Nils Pratley and Neil Unmack both have good columns on the latest bit of regulatory arbitrage by Barclays. Essentially, the UK bank is taking $12.3 billion of toxic assets and replacing them with a $12.6 billion loan to some kind of special-purpose entity which exists to own those assets. By doing so, Barclays gives all the upside on that toxic debt to the new vehicle, called Protium; in return, it gets lower balance-sheet volatility, since the loan to Protium doesn’t need to be marked to market every day. The total amount of capital that Barclays has at risk will go up; meanwhile, the degree to which Barclays’ shareholders will have any degree of transparency will go sharply down.
The existence of arbitrage, and arbitrageurs, is a necessary precondition for having a reasonably efficient market. Arbitrage allows the law of one price to become roughly true, and in turn belief in the law of one price is the central faith of any arbitrageur, who will pick up on price discrepancies safe in the knowledge that sooner rather than later the law will turn those trades into profits.
Twitter seems to have quadrupled in value over the course of just a few months: after raising $35 million at a $250 million valuation earlier this year, it’s now raising another $50 million at a — wait for it — $1 billion valuation. At these kind of levels, one assumes, there must be some idea of how to make money in the future. I also hope the founders are beginning to cash out at this point: or does Twitter really have a burn rate which would make Michael Wolff proud?
For those of you who prefer your overdraft journalism in video form, here’s a short documentary by Karney Hatch about overdraft fees. It’s very good, partly because it actually tells you what to do if you’ve been dinged by these things and the bank won’t refund your money. Small-claims court is your friend! And works!