Asian partners," and if that's true then it's encouraging. Elsewhere people are paying through the nose to short Alibaba, with about 8.9 million shares sold short at around an 8 percent stock borrow rate. One plausible theory for why Yahoo's Alibaba stake is worth so uncomfortably close to the total value of Yahoo is that you can short Yahoo, while you couldn't short Alibaba before its initial public offering, and even after the IPO it takes time for shares to be available for borrowing. So if you're bearish on Alibaba, Yahoo was the most efficient way to express that view, driving down the price of Yahoo relative to Alibaba, and as the technical factors change the relationship will become more normal.

Securitized peer-to-peer lending.

Here is Tracy Alloway on new efforts to securitize peer-to-peer loans, which of course renders them not particularly peer-to-peer, if they ever were. What's delightful about this industry is its reinvention of banking from the ground up: Like, you start with peer to peer, eventually realize that's sort of dumb, and move on to aggregated-pool-of-investor-capital-to-aggregated-pool-of-loans. So you've replicated a lot of what a bank is! Except not maturity transformation, but one day someone will put peer-to-peer loans into a conduit and sell asset-backed commercial paper against them and the transformation will be complete. Elsewhere in Tracy Alloway on securitization, the illustration alone on this one is highly worth it.

Financial-regulatory harmonization.

One simple model you could have is that before 2008, derivatives risk was concentrated in banks (and investment banks and insurers) that had global businesses and were regulated by banking regulators. Now, the regulatory goal is to get derivatives into clearinghouses, so that risk will be concentrated in those clearinghouses, which are mostly regional and regulated by different regulators. Which model is better depends in part on which regulators are better, and how they write the rules for the clearinghouses. Apparently European regulators think that the U.S. Commodity Futures Trading Commission is not so hot at regulating clearinghouses, and the CFTC thinks the same about the Europeans, making it difficult to coordinate the rules and also making you wonder if this system is really an improvement. Elsewhere, the European Commission and the UK continue fighting over banker pay rules, and the European Banking Authority is pushing back on the use of "allowances" to get around the banker bonus cap. Its draft report wants to treat allowances as bonuses if they, you know, look like bonuses.

So long Eric Holder.

Was he a harsh extorter of money from the banks, or a supine coddler of bank criminality? Uhhhh. David Weigel puts Preet Bharara as the leading contender to succeed him, and if that's true we'll get to have pretty much the same debate again. Is Preet Bharara a harsh persecutor of insider traders or a supine coddler of bank criminality? Hoo boy. Meanwhile the United States incarcerates more of its people than any other country in the world, and Eric Holder has made some efforts to roll that back, so it's a little weird for the main progressive concern to be that we're not incarcerating a few more people. I guess it's about incarcerating the right people, but then, it always is. Elsewhere in harsh or whatever regulators, Tom Hoenig worries banks.

Things happen.

The Zaouis are having a good year. Neil Irwin on the Situation situation is very good. Here is an SEC market structure paper on small-cap equities. Coase for coal. GM is investment grade. Tesco, which is investigating a huge accounting fiasco, is also paying a million-pound termination payment to its former finance director, which is not a great look even though he seems not to have been involved. The new Eater 38s are out. The "attentive service sector." Somehow the top 10 percent of American drinkers "consume, on average, 74 alcoholic drinks a week." The story of the Coravin. The Great Kansas Sex Toy Auction of 2014. (And the Bess Levin headline.)

  1. Disclosure, I worked there, still have some restricted stock, etc.

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