Here’s a sort of touching monologue from David Einhorn’s call with Punch:
If you’ve done the analysis, and come to the conclusion that on it’s own, the company is not going to make it, it makes all of the sense in the world to raise equity at whatever the price is, so that you can know that the company, you know, is – is going to make it. Now, what that brings to my mind though is, you know, obviously we haven’t done your analysis, we haven’t done — signed an NDA; I don’t know that we’re going to sign an NDA, because we prefer to just remain investors, but from my perspective, and I’ll be just straight up with you, is that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it’s not going to make it on it’s own is that we’ve just grossly misassessed the — you know what’s going on here. And — and that, that will cause us to have to just reconsider what we’re doing, which is not the end of the world to you. You will continue on even if we don’t continue on with you.
You could sort of see why the FSA read that to mean that he was insider trading. Like …
(1) You have told me something with signalling value. Sorry – “a lot of signalling value.”
(2) I will now act on that signal.
(3) Don’t be mad.
“Signalling value” sure sounds like it means “material nonpublic information,” doesn’t it? Continue reading »
Sometimes it’s useful to be reminded that not all financial structuring is designed to get around capital requirements or defraud customers. Some is designed to get around taxes and defraud the treasury! One group of people who like to think about that kind of thing is the Congressional Joint Committee on Taxation, who took some time out from shouting about payroll taxes yesterday to have a geeky hearing about the state of financial instrument taxation. Short version is, they’re not all that happy about it.
The JCT staff generally say pretty smart stuff about tax policy, and they get that shit is fucked up and bullshit. Or as they put it more diplomatically:
The timing, character, and source rules apply differently to (and are sometimes uncertain for) equity, debt, options, forward contracts, and notional principal contracts. These five basic instruments can be combined in various ways to replicate the economic returns of any underlying asset. … The flexibility of financial instruments also creates great difficulties in the taxation of financial instruments. This report provides examples of taxpayers’ uses of financial instruments to achieve desired timing, character, and source outcomes and describes how the tax laws have or have not addressed this tax planning.
There are two useful takeaways here. One is kind of weird: there are a bunch of fairly basic things (exchange-traded notes, CDS) where nobody – not the IRS, not the JCT, nobody – knows how they’re supposed to be taxed. That … seems like a bad thing. And, I’m going to guess, not so much the fault of evil financial innovators.
The second takeaway, which is related but more satisfying to fulminate about, is that evil financial innovators can mix and match stuff until they get any tax result they want: Continue reading »
It’s fun to get all riled up about insider trading! So let’s.
But first, I see you have some XYZ shares. Would you like to sell them to me? Here are some things you might want to know about it:
1. Warren Buffett is secretly buying loads of it.
2. Congress is going to do something that will make it go up, like kill pending legislation that would restrict its profits.
Let’s say I know those things and you don’t. I buy XYZ from you. Have I committed a crime? Maybe – but it’s not as easy as that.
Let’s start with what insider trading is. Actually let’s start with what it isn’t. Henry Blodget gives a popular simplification, “The definition of insider trading is trading while in possession of material non-public information.” If you think that, then clearly Congresspeople are committing crimes by trading on the knowledge that they’re going to earmark loads of cash to a company or deregulate it or just blow up the financial system or whatever they’re up to.
But that’s not the definition of insider trading, or at least of illegal insider trading. You can tell that by doing this little thought experiment:
1. Buffett knows he’s going to buy ten yards or so of IBM
2. He knows that that will move the market, so it’s material
3. He hasn’t told anyone yet, so it’s non-public
4. So he’s got “material” “non-public” information about IBM
5. He buys it anyway
6. Has he committed a crime?
Continue reading »
The Wall Street Journal has a totally maddening article today about insider trading by hedge funds who pay expert-network consultants to give them inside information about congressional deliberations. Which you’d think would have prosecutors demanding that they get 20 years in jail without any concern for their delicate constitutions, except no:
Continue reading »
In these volatile times it helps to have role models to steer you through economic uncertainty, wise investors who you can look to when your faith in markets is shattered. And that sort of wisdom is hard to find right now, what with John Paulson continuing to trip over his own feet and George Soros closing up shop / apparently not having the resources to house all of his girlfriends in the manner to which they are accustomed. Fortunately, Roll Call today brings us a new list of investors for you to emulate: the 50 richest members of Congress.
Would you believe that millionaires who are able to direct stimulus funds to their own companies and unconstrained by insider trading laws had a pretty good year in 2010? Then you would be correct. Our 50 richest members of Congress had an average net worth of $32mm, and saw a weighted average growth in their net worth of 17.7% (unweighted 26%).* The S&P was up 12.8%. Continue reading »
Here’s what they’ve got: we need to raise the debt ceiling. Continue reading »
The following post is by Dealbreaker reader and commenter Infinite Guest.
President Obama has nothing to gain by negotiating with Republicans in Congress in order to raise the debt ceiling. The Department of Treasury doesn’t need Congressional approval to issue more debt and it will be a long time before Treasury actually needs to exceed the debt ceiling.
The analyses I’ve read on the topic are nothing if not variable, but they all assume at some level an agreement by all parties on the basic necessity of raising the debt ceiling and the general wisdom of reducing the deficit. The President knows what needs to be done, the Congress knows and so does the electorate. Based on this shared understanding, it follows that those who act in the spirit of compromise will be rewarded and those who act to obstruct
progress will be punished.
Never mind the compelling absence of evidence that any such shared understanding exists; that’s just not how things work. Continue reading »
