Everyone's at the Table of Sacrifices

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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A big Greece day.

Well it seems that Greece is going to miss a payment to the International Monetary Fund today, and the European Central Bank will decide whether to extend its Emergency Liquidity Assistance to Greece tomorrow. So after years of can-kicking, tomorrow seems to be the first day on which Greece could actually be kicked out of the euro. The odds of a Grexit tomorrow are low -- presumably Greece will get at least the weekend to vote to kick itself out -- but, still, that's a bit of a change. Greek Prime Minister Alexis Tsipras: "They will not kick us out of the euro zone. Let me explain why, because the cost is immense." Umm!

Apparently the European Commission offered Tsipras a financing extension if he agreed to campaign for a "yes" (accept the creditors' proposals) vote in this weekend's referendum, though from his rhetoric one assumes he turned down the deal. There is endless commentary. A "humanitarian disaster" is possible. Markets don't seem that worried. The Financial Times made a debt tracker showing what Greece owes to whom when. Felix Salmon at Fusion made a Grexit probability calculator. Someone made an Indiegogo; when I looked this morning it had raised 83,175 euros toward its 1,600,000,000 euro goal.

Puerto Rico.

Yesterday Puerto Rico's governor officially announced that he would seek restructuring of the island's debts: "Yes, it is time that those who lent to us also come to the table of sacrifices, at which we are already seated, so that later we can all together share the fruits of that sacrifice." 

Here's the report commissioned by Puerto Rico's government from former World Bank Chief Economist Anne Krueger and others. It calls for reductions in the minimum wage and welfare benefits, cuts in government spending, revenue increases, a rollback of federal and local laws that make Puerto Rico less competitive, and of course debt restructuring "through a voluntary exchange of old bonds for new ones with a later/lower debt service profile." The governor has already disavowed some of it, including the minimum wage cuts, but the debt restructuring is definitely on the list. "It’s not that the debt will not be paid, it’s a matter of when Puerto Rico can pay," said the commonwealth's House Speaker; Puerto Rico's general obligation bonds fell to as low as 68.3 cents on the dollar (down from 77.3 on Friday) and its bond insurers are also down. Julian Robertson is cheery:

“The happiest thing for me is Puerto Rico this morning,” said Robertson, who was born in Salisbury, North Carolina, and still speaks with a twang. “The statement about ‘we just can’t pay our debts’ sort of works well with one of the stocks I’m short, called Assured Guaranty.”

I guess he's eating the fruits of the sacrifice right now. The federal government seems unlikely to help much; there is no bailout in the cards, and even letting Puerto Rico's public corporations file for bankruptcy is a stretch:

But the push in Congress for Chapter 9 faces stiff opposition from many Republicans, particularly conservatives, who say that allowing Puerto Rico to restructure its debts in bankruptcy would amount to a free pass for decades of fiscal mismanagement by local government officials.

I mean, sure, it is that, but isn't one lesson of Greece and Argentina and so forth that some sort of organized debt restructuring process for sovereigns is better than nothing? And since Puerto Rico isn't exactly a sovereign and you've got the U.S. Bankruptcy Code right there, why not use it?

People aren't worried about bond market liquidity.

I mean, I'm sure someone is somewhere, but the usual flow of articles has dried up. People seem more worried about, you know, Greece and Puerto Rico. That is itself interesting: When conditions were quiet, people talked constantly about how it would be impossible to sell bonds when a crisis hit. But now two crises have hit and no one is talking about liquidity. So ... I guess ... false alarm on the liquidity stuff? On the other hand, "a wave of financial turbulence overseas could delay the Federal Reserve’s plans to raise short-term interest rates in the months ahead," and I suppose if you're worried about Treasury liquidity in the face of a rate hike, the recent crises might have deferred your worries.


I've joked before that Uber raises a billion dollars every two weeks, and I just got back from a two-week vacation, so oh look, here's a story about a billion-dollar Uber fundraising. (No, I kid, this fundraising, for "$1 billion to $1.2 billion in convertible bonds," has been going on for a while, though it's supposed to be completed today.) The interesting news is that the offering documents say that Uber "generates $470 million in operating losses on $415 million in revenue," though it is not clear over what time period. Last year Business Insider estimated $1.5 billion to $2 billion in annual revenue, so is that number for a quarter? Is Uber spending almost a billion dollars per quarter on operations? What ... what is it doing with the money? Though, a caveat:

“These are substantially old numbers that do not reflect business activities today,” Uber spokeswoman Nairi Hourdajian said in an e-mail. Hourdajian declined to say why the numbers are being used to promote a current funding round.

Maybe it's spending the money on bail: "The two most senior Uber executives in France are in police custody following complaints that they were conspiring to organise illegal work." Changing and/or flouting the laws in every jurisdiction seems to be expensive work.


Here's a fun Securities and Exchange Commission enforcement case against an investment manager accused of "cherry-picking" options trades: He did a lot of options trades, and allegedly allocated (after the fact) the winning ones to his personal accounts and the losing ones to his clients' accounts. "His personal trades in these options had an average first-day positive return of 6.28 percent while his clients’ trades in these options had an average first-day loss of 5.05 percent." He was caught by "the SEC’s data-driven enforcement initiative to combat cherry-picking," and the SEC's order is bursting with pride over its new ability to conduct statistical analyses of trading patterns:

The difference between Mr. Welhouse’s first-day profit and that of his clients is highly statistically significant. To test whether the first day profitability of trades allocated to Mr. Welhouse’s personal accounts was significantly different from that of those allocated to his clients’ accounts, a simulation was run one million times. The simulation tests the possibility that although Mr. Welhouse’s accounts were very profitable, he simply selected a lucky combination of trades by chance. Mr. Welhouse’s $455,277 profit was substantially higher than every one of the one million random simulations. These results show that there is only an infinitesimal likelihood of achieving by chance a profit like Mr. Welhouse’s.

I've sometimes been skeptical of using statistical techniques to catch misconduct; a hedge fund's better-than-chance performance might be explained by insider trading, but it might also be explained by skill. This one, though, seems pretty unobjectionable.


Bloomberg Markets Magazine has a fun new issue out on financial rivalries. There is a collection of Carl Icahn-isms, a handicapping of the Berkshire Hathaway succession race, a bracket for picking the best bank CEO, the ever-confusing BlackRock/Blackstone rivalry, and much else. Also I wrote an introduction. And while it's not part of that issue, we should congratulate Citigroup, which "overtook JPMorgan Chase & Co. to become the largest derivatives dealer in the U.S."

It's hard running Caesars.

In 2012, Caesars Entertainment chief executive officer Gary Loveman talked to students in a Stanford business school class called "The Paths to Power," which first of all what? But anyway here's what he said:

Beyond that he said he had faced “every imaginable human catastrophe” on the job, “floods, hurricanes, building collapses, murders. I’ve had employees murder customers, I’ve had customers murder employees, and dead babies…” he said, trailing off as he referenced infants that had been abandoned on company property.

But Loveman has suffered personally as well:

He highlighted that he had voluntarily cut his base salary from $2 million to $1.9 million in 2009 due to the financial crisis and never raised it again.

Probably read the whole thing.

Things happen.

Willis Group and Towers Watson are merging. "The very purpose of an online lender affiliating with a tribe is specifically and expressly so that they can lend in violation of state laws." Repo counterparties are not SIPA customers. Richard Fisher is joining Barclays. The rare earths bubble. The administrative law and custom of the Federal Open Markets Committee. "Circling back to our original question of whether the Dodd-Frank Act has solved too-big-to-fail in the United States, the answer seems to be yes, according to Fitch; maybe, according to Moody’s; and not yet, according to S&P." Prison divestment. Prison abolition. Swole Without a Goal. Man called Rod is hit by lightning for a second time. Portrait of Pope Benedict XVI Made of Condoms Draws Complaints in Milwaukee. Park Slope pup porta-potties. "Tama will be succeeded by another calico cat, Nitama, now an apprentice stationmaster." 

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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:
Philip Gray at philipgray@bloomberg.net