Philanthropy and Power

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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Somewhere near Boston.

It's possible that there's a secret club of billionaires competing to give tons of money to the philanthropies that make people angriest. The Koch Brothers and George Soros could be co-presidents, and John Paulson shot to the top of the league table in 2012 when he gave a $100 million tax-deductible donation to his backyard. But he was recently eclipsed when Steve Schwarzman gave $150 million to Yale for a student center, apparently to get back at Harvard for rejecting him. Dylan Matthews at Vox conceded that Schwarzman's gift was "definitely better than using the money to set up a private island upon which to hunt man for sport," but otherwise the reviews were pretty negative

But yesterday Paulson jumped back into the lead with a $400 million donation to Harvard, the "most lavishly endowed university in the world," to rename its engineering school after himself. My Bloomberg View colleague Noah Smith conceded that there are worse things that Paulson could have done with his money, like "pay an army of slaves to fan him with palm fronds, or bankroll a war in a third-world country," but otherwise the reviews were pretty negative. Malcolm Gladwell said mean things about Paulson on Twitter. Dylan Matthews pointed out that "Literally any other charity is a better choice." 

On the other hand, maybe there are positive secondary effects? There are more than 323,000 Harvard graduates in the world. Let's estimate that the Paulson news will persuade 100,000 of them to smugly refuse to give money to Harvard, 1,000 to write about it on the Internet, and 50,000 to actually give the money they would have given to Harvard to some more deserving charity. Then each of them will only have to divert, hmm, $8,000 from Harvard to African mosquito nets to make Paulson's gift break even. Of course there might be negative secondary effects, as other members of the billionaire angry-philanthropy club will feel pressure to up their game and donate a billion dollars to, like, the NFL,  but it's possible that some members of that club would otherwise have been hunting man for sport, so even this might be a net societal benefit.

Power bankers.

An analyst in the power and utilities banking group at Barclays named Justin Kwan sent an e-mail with a list of "10 Power Commandments" to his group's incoming summer interns, and it is now "making the rounds on Wall Street," because it is a list of jokes, and by the extremely low standards for this sort of thing, the jokes are funny. ("Our group dresses very conservatively. Given that it is summer, no socks is accepted and, in fact, encouraged." "You are expected to allocate at least half your seamless web order for group appetizers/snacks for the month of June." "Have a spare tie/scarf or two around. You never know when your associate will run out of napkins." "When you need to leave your desk there will be a sign out sheet outside your cubes.") Honestly by the standards for this sort of thing I would characterize these jokes as sweet and charming.  

But the world being what it is, everyone insists on taking the jokes seriously; here is the Wall Street Journal conceding that "parts of the email were likely designed for laughs" (parts! likely!), but getting a very serious statement from Barclays saying that the e-mail "was in no way authorized" and that it's "fully committed to creating an environment" etc. you get the idea. Here is CNBC calling the e-mail "blunt advice" for the new interns, and noting ominously that "the bank declined to say whether Kwan was still employed." And of course Gawker went wild with rage.

The lessons here are:

  • People will believe anything bad about investment bankers, and
  • Never put anything in e-mail.

Should short selling be illegal?

Or I don't really know the point of this letter from Senator Bob Menendez to the Securities and Exchange Commission, but it's something like that. It seems that hedge funds are shorting the stocks of drug companies, and then using "inter partes review" to challenge those companies' patents at the U.S. Patent and Trademark Office, hoping to drive down the stock by invalidating the patents. My naive view is: If the patents are bad, they should be invalidated, and if they are good, they shouldn't be invalidated, and the PTO should have an efficient and fair and reliable system for figuring out which patents are which. And if the patents are bad, I have no particular problem with random hedge fund managers making money off invalidating them. Hedge funds, like everyone else, have a constitutional right to petition government agencies, and invalidating bad patents -- possibly making medicines cheaper! -- is good for society.

Of course if the PTO's review process invalidates too many, or too few, patents then that is bad, but that's a PTO issue. I have no idea why any of this would be an SEC issue. But here is Menendez:

Such conduct can have negative consequences for targeted companies and their shareholders, and it raises concerns of market manipulation and abuse. While Congress may consider patent litigation reforms, I believe it is also important to address the capital markets issues raised. Therefore I am requesting the SEC’s view as to its authority to address such conduct, whether such conduct is permissible under current law, and whether you believe that the SEC needs additional authority to prevent such abuses.

It is hard to be a short seller. It's well established that an investor can take a long position in a company and then try to make it worth more, by proposing operational improvements or share buybacks or whatever. But the idea that a short seller can try to make a company worth less, by entirely public and legal means, is just viscerally revolting to a lot of people. 

Elsewhere: "SEC Bickering Stalls Mary Jo White’s Agenda," and "Are Partisan Politics Destroying the SEC?"

Investment management.

Paul Singer's Elliott Management is going after the Samsung Group, disclosing a 7 percent active stake in Samsung C&T and trying to block its takeover by Cheil Industries, "another South Korean company that effectively serves as the Samsung Group’s main holding company for its sprawling network of businesses." This is a bold move, since "analysts described Cheil’s offer as an important step in an ongoing process designed to cement the position of the group’s heir-apparent, Jay Y. Lee, who is vice chairman of Samsung Electronics," and "activist hedge funds have met with challenges in Asia," though Elliott's track record in going abroad and messing with the seemingly un-mess-withable -- here I'm thinking mostly of Argentina -- makes it hard to write them off.

Elsewhere in activism, former SEC Chairman Mary Schapiro, and former Wells Fargo CEO Richard Kovacevich, are joining Hudson Executive Capital, the nice activist fund for executives that we've discussed previously. And here's some good news for active management:

During the 23 years through 2014, actively managed U.S. smaller-company funds beat their benchmarks by 1.11 percentage points a year, while index funds underperformed by 0.35 percentage points. Active international funds did better, too, beating benchmarks by 0.86 percentage points, while index funds trailed by 0.32 percentage points.

The Justice Department talked to Goldman Sachs in 2010.

But about how the government could deal with terrorism financing, which Goldman probably (!?) doesn't do, rather than about mortgage-backed securities fraud, which in 2010 (and also now) lots of people thought Goldman had done. This seems to be controversial though I do not quite understand why: Surely if the Justice Department had a bunch of meetings with Goldman about criminal allegations against it, and then didn't file charges, that would also be controversial? Not everyone gets a chance to try to talk the Justice Department out of filing charges against them, though to be fair banks usually do.

Things happen. 

People are worried about bond market liquidity. (Also.) Also I mean, "Bond Rout Wipes Out 2015 Gains as Traders Stay Glued to Screens." The Greek talks are going about how you'd expect. The Warren Buffett lunch price graph. Lloyds Hybrid Mess Is Lesson for Banks. Did The Fed Fail To Save Lehman Brothers Because It Legally Couldn't? Some ominous suggestions for Twitter. "The rise in income inequality since 2000 is not about earnings; the top of the distribution is no longer the working rich." You should learn about wine. Here is an actor doing a dramatic reading of Ray Dalio's Principles. Cube dogs. "Quitting smoking is the Chipotle on St. Marks Place."

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  1. I realize that the NFL is not a 501(c)(3) nonprofit and so can't take tax-deductible donations -- and that it is giving up its 501(c)(6) nonprofit status. But give me this one. While I have you here: "How the Red Cross Raised Half a Billion Dollars for Haiti ­and Built Six Homes."

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