Levine on Wall Street: Bearer Bonds and Greek Banks

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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Bearer bonds.

Look, there is a right way to evade taxes, and a wrong way to evade taxes. The right way to evade taxes is to structure your affairs such that you don't owe taxes under the applicable provisions of the Internal Revenue Code and the regulations promulgated thereunder. This requires, and rewards, good old-fashioned American ingenuity and pluck. Take your highly appreciated shares in another public company and give them to shareholders in a tax-free spin-off. Put equity stakes in leveraged buyouts into your individual retirement account. Die with appreciated stock.

The wrong way is to just get a lot of money, stuff it in a sack, not pay taxes on it, and hope no one notices. The wrong way also seems to be the Swiss way: First there was last year's story about Credit Suisse making its American clients fly to Switzerland to look at their dirty dirty money, and now there is today's Wall Street Journal story about UBS helping its American clients hide assets using bearer securities:

These securities, which were largely phased out of the U.S. financial system beginning in 1982 because of their potential use in tax evasion and money laundering, function essentially like cash, allowing whoever holds the certificate to anonymously claim its value.

Filling the secret sack under your bed with bearer bonds instead of cash doesn't really make this any better. 

Elsewhere in taxes, there's a bunch to read about various budget proposals for tax reform. Here is Josh Barro on territorial corporate taxation, and Bloomberg News on potential Republican support for that reform. Here is ThinkProgress on ending federal tax deductibility for sports stadium financing. And here is a story about how corporate fines and punitive damages are often tax deductible, which drives people absolutely wild, though I kind of don't get it? Corporations, unlike humans, are taxed on their net income. If you have an expense, that reduces your income, whatever the morality of that expense. Once you know your income, you pay taxes on it. Taxpayers aren't "in effect subsidizing corporate misconduct." Corporate fines are reducing corporate income, which reduces corporate tax receipts.

Greece.

It feels like there's a certain self-fulfillingness to all the talk about game theory? Yesterday the European Central Bank announced that it will no longer accept Greek government bonds as collateral for its refinancing operations, and here you can read psychoanalyses of the move from Lorcan Roche Kelly ("What the ECB's Move on Greek Government Debt Is Really All About"), Karl Whelan ("So What Did ECB Just Do To Greece?"), and Dan Davies ("Greece in the penalty box"). The consensus seems to be that the ECB's recent move won't have too much of a practical effect, but it's a symbol of steps to come, another move in a game of chess or poker or Colonel Blotto or Clash of Clans or whatever the kids are playing these days. Davies:

When a borrower starts behaving like this, the natural instinct of any creditor who knows what they’re doing is to “shorten the leash”. You reduce their flexibility by increasing your own optionality; you extend credit on shorter durations rather than longer, and as far as possible on a discretionary basis rather than contractual. This way, you give yourself the maximum number of opportunities to cut out, and increase the pressure on them to co-operate. That’s the reasoning behind the collateral changes and the moves toward restricting ELA.

Davies goes on to play out the ECB's most catastrophic threat -- withdrawing liquidity assistance from the Greek banking system -- and analyze whether it could be done without forcing a Greek exit from the eurozone. The answer matters because an ECB threat to force Greece out of the euro sounds like a bluff, but an ECB threat to leave Greece on the euro but "with an extremely inconveniently arranged banking system and a lot of angry depositors" just might work.

Elsewhere, here's another profile of Matthieu Pigasse, the "self-described pro-market socialist and fan of The Clash" who runs government advisory at Lazard and is keeping busy advising Greece and Ukraine on their debts.

Don't do this.

Last June, Keith McMurtry, the Corporate Controller of the Scoular Company, a large private commodities-trading firm, started getting emails from ft-809@outlook.com. That is not exactly a promising e-mail address, but the name attached to it was "Chuck Elsea," which happens to be the name of the chief executive officer of Scoular. They said things like:

I have assigned you to manage file FT-809

This is a strictly confidential operation, to which takes priority over other tasks.

And:

This is very sensitive, so please only communicate with me through this email, in order for us not to infringe SEC regulations.

And:

For the last months we have been working, in coordination and under the supervision of the SEC, on acquiring a Chinese Company.

And:

Leaks could endanger the contract's execution, in addition to its intrinsic value.

Later:

Following my conversation with Rodney, SEC require us to close the deal by Monday, as further leaks could endanger the acquisition. In order to avoid any penalties we will execute the wire immediately. Total deal is $ 7,800.000.00 less the 10% deposit wired yesterday. Balance to pay: $ 7,020,000.00 (seven millions and twenty thousand us dollars).

And still later:

The deal was closed, and we are waiting to receive the executed documents and the SEC decision regarding the final day for the release of the information. Please make another wire of $9,400,000.00 to the same beneficiary. We need the company to be funded properly and to show sufficient strength towards the Chinese. Keith, I will not forget your professionalism in this deal, and I will show you my appreciation very shortly. Awaiting your swift (with copy to Rodney) once the wire has been processed. Please proceed asap as Rodney need the confirmation by 1 pm. Chuck

As you may have gathered, the e-mails were fake. (Not legal advice, but as far as I know there's no Securities and Exchange Commission rule saying that you can only discuss acquisitions over burner e-mail accounts.) As you may also have gathered, McMurtry followed his imaginary boss's instructions, communicating only via fake e-mail (never calling him!) and wiring the money -- a total of about $17.2 million -- to an account at Shanghai Pudong Development Bank. The real Chuck Elsea -- I hope? -- "said the company understands that it will be difficult to recover the money." McMurtry "is no longer employed by Scoular," but we are left to imagine the moment when McMurtry swaggered into Elsea's office to receive his show of appreciation, only to learn that FT-809 was a fake.

What have we learned? "Pick up the phone," for one thing. But also, I mean, I may have mentioned that my childhood dream was to one day grow up to be the recipient of a large mistaken wire transfer, and what I took away from this story is that that dream is way more attainable than I would have thought.

Jobs.

I'm a little late to this, but this article about sales jobs is really interesting. Companies really need salespeople, and it's a hard job for a computer to do, but the kids these days don't want to go into sales because it sounds stressful and risky and Willy Loman-y (or Glengarry Glen Ross-y). In the future, the only jobs that the robots won't take will be the jobs that require specifically human attributes. But it's not particularly easy or pleasant for humans to be human either.

Elsewhere in fascinating job stories, here is Kevin Roose on teaching prisoners to code. And Matt Klein asks, "Is a college degree more important than it used to be?"

Rough times for bitcoin.

"Bitcoin continues to evolve into a worse version of the current system," is the irresistible headline here, and the problem goes to Bitcoin's vaunted ability to process transactions quickly and cheaply. Bitcoin has no central processor of transactions, but instead relies on "mining" to pay people to process transactions and make sure that bitcoins are going where they're supposed to. But the volatility of bitcoin prices leads to volatility in processing times: High prices encourage investment in mining capacity, which makes mining more competitive, which makes it less lucrative (priced in bitcoins), and then when bitcoin prices crash mining becomes uneconomic (priced in dollars), capacity is taken offline, and transactions take forever to process.

Also, I don't know, is Silk Road a bitcoin story? Poor Ross Ulbricht, who just wanted to run a utopian marketplace where people could buy drugs for bitcoins, and who maybe tried to hire a hitman to bump off a guy who interfered with that dream, will be going to prison for a long time. And here are New York Superintendent of Financial Services Ben Lawsky's revised BitLicense regulations, and I feel like the closer BitLicense gets to reality, the worse that will be for bitcoin. Not even as a regulatory matter, I mean, more like just what happens when your parents join Facebook.

Meanwhile in Argentina.

"Argentine Prosecutor's Death Seen Curbing Pressure for Debt Deal" is the sort of staggering headline here, as Argentines are apparently too angry about the unexplained death of a prosecutor who was planning to arrest President Cristina Fernández de Kirchner to stay angry about the country's ongoing debt default. Oh and by the way "Argentine President’s Tweet Mocks Chinese Accent During Official Visit," that's super. Elsewhere in Latin America headlines, "The $755 Condom Pack Is the Latest Indignity in Venezuela," and you have to line up to buy them, leading one Venezuelan to sublimate the indignity into this amazing quote:

“The country is so messed up that now we have to wait in line even to have sex,” lamented Jonatan Montilla, a 31-year-old advertising company art director. “This is a new low.”

Things happen.

SubTropolis. Chatting with Bill Ackman, and with Rodge Cohen. Danish mortgage rates aren't really negative. "As open outcry futures trading has fallen to just one percent of the company's total futures volume, CME Group today announced it will close most of its futures trading pits in Chicago and New York by July 2, 2015." RadioShack is nearing bankruptcy. Pension funds are still mad at KKR about fees, even after the fees were refunded. TPG still really wants its Blackberry back. Richard Handler turned down his bonus after Jefferies missed performance targets (but why was he offered one?). JPMorgan Said to Suspend Two Senior FX Salespeople on Expenses (but what were they?). Most Charges Dropped in Driving Case Against New Canaan Hedge Fund Manager. Diaper-Wearing Service Kangaroo Kicked Out of Wisconsin McDonald’s. One Intern Way Older. A poem about the internet

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:
Matt Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net