Opinion

Ben Walsh

from Counterparties:

Too big to regulate

Jan 8, 2014 23:14 UTC

JPMorgan has agreed to pay $2.6 billion to the Department of Justice and various victims of Bernie Madoff’s $18 billion ponzi scheme, Reuters writes. That amount includes a $1.7 billion fine for violating money laundering rules and is “the largest forfeiture a bank has ever had to pay to resolve anti-money laundering violations.” It also includes a $350 million payment to the Office of the Comptroller of Currency. The bank is also paying $218 million to settle a private class action lawsuit over Madoff, and $325 million to settle a case with the Madoff bankruptcy trustee.

The remarkable part of this agreement, Sheelah Kolhatkar says, is that it’s a deferred prosecution agreement, which is reserved for “cases in which the facts underlying the case are severe but a criminal indictment might destroy the company.”

The settlement documents, Felix writes, show that JPMorgan, Madoff’s primary banker for more than 20 years, was guilty of “sheer unmitigated — and, yes, probably criminal — incompetence.” A Madoff account which JPMorgan’s banker thought was only being used for rent and expenses saw $752 million in inflows in one day, yet a JPMorgan investigation into the account went nowhere. Tom Braithwaite writes that in 1998 and 2007 JPMorgan’s asset management division decided not to invest in Madoff funds because their returns were “possibly too good to be true”.

JPMorgan never passed those red flags on to authorities, Michael Hiltzik writes. Banks, he argues, are the first line of defense in preventing fraud, and JPMorgan’s lawyers appear to have blocked warnings to regulators.

Matt Levine suggests the failure of the bank’s various divisions to share these red flags internally could be a function of its complexity. There’s no reason JPMorgan’s London investment bank, he writes, should be reporting its misgivings to US regulators. He adds:

from Counterparties:

Why Christmas should always be on a weekend

Ben Walsh
Jan 3, 2014 21:20 UTC

Tyler Cowen thinks Christmas should always fall on a Wednesday, as it did in 2013. “The goal,” he writes tongue-in-cheek, “is to minimize non-convexities”. For Cowen personally, that means maximizing mail delivery, library access, paid vacation, traffic-free roads to optimize shopping, and trips to far-flung ethnic restaurants.

My response: for the sake of the US economy, Christmas should be observed on a weekend, preferably Saturday. Why? A weekend Christmas optimizes US consumer holiday spending.

Here’s the holiday the holiday shopping scramble, charted using monthly US retailer sales from 2000. It’s an oddly EKG-like pattern: something like the heartbeat of consumer spending in America. (All data for this chart and the second chart below from FRED’s monthly retailer sales data series.)

from Counterparties:

Top of the charts

Dec 20, 2013 23:01 UTC

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The onslaught of year-end lists is upon us, and in the econoblogosphere that means, among other things, charts. Lots of charts.

The Atlantic’s Matthew O’Brien rounds up the most important economic stories of 2013 from 44 journalists, economists, and policy experts. Business Insider’s Matthew Boesler has 100-plus charts from investors and Wall Street analysts. The Counterparties team sorted through O’Brien and Boesler’s lists, as well as our own catalogue of charts, to semi-arbitrarily bring you the 8 best charts (of the best charts) of the year:

from Counterparties:

Renters get owned

Ben Walsh
Dec 19, 2013 23:15 UTC

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In 2012, the federal government spent $240 billion on housing aid, according to a new study by the Center on Budget and Policy Priorities. Despite the fact that 65% of American households are homeowners, 75% of housing aid, or $180 billion, is set aside for homeowners. Not only is federal housing aid disproportionately targeted to homeowners, it’s disproportionately targeted to the wealthiest homeowners. Here’s the CBPP:

The bulk of homeownership expenditures go to the top fifth of households by income, who typically could afford to purchase a home without subsidies... More than half of federal housing spending for which income data are available benefits households with incomes above $100,000.  The 5 million households with incomes of $200,000 or more receive a larger share of such spending than the more than 20 million households with incomes of $20,000 or less.

How Blackstone made $8.5 billion from Hilton’s $6 billion increase in value

Ben Walsh
Dec 16, 2013 16:13 UTC

In July 2007, Blackstone took Hilton private for $26 billion. On Monday, Hilton IPO’d at $20 a share. Using the same measure to value the company as when Blackstone acquired it, Hilton’s enterprise value is now $32 billion. That’s $6 billion above Blackstone’s takeover price.So it’s a bit confusing to read that Blackstone has an made an $8.5 billion profit on its investment in Hilton.

Here’s how Blackstone, in Matt Levine’s words, “made more on Hilton, in dollar terms, than Hilton has made itself”.

Step 1: Acquire using some equity, and a lot more debt

Blackstone and its investors bought Hilton for $5.7 billion in equity. They also borrowed $13 billion and agreed to take on $7 billion of Hilton’s already existing debt. Equity plus debt minus cash held by the company, what’s called enterprise value, is how you get that $26 billion takeover cost.

from Counterparties:

Marginal budgeting

Ben Walsh
Dec 12, 2013 23:00 UTC

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The best news about the budget deal which was announced Tuesday, writes Neil Irwin, is “the fact that it exists at all”. That alone “signals an improvement in the functioning of budget policymaking”, Fitch Ratings says.

The less good news is the actual substance of the deal. Government spending will be $45 billion higher than if the deal hadn’t been reached, but Irwin points out that discretionary spending will still decline next year. Taken together, says Irwin, “fiscal policy [will] still be a drag. It just will be less of a drag than it would be otherwise”.

from Counterparties:

The state of American homelessness

Ben Walsh
Dec 9, 2013 23:16 UTC

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On any given night, more than 600,000 Americans are homeless; one in four, or 138,000, are children. Nationally, homelessness has fallen 9% since 2007, according to the most recent statistics from the Department of Housing and Urban Development. The number of chronically homeless has dropped 25% in the past six years, while the homeless veteran population overall is down 24%.

Over the same time period, however, homelessness has increased by more than 20% in Massachusetts, Missouri, New York, and Washington, DC. In 2013, the New York shelter system population “hovered around a record 50,000 overall. Nearly half are children”.

from Counterparties:

950 shades of grey

Ben Walsh
Dec 5, 2013 22:41 UTC

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The latest apparent victim of the London Whale has a slightly less memorable name: portfolio hedging. The WSJ reports that the final version of the Volcker Rule won't contain language allowing the practice of hedging broad portfolios of assets against economic shifts. Treasury Secretary Jack Lew says the “rule prohibits risky trading bets like the ‘London Whale’ that are masked as risk-mitigating hedges”.

The Volcker Rule is tantalizingly close to finalization, clocking in at some 950 pages, after a more than three-year drafting process, but how it will be implemented is an open question. At the five largest Wall Street banks, the rule could threaten business units that accounted for $58 billion in revenue over the last twelve months. That’s 18% of their collective revenue, Bloomberg writes.

The IPO vacation calendar

Ben Walsh
Dec 3, 2013 23:04 UTC

The Chrysler IPO won’t happen this year. There are many not-entirely-straightforward reasons, which Antony Currie details. But there’s also the relatively simple issue of time: there are only three full calendar weeks left in 2013, and the company apparently ran into issues it couldn’t resolve in short order.

But if you look at the data, the end of the year is actually a very busy time for IPOs.

This chart uses Thomson Reuters IPO data from 2002-2012 to show each week of the year’s median percent contribution to the number of IPOs (blue) and the proceeds raised from those IPOs (red). For instance, a typical sixth week of the year, a/k/a mid-February, accounts for 3% of the year’s number of IPOs, 2% of the proceeds raised.

from Data Dive:

The ageing of Americans’ things

Ben Walsh
Dec 3, 2013 16:09 UTC

Bloomberg's Michelle Jamrisko reports that the Americans are holding onto things like appliances and furniture for longer periods of time. The average age of consumer durable goods -- a category that also includes items such as cars, electronics, and jewelry --  is 4.6 years, as tracked by the Bureau of Economic Analysis. Jamrisko notes this is the highest its been since 1962. The average age of jewelry and watches was 5.3 years, the highest since 1942.

A longer time frame makes this data a bit easier digest, and thankfully the BEA has consumer durable goods data going back to 1925, plus an easy-to-use charting tool. Here's the average age of US consumer durable goods since 1925:

In the post-war era, the age of consumer durable goods moves within a fairly tight range, and we are now towards the top-end of the range.

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