Money Stuff

Matt Levine

Goldman Bitcoins!

As I may have mentioned once or twice around here, I used to work at Goldman Sachs Group Inc., and while I generally think the firm is a good place and I like a lot of the people I worked with, I never exactly miss it. Investment banking was not, all in all, for me. Also, separately, as I may have implied once or twice around here, I have my doubts about some of the bolder claims that Bitcoin and blockchain enthusiasts make. Certainly I find cryptocurrencies interesting, certainly I write about them a lot, but I do not think it would be unfair to characterize me as a Bitcoin skeptic.

Even so, now I kind of want a job in Goldman’s Bitcoin trading department? It sounds like just the sort of dumb weird project that I couldn’t resist:

In a step that is likely to lend legitimacy to virtual currencies — and create new concerns for Goldman — the bank is about to begin using its own money to trade with clients in a variety of contracts linked to the price of Bitcoin.

While Goldman will not initially be buying and selling actual Bitcoins, a team at the bank is looking at going in that direction if it can get regulatory approval and figure out how to deal with the additional risks associated with holding the virtual currency.

All of those words—except “Bitcoin”—those are my kinds of words. “If it can get regulatory approval”! “Figure out how to deal with the additional risks”! “A variety of contracts”! The one thing that I really do miss about working at an investment bank, oddly, is figuring out how to make the plumbing work for dumb strange implausible trades. In some sense it is the core—well, a core—intellectual content of investment banking: identifying a financial desire, and threading the legal and regulatory and tax and capital and financing and liquidity and market-risk and reputational needles required so that the bank can fulfill that desire for its clients. Working on the Bitcoin desk would be like that every day. 

In the next few weeks — the exact start date has not been set — Goldman will begin using its own money to trade Bitcoin futures contracts on behalf of clients. It will also create its own, more flexible version of a future, known as a non-deliverable forward, which it will offer to clients.

Building your own over-the-counter Bitcoin derivatives! At a real bank! What a great dumb job! Imagine the new products committee meeting to approve that thing. Also at Goldman it seems like it would be a fairly chill situation:

Rana Yared, one of the Goldman executives overseeing the creation of the trading operation, said the bank was cleareyed about what it was getting itself into.

“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” Ms. Yared said. “For almost every person involved, there has been personal skepticism brought to the table.”

That’s not just a Bitcoin comment, really; if you are not bringing some personal skepticism to the building of any new trading or derivatives business, you are probably doing it a bit wrong. 

We talk a lot around here about how “banking is boring.” “Boring,” in that expression, is a term of art; it doesn’t mean literally that the job of banking is dull, but rather that banks have less leveraged exposure to market volatility. But it also kind of means literally that the job of banking is dull: The intent, and the main effect, of post-crisis regulations is to reduce leverage and market risk, but an ancillary effect is sometimes to push banks to focus on making traditional products and business lines more efficient rather than on finding wild new financial desires and fulfilling them in exciting ways. But a Bitcoin trading desk at Goldman! That’s neither kind of boring. It is a lot of brand-new, complicated, interesting product- and business-building, and it’s also some lunatic market risk. It would be a fun irony if Bitcoin—which was supposed to supplant the untrustworthy traditional banking system represented by suspicious characters like Goldman Sachs—is what makes Goldman fun again.

Elsewhere in the crypto.

Really, imagine running the crypto trading business at a big bank, you’d constantly be dealing with all sorts of amazing nonsense. For instance here is a story about a crypto panel at the Milken Institute Global Conference that seems to have been as terrible as you could hope for: “Billed as a sober discussion to a ballroom where every seat was filled, the panel meandered into shouting and crosstalk,” with Nouriel Roubini saying things like “All this talk of decentralization is just bullsh*t” and a crypto guy telling Roubini “Why don’t you buy one coin, then you can tell us how it works.” (Nocoiner!) And:

“I may need to step in and regulate this panel,” said Brent McIntosh, general counsel for the U.S. Treasury and another panel participant.

I am not quite sure but I think that is a good line? 

Or here is a story about how the initial coin offering for Telegram was canceled due to excessive success:

The popular messaging app Telegram has brought in so much money from a small group of private investors that it is calling off a planned sale of cryptocurrency to the wider investing public, according to a person familiar with the matter.

Telegram Group Inc. has pulled in $1.7 billion by selling newly created cryptocurrency to fewer than 200 private investors.

Eventually there is going to be an ICO that is an actual registered securities offering. There have already been ICOs that are unregistered securities offerings, in which the company concedes that its tokens are securities and restricts their sale to “accredited investors” to avoid U.S. registration requirements. There have also been ICOs that, legally or otherwise, were open to public investors but were characterized as not being securities offerings. But the Securities and Exchange Commission clearly thinks that basically all ICOs are securities offerings, and eventually someone is going to want to do a big and reputable enough ICO that they will register it as a securities offering and, for all I know, hire a syndicate of investment banks and pay them a 7 percent fee and generally make it look like an initial public offering, but for tokens. Maybe Goldman’s Bitcoin desk will lead the deal.

Or Venezuela’s petro: Still sort of a thing.

Venezuela has offered India a 30-percent discount on crude oil purchases, but only if India agrees to pay in El Petro, the cryptocurrency that Venezuela is touting as the first national digital currency backed by crude oil reserves, the Indian outlet Business Standard reports.

It’s a little unclear from the articles, but basically the trade seems to be:

  1. India pays dollars to Venezuela and receives petros. (Who else would sell the petros?)
  2. India pays petros to Venezuela and receives oil.
  3. Venezuela is like “look, see, petro is a real thing, you can really use it to buy oil.”

I remain a petro skeptic, but part of my objection is that the claim that it is “backed by” or redeemable for oil is obviously false. If Venezuela actually—sort of—exchanges oil for petros then I will look a little bit wrong.

Your own, personal, ISDA.

Why would you want to have an International Swaps and Derivatives Association master agreement, which allows you to trade over-the-counter derivatives, with a big bank? Obviously if you are a hedge fund or a corporate hedging client you need one to do your business, but if you are an individual it is a particular kind of status symbol:

Their ranks are getting more selective. While no one keeps count, people in the industry guesstimate that the total peaked at no more than 3,000 a decade ago and has shrunk considerably since the financial crisis. Months of interviews have yielded the identities of just 12 individuals who held the prize: an ISDA master agreement.

In addition to being a status symbol, it lets you trade over-the-counter derivatives with a big bank, which is … a bit of a mixed bag? (“Banks do this business because they can charge two or three times more than they would a company,” says a wealth manager, and it’s not like the companies are underpaying for their OTC derivatives.) I suppose if you have a personal ISDA it means (1) you are very rich (the net-worth requirements at big banks tend to start at $25 million) and (2) you made that wealth in the sort of trading or trading-adjacent businesses where you’d learn that an ISDA is a thing worth having in the first place. So it is quite plausible that you are unusually savvy at trading derivatives. It is alternatively possible that losing your money by trading OTC derivatives is just your preferred form of entertainment, like extra-nerdy baccarat.

Or there is this guy:

After taking out a floating-rate mortgage on a house in Kensington, London’s most expensive borough, Guido Filippa signed an ISDA contract with Goldman Sachs to protect against rising interest rates.

Filippa, 45, said he obtained the agreement via Goldman’s private-wealth management unit while working as a managing director in the bank’s London office. He entered into a 10-year interest rate derivative that required him to pay an upfront premium of about 4 percent of the value of the mortgage, while the bank is required to pay him every quarter that a benchmark of interbank borrowing costs is above a pre-defined level.

Oh man, true story, I do not have an ISDA with JPMorgan Chase & Co., but I did manage to convince them to do a very similar trade with me. It is a 30-year fixed-rate mortgage, and it satisfies my interest-rate-hedging requirements reasonably well and with no upfront premium. Please do not email me to explain that I could do even better with a floating-rate mortgage and an OTC cap. The point of the article is that I can’t. Because I don’t have an ISDA. But I don’t exactly miss it.

(Oh fine fine fine fine fine I confess that when I first took out a mortgage, back when I worked at Goldman, I made some inquiries of Chase about whether I could do something—I forget exactly what—to customize my interest-rate risk. It is just the sort of temptation that you fall prey to when you work in finance and are first discovering mortgages. “No,” they said. “That’s reasonable,” I said. Perhaps if I had had $25 million dollars and an ISDA I would have pursued the matter further.)


I don’t know if McClatchy Co. Chief Financial Officer Elaine Lintecum reads Money Stuff. But I wrote yesterday about McClatchy’s proposed refinancing deal with Chatham Asset Management, a hedge fund that has sold a lot of credit default swaps on the company, and I suggested that if CDS buyers are aggrieved by the refinancing then they should just propose their own better deal to the company. Chatham’s deal would subsidize the refinancing by, essentially, hosing CDS buyers, but the technology exists for the CDS buyers to subsidize a refinancing by hosing CDS sellers, so really McClatchy should just run an auction to see which side will give it more of the gains from hosing the other side.

Also Lintecum talked to Bloomberg News:

“We didn’t enter this deal to hurt the CDS market,” Elaine Lintecum, the chief financial officer of McClatchy, said in an interview. “I don’t have a fiduciary duty to the CDS market. Those betting against the company in the CDS market have a motivation to hurt McClatchy and its shareholders.” ...

“No one has approached me with another deal,” Lintecum said. “Any other offers of a deal that would come to McClatchy, we would evaluate those and do what’s in the best interest of our shareholders.”

Hint hint! Anyway the central problem in the current wave of weird CDS trades—McClatchy, Hovnanian—is that she’s entirely right; she doesn’t have a fiduciary duty to the CDS market. Credit default swaps are pure side bets about a company’s credit, generally arranged without the company’s knowledge or approval or involvement. If a company looks at the market for its CDS, and sees a way to cheapen its own borrowing costs by ill-using some CDS market participants, why shouldn’t it seize the opportunity? What relationship does it have with the people who are betting against its bonds in a derivative market? Why does the integrity of that market matter to it? Oh there are answers—a functioning CDS market might (or might not) make credit cheaper for corporate borrowers—but they do not have quite the immediacy of being offered cheap money. And CDS participants who complain to corporate borrowers about the sanctity of the CDS market might find out that the corporate borrowers just don’t care.

Tech-company governance.

Hahahaha sure, sure:

The earnings report started optimistically enough, with Elon Musk forecasting an end to Tesla Inc.’s cash-burning days after blazing through another $1 billion last quarter.

But by the end of Tesla’s first-quarter conference call, Musk was berating analysts for asking “boring” questions, the shares had plunged and any shred of predictability was out the window. …

Musk cut off analysts’ queries about the company’s capital requirements and whether it was retaining Model 3 reservation holders, calling the questions “so dry” and “not cool.” 


“And so where specifically will you be in terms of capital requirements?” Sacconaghi said.

“Excuse me. Next. Next,” Musk said to the call operator. “Boring, bonehead questions are not cool. Next?”


“I think that if people are concerned about volatility, they should definitely not buy our stock,” Musk replied. “I’m not here to convince you to buy our stock. Do not buy it if volatility is scary. There you go.”

Look, I mean, it’s a theory. Obviously shareholders of a public company get—or at least want—some say in choosing their managers. But the managers get—or at least want—some say in choosing their shareholders, too. If you are not cool with Musk, you probably shouldn’t invest in Tesla, and if Musk doesn’t think you’re cool, he could perfectly reasonably try to drive you away from investing in Tesla. Obviously there are a lot of very traditional normal investors in Tesla who like Musk fine as a visionary but would find it helpful if he’d answer basic financial questions on the conference call, but you can’t get everything you want, and there is something rather likable about Musk forcing them to choose. Anyway if Tesla does blow up you can’t say there weren’t any hints.

Elsewhere, Mark Pincus of Zynga Inc. is converting his high-vote stock into low-vote stock, apparently out of the goodness of his heart:

Mr. Pincus said, he made the decision in consultation with Zynga’s board, partly because of growing criticism of dual- and multiclass share structures. As part of the change, Mr. Pincus said, he will leave Zynga as an employee — he was executive chairman — and become nonexecutive chairman of the company’s board of directors.

“We think the company doesn’t benefit anymore from a multiclass structure,” Mr. Pincus said.

There is some loose sense in which, even in companies with multiple share classes that are controlled by their charismatic founders, those founders still owe a fiduciary duty to the company and its shareholders. The point of the dual-class share structure is to give the founder more freedom to act in the long-term interests of the company, free from the short-term pressures of a myopic stock market. (If you believe that.) At some point—for instance, when the charismatic founder is no longer that involved in the day-to-day running of the company and wants to focus on other things—then he should, as a long-term shareholder acting in the best interests of the company, probably just voluntarily give up the dual-class structure. Still you don’t see it very often.

Sports Stuff.

Here is a very Arsenal story about Arsenal, the English soccer team: They are so disappointing that a bookmaker’s business suffered because it won too many bets against Arsenal.

Losses by Arsenal and other teams were one of the factors behind weak first-quarter revenues at Paddy Power Betfair, the U.K.-based gambling group. Problem is, fans like to bet on Arsenal and they like to win their bets occasionally. When they do they are more likely to recycle those winnings into more bets, especially in online accounts.

Paddy Power said Wednesday that too many house wins had put fans off betting ...

You know it’s bad when your team has ruined sports gambling for the bookies.

Programming note.

You may have seen the announcement yesterday that Bloomberg Digital will now have a subscription model. Here are a letter from Editor-in-Chief John Mickelthwait explaining the changes, and a more detailed FAQ page. If you read Money Stuff by email, nothing will change for you; service will continue uninterrupted even if you choose not to pay for Bloomberg Digital. (The web version of Money Stuff will, like the rest of Bloomberg’s web stories, be subject to the paywall.) You can subscribe (for free) to the email version of Money Stuff here, or sign up for it and other free Bloomberg newsletters here.

Nonetheless, you should pay for Bloomberg Digital, not only because paying for news is the right thing to do, and not only because Bloomberg’s excellent journalism is well worth the price, but also because I link to a lot of Bloomberg articles in this newsletter and you’ll quickly eat through your allotment of free articles just by clicking on my links.

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