Opinion

Felix Salmon

Counterparties: The devil’s in the emails

By Ben Walsh
February 6, 2013

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

There’s a certain inevitability to RBS’s $612 million Libor-rigging settlement and the Justice Department’s civil charges against S&P for faulty ratings. Like at Barclays, Goldman Sachs, Standard Chartered, and UBS, RBS and S&P’s scandals come complete with how-could-they-put-that-in-writing electronic communications.

RBS’s contributions to this now-venerable tradition come courtesy of the CFTC and FSA, and are wrapped up nicely by Dealbook and FT Alphaville. One trader asked that the rate set be at a certain level by writing to the submitter that “if u did that i would come over there and make love to you”. Another said  “its just amazing how libor fixing can make you that much money”. Believing that the US dollar Libor was being watched by the Fed, a Yen trader said “dun think anyone cares the JPY Libor”. Scattered throughout is the requisite amount of trading floor profanity, along with a decent number of emoticons.

S&P’s written record was more metaphorical and sarcastic. One exec wrote that “this market is a wildly spinning top which is going to end badly”. An analyst said he had “no complaints” about his job, “aside from the fact that the MBS world is crashing, investors and the media hate us and we’re all running around to save face”. And then there’s the extended re-write of the Talking Heads’ “Burning Down the House”. That was immediately followed by another email warning “for obvious professional reasons, do not forward this song”.

Given that the probability of finding something stupid or profane in millions of pages of records approaches certainty, what regulator or prosecutor could resist using such material? In RBS’s case, it appears that the bank’s own traders sealed the outcome of the CFTC’s investigation.

S&P, which says that it did not “deliberately keep ratings high when we knew they should be lower”, may be different. While the documents are embarrassing, Matt Levine says that “picking some individual things that they could have done differently doesn’t seem even related to proving fraud”. And John Cassidy acknowledges that each side is taking a risk by going to trial. But given S&P’s decisions to delay implementing new models, and to pick and choose which ones it used, he applauds the risk the DOJ is taking. — Ben Walsh

On to today’s links:

Apple
The case that Apple is overvalued (and a classic “value trap”) – Bethany McLean

Oxpeckers
Is AOL’s CEO the “king of cocktail-napkin” innovation – or just a good salesman? – Jason Del Rey

Deals
HP “intends to keep the company together”, unless it’s a better idea to break it up – Quartz

New Normal
Some of the richest colleges are suing their poorest graduates – Bloomberg
Millenials: the frugalist generation – Amir Sufi

Wonks
Freedom requires us to live in a periodically psychotic “economic-chance” world – Steve Waldman
The great rotation is not so great, and not even really a rotation – FT Alphaville

Transitions
Tim Geithner is now a “distinguished fellow” – WSJ

Yikes
The brain-frying effects of “acoustic shadow zones” (for homing pigeons) – The Atlantic

Best and Brightest
Life insurance CFOs wished financial modeling required no time or thought – WSJ

Politics As Usual
Marco Rubio thinks rap should be mimetic – BuzzFeed

Big Numbers
The largest prime number ever discovered is 17 million digits long – Scientific American

Tax Arcana
How the Dell buyout works as a tax-avoidance scheme – Quartz

Comments
2 comments so far | RSS Comments RSS

The linked-to Apple post is a waste of time; just the fact that McLean compares Apple to AOL should be a tip-off.

And HP shareholders should be nervous, their board (possibly the worst of any large company) is going to decide whether to break up the company or keep it together. Given their track record, it’s likely that whatever they do will be wrong.

Posted by KenG_CA | Report as abusive
 

@KenG, if history is any example, HP’s board will vote to spend $20B to acquire another failing tech business. Value destruction at its best!

Posted by TFF | Report as abusive
 

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