Tags: Barclays, Congress, LIBOR, Tim Geithner
Tim Geithner had a nice chat with Congress about Libor in a theoretically unrelated hearing today, and since Congressional hearings are mostly about restating everyone’s pre-existing prejudices I figured I’d lay out my Libor hobbyhorses:
- Nobody really has ever been all that troubled by the fact that banks manipulated Libor to make themselves look like they could borrow in 2007-2008, while everyone is at least acting all shocked shocked that banks manipulated Libor to juice derivatives profits, but that contrast is awkward because in a certain light those are the same activity, so everyone has to look all horrified by stuff they were obviously cool with four years ago.
- Everybody knew that banks understated Libor in 2007-2008. Like, you could compare Libor to market borrowing rates and CDS and stuff, and people did, and noticed it was wrong. Also remember that Barclays, while they were manipulating Libor, were also emailing all their clients every day to remind them that Libor was being manipulated.
- The effect/harm/liability of Libor manipulation has to be determined in expectation and if everyone knew it was being manipulated then they were presumably charging a higher spread to Libor when dealing with banks.
Geithner’s testimony won’t change my mind: now he has to look all grim about Libor manipulation, while back in the day he “treated it as a curiosity, or something akin to jaywalking, as opposed to highway robbery.”
But Tim Geithner wasn’t just a regulator when he ran the New York Fed; he was also a Libor user. So he gets to answer questions like this: Read more »
Tags: Congress, Jamie Dimon, Whaledemort
The House’s ping-ponging alternation of smacking and caressing Jamie Dimon today got pretty boring but I was struck by one number that Dimon mentioned, perhaps because it was about the only number that he mentioned. One Republican, with somewhat unclear intent,* suggested that the biggest risk to JPMorgan is that interest rates go up and asked Dimon how JPMorgan hedges that risk. And Dimon pointed out that actually JPMorgan is well set up for that, since it will make money if rates go up, and said “It probably cost us over $1 billion a year to benefit from rising rates.” You can’t as far as I can tell find that number in JPMorgan’s disclosures, but here is a potentially related thing: Read more »
Tags: Congress, hearings, Jamie Dimon, Maxine Waters, no so silent pleas, Whaledemort
If we’re being totally honest, while it had its moments, last week’s Jamie Dimon Congressional hearing to discuss Whale Boy was a bit of a letdown, theatrically-speaking. This was probably due in large part to the fact that it was conducted by the Senate Banking Committee, and the Senate typically comes off intelligent and reasonable compared to the House,* and proceeded accordingly. As we surely don’t have to tell you, this is not the kind of hearing we are interested in. Read more »
Tags: Congress, David Einhorn, Greenlight Capital, Hedge Funds, insider-trading, political intelligence, SEC
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? Read more »
Tags: cats, Claudius Ptolemy, Congress, Derivatives, Feline Pride, taxes
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: Read more »
Tags: Congress, David Sokol, insider-trading, Warren Buffett
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?
Read more »