Greek Voters and Chinese Hairdressers

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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Grexerendum.

Welp. Here's a good Bloomberg TV interview with Yanis Varoufakis from last week in which he characterized a "no" vote in yesterday's referendum not as a vote against the euro, or even really against austerity, but against can-kicking. In the past, Greece would have a crisis, and would agree to the troika's most pressing demands, and the troika would give it a few months of support, and then everyone would come back in a few months to have the crisis again. It was exhausting. At least this way it looks like Greece will have its crisis all at once.

Varoufakis also said in that interview that he'd resign if Greece voted yes. Greece voted no, and he's resigning anyway. "Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings," he says, and was he not aware of that preference before? (The French finance minister said that Varoufakis "made statements that were difficult to accept, especially in France, including using the term ‘terrorism.’") It is always possible that a new finance minister will be more conciliatory with a no vote than Varoufakis would have been with a yes. It's not like the referendum had any particular legal effect, and it's not like the troika is negotiating with the voters.

The next decision point, as it often is, is whether the ECB will increase its Emergency Liquidity Assistance to Greece to keep the banks afloat. If not ... umm, "We have the capacity to print €20 notes," says one Greek politician. (Really?) Or the government could "begin issuing IOUs to pay pensioners and welfare recipients." Or bank deposits above 8,000 euros could face a 30+ percent haircut. "Greece is now 2/5 to remain in the euro zone this year" at Ladbrokes, but then Paddy Power paid out early on a yes vote last week, so maybe don't rely too much on bookmakers' optimism. Analysts are divided. If Greece does leave the euro, one bright spot is that the speedy and efficient organization of this referendum might bode well for the government's ability to handle the mechanics of Grexit?

Anna Gelpern argues that "Greece is only the latest and starkest example of the democracy mismatch in public debt crises," and that creditors should have "to share in the risk of their prescriptions" by tying some of their investment to policy success. Duncan Weldon goes through Syriza's three assumptions -- that Grexit would raise contagion worries, that Greece could run a primary surplus, and that left-wing parties elsewhere in Europe would support them -- that turned out to be wrong and left Syriza, and Greece, in the lurch. Tyler Cowen says that "if you lost a public relations battle to Germany, you are probably doing something very badly wrong," though judging from my RSS feed, and the celebrations in Athens, I am not so sure that Syriza has lost the public relations battle. (It does seem to have lost the Greek economics professors.) Steve Randy Waldman: "It is difficult to overstate how deeply Europe’s leaders betrayed the ideals of European integration in their handing of the Greek crisis." (And more from Waldman on the earlier bailouts.) Thomas Piketty points out -- to Die Zeit! -- "that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt." 

China.

Meanwhile in this week's big financial crisis, "A group of 21 Chinese brokerages pledged on Saturday to commit 120 billion yuan ($19.3 billion) to a large-cap stock fund, designed to stabilize shares after the biggest three-week rout in the Shanghai Composite Index since 1992." "This 120 billion yuan won’t last for an hour in this market," says one analyst, but if it could be levered -- possibly by borrowing from the government -- it may have more impact. The Shanghai and Shenzhen stock exchanges also halted initial public offerings, which is surely a symbolic gesture: Who would do an IPO in this market, which is down 25+ percent since mid-June? But the theory is impeccable: If you want to stop a stock market decline, you should (1) mandate buying and (2) ban selling. 

On the other hand, tradition in these cases demands that you blame and investigate short sellers and market manipulation, and that's happening. Tradition also demands that I then point out that short sellers are good for markets, that short-selling bans don't stabilize prices, and that markets get manipulated up as well as down. But of course the traditional financial-commentator criticism of short-sale bans is exactly as ineffective as the traditional government ban on short sales, so my heart isn't really in it. Here's a (complete?) list of things that China is doing to manipulate its stock market up. Also: "My hairdresser said it was still a bull market and I needed to get in."

Puerto Rico.

There's not much news but, you know, at least it isn't Greece? Here's Paul Krugman pointing out that Puerto Rico isn't Greece. (Here is Krugman on Finland, which also isn't Greece, though it's closer.) Here's John Cochrane on the lessons we can learn from Puerto Rico not being Greece:

In a currency union, sovereign debt must be able to default, without shutting down the banks, just as corporations default. Banks must not be loaded up on their country's sovereign debt. Bank regulation must treat sovereign default just like corporate default.

Other things are less important: "Fiscal union. The US is not necessarily going to bail out Puerto Rico. Or Illinois. Or their creditors. People keep saying a currency union needs fiscal union, but it is not so. "

Argentina. 

Remember Argentina? In today's context its sovereign debt crisis looks positively cheery, but it is still going on: Argentina still isn't paying interest on its exchange bonds due to a U.S. court order saying that it has to pay its holdout bonds off first. And Owl Creek Asset Management, which owns some exchange bonds, is now "on the cusp of controlling enough defaulted Argentine bonds to demand immediate repayment." When they were rumbling about accelerating those bonds last year, I made fun of them, because getting involved in sovereign debt litigation with Argentina is like getting involved in a land war in Asia. But I guess if I owned exchange bonds -- especially, as Owl Creek does, bonds at a big discount to par that might trade up in a restructuring -- I'd be bored and looking for something to do by now too. Elsewhere, holders of the holdout bonds are still trying to get information from Deutsche Bank about Argentina's sale of local-law Bonar bonds in April. And I for one would watch an Axel Kicillof/Yanis Varoufakis road trip buddy comedy.

It's a pyramid and a Ponzi!

Here's a Securities and Exchange Commission case against DFRF Enterprises:

The scheme raised more than $15 million from at least 1,400 investors by recruiting new members in pyramid scheme fashion to keep the fraud afloat, and commissions were paid to earlier investors in Ponzi-like fashion for their recruitment efforts.

It sounds pretty good:

In a video dated April 14, 2015, Dalman states that DFRF has 80 gold mines, its gold reserves are worth more than $1 trillion, its gold operations yield a gross profit of 100%, the investors' funds are transferred directly to Platinum Swiss Trust, it needs the investors' money so it can "leverage" its credit line with Platinum Swiss Trust and triple its available funds, its gold operations and credit line generate a total return of 600%, it pays investors 15% per month (although it cannot promise to pay a specific amount because that would make it an "investment company"), it uses its profits to help the poor in Africa, it is now registered with the Commission, investors receive a 10% credit for bringing in new members, and the investors' money is fully insured.

Mostly I like the idea of a gold-mining pyramid scheme. Like, sure, you could go out in the rivers of the Yukon and pan for gold, but why not recruit ten friends to do it instead and take a cut of their profits?

Etymology.

Look, the word "unicorn" has a long history of being used metaphorically for a rare, mysterious and desirable thing. Here is Farhad Manjoo claiming that venture capitalist Aileen Lee invented its use in connection with billion-dollar startups, and perhaps he's right, but consider the other terms she tried first. "One was 'home run.' Another was 'megahits.'" I mean: "Home run" has a similar long and clichéd history of being used metaphorically for business success. "Megahits" is, just, come on. The point is that business jargon is terrible and claiming credit for inventing business jargon is terrible on stilts. While I have you here, though, I will happily claim partial credit for inspiring the Unicorn Replacer Chrome extension.

People are worried about bond market liquidity.

I mean honestly they're much more worried about Greece and China and so forth but here is "Corporate-Bond Liquidity at Risk as ECB Seen Entering Market" so there you go, box checked.

Things happen.

Bond allocations and price-fixing in @GSElevator's book. Also GSElevator spent a $75,000 bonus in five days in Saint-Tropez. Banks have lots of subsidiaries, which bothers people for some reason. Gretchen Morgenson on the Samsung C&T merger (previously). Clawback rule controversies. Family Dollar Tree divestitures. The ban on federal contracts for companies that do tax inversions isn't particularly effective. Zoltan Pozsar on shadow banking on video. RBS MBS. "Stocks to own for the next 239 years." The Greferendum transliterations bug me. Trump super-PAC. 50 Cent is going to sip Effen Vodka like it's his birthday. Excessively Long Shoes.

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(Corrects spelling of Zoltan Pozsar's last name in eighth item.)

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