A Decade of ‘Unicorns’ Ends With a Little Less Magic
> Despite their growing numbers and valuations, the performance of unicorns has been a mixed bag. On the whole, an investor in the second half of the decade was likelier to have put money into a unicorn that was unprofitable and whose value has dropped as a public company than an investor in the decade’s first half, The Wall Street Journal found.
You Can’t Just Call Loans Options
> Also tech companies as banks, the bank of crypto and index funds.
> A weird feature of U.S. tax law is that, if you do a thing purely to get around tax rules, then that is bad and a sham and the IRS can look through it and make you pay your taxes. But if you do the thing not only to get around tax rules but also to get around other rules (like margin requirements), then from the IRS’s perspective you have a valid business purpose and you might be able to keep your good tax treatment. “We’re not just gaming your rules, we’re gaming other regulators’ rules too” is, surprisingly, an argument that might persuade the IRS.
> The advertising for the Apple card calls it “A new kind of credit card. Created by Apple, not a bank.” That appears to be true of the appearance of the physical card. But the credit algorithms were created by a bank, to Apple’s eventual embarrassment. It is just a little odd that Apple seems to have been so incurious about the algorithms. It’s a tech company!
The Deadly Consequences of Rounding Errors
> In politics, stock markets, space, and the battlefield, tiny software calculation mistakes have had enormous consequences.
> Sometimes those fractional cents aren’t stolen—they simply vanish. In the early 1980s, a new stock index at the Vancouver Stock Exchange tracked a steady and mysterious loss in value. An investigation revealed that floor() was being used instead of round(), with the lost fractions of cents accumulating to almost a 50 percent loss of value in 22 months. The programming mistake was finally fixed; the index closed around 500 on a Friday and reopened the following Monday at over 1,000, the lost value restored.
We Could Really Use Some Money
> In better times, really not that long ago at all, we talked about WeWork as a clever financial arbitrage, segmenting the market so that it could appeal to debt investors as a boring stable real-estate company while appealing to equity investors as a fast-growing high-multiple tech company. Now, in worse times, it is the opposite: If you invest now, you can get some terrifying debt that lenders don’t want combined with some cursed equity that the stock market doesn’t want.
> Did WeWork founder Adam Neumann disturb a mummy and trigger an ancient curse? Was a WeWork built on a haunted graveyard, unleashing powerful dark energies and also elevated levels of formaldehyde? How do you have such a relentless parade of negative financial news and then find out that your phone booths cause cancer? “Our phone booths might cause cancer” was not an IPO risk factor. Nobody had “phone booths cause cancer” on their WeWork Disaster Bingo cards.
The Shaw Family Admission Plan
Mostly about buying college admissions through donations, but also how he runs his house.
> The 68-year-old Shaw made his estimated $7.3 billion fortune by bringing the computing revolution to finance. D.E. Shaw & Co., the legendary hedge fund that bears his name, pairs proprietary trading algorithms with obsessive risk management. Less well publicized, however, are the various ways in which Shaw has applied his fund’s risk-averse, quantitative approach to nearly every aspect of his life. Employees tell stories about Shaw wanting Chinese food or a comfortable mattress, and Shaw staff exhaustively researching and testing the options in advance. It was company lore that before Shaw traveled, an assistant would take the exact same trip — same car service, same airport, same seat on the plane — to eliminate any inefficiencies. Shaw has been said to purchase tickets for several different flights on the same day in case his plans change.
Goldman Sachs Tries Banking for the Masses. It’s Been a Struggle.
> Goldman’s new consumer bank, which operates under the brand Marcus, has lost $1.3 billion since launching in 2016. It spent heavily to buy startups and cloud-storage space, hire hundreds of techies, and build call centers in Utah and Texas. Loans have gone bad at a higher rate than that of rivals.
> A credit card developed with Apple Inc. was a coup, but a costly one: Thousands of engineers across Goldman were diverted to finish it in time for an August debut, delaying other projects. Apple ads for the card carried the phrase: “Designed by Apple, not a bank”—a line that didn’t appear in a giant banner ad in Goldman’s lobby this fall.
Plus some other interesting details in here.
Marty Weitzman’s Noah’s Ark Problem
> Marty Weitzman passed away suddenly yesterday. He was on many people’s shortlist for the Nobel. His work is marked by high-theory applied to practical problems. The theory is always worked out in great generality and is difficult even for most economists. Weitzman wanted to be understood by more than a handful of theorists, however, and so he also went to great lengths to look for special cases or revealing metaphors. Thus, the typical Weitzman paper has a dense middle section of math but an introduction and conclusion of sparkling prose that can be understood and appreciated by anyone for its insights.
> The Noah’s Ark Problem illustrates the model and is my favorite Weitzman paper.
Don’t Put Your Valuables in the Bank
> On the other hand if you have valuable stuff you can leave it with the bank, and the bank will keep it in a box for you, but that is sort of an accident. It is not a core banking function, not really a banking function at all except for historical reasons. And sometimes they’ll drill open the box and throw your stuff out!
Original story: https://www.nytimes.com/2019/07/19/business/safe-deposit-box-theft.html
> It turns out that, statistically, heart surgeons are better at heart surgery than barbers are. What about dermatologists, are they better at sourcing and identifying private-equity and venture-capital investments than private-equity professionals are?
Who Can Pay Venezuela’s Debts?
> Also racing sponsorships, credit ratings, ice-water celebrations and Trump on crypto.
This was a good one.
How Discount Brokerages Make Money
> This is outside of my usual software-oriented beat, but sometimes people are wrong on the Internet. Most recently, people have been wrong about payment for order flow, an esoteric topic in the investing industry which seems vaguely unsavory to Hacker News commenters, Michael Lewis , etc.
> Explaining why payment for order flow isn’t a big deal requires a more in-depth discussion of discount brokerages. All stats below are as of 2018; citations for the annual reports are at the bottom.
KPMG Audit Professionals Manipulated the Scoring of Training Exams
In today’s edition of edit a URL and go to jail...
> KPMG sent participants in training programs a hyperlink that directed them to the applicable exams. Embedded in the hyperlink was an instruction to the server that specified the score necessary to pass the exam. Thus, the characters “MasteryScore=70” meant participants were required to answer at least 70 percent of the answers accurately to pass the exam. By changing the number in the hyperlink, audit professionals could change the score required to pass.
> 58. For a period of time up to November 2015, certain audit professionals, including one partner, altered the URLs for their exams to lower the scores required to pass. Twenty-eight of these auditors did so on four or more occasions. Certain audit professionals lowered the required score to the point of passing exams while answering less than 25 percent of the questions correctly.
Also: 25%??? Come on guys, that’s worse than random chance!
Don’t Buy the Wrong Electricity
> Second: It’s a thing that happens often enough that ICE Futures has a procedure to report trades like this as errors and adjust their prices. A normal part of electricity futures markets is people buying the wrong contract because they didn’t read the name all the way through, and then going to the exchange and saying “whoops wrong contract,” and the exchange fixing the trade.
> Instead he’s accused of doing it basically as a form of … protest art, I guess? It happened to him, he was mad, so he did it to other people “to prove the point that” … that … that you’d be mad too if it happened to you? He was driven by that most universal of human motivations, the desire to annoy other people with the thing that was annoying him. Really it’s the most relatable kind of market manipulation.
But what about the opportunity cost?
Ethercombing: Finding Secrets in Popular Places
> In this paper we examine how, even when faced with this statistical improbability, ISE discovered 732 private keys as well as their corresponding public keys that committed 49,060 transactions to the Ethereum blockchain. Additionally, we identified 13,319 Ethereum that was transferred to either invalid destination addresses, or wallets derived from weak keys that at the height of the Ethereum market had a combined total value of $18,899,969. In the process, we discovered that funds from these weak-key addresses are being pilfered and sent to a destination address belonging to an individual or group that is running active campaigns to compromise/gather private keys and obtain these funds. On January 13, 2018, this “blockchainbandit” held a balance of 37,926 ETH valued at $54,343,407.
> In an experiment, we picked a private key of 1, for no reason other than that it is the lower bound of a possible private key for secp256k1 and it also lies within the 1 to 232-1 range of a 32-bit truncated key. We use the private key 0x0000000000000000000000000000000000000000000000000000000000000001 to derive the public Ethereum address 0x7e5f4552091a69125d5dfcb7b8c2659029395bdf.
The Triple Lizard Is a Love Story and a Cautionary Tale
> A lot of banking businesses are mysterious, but the exotic-derivatives business is actually very straightforward and normal. It is a sort of manufacturing business. You think about a product that customers might want, a need that they have that can be filled by a product you can build. Once you have an idea for a product, you design it and figure out how to manufacture it efficiently.
> Unlike in a regular manufacturing business, you are not exactly manufacturing the product, delivering it to the customer and walking away. In fact manufacturing a derivative normally requires continual trading — “dynamic hedging” — throughout its life. You are manufacturing it prospectively; you sign up the trade, give the customer her money, and then spend the life of the trade trying to make it worth what your model said it was worth.
> Triple lizard! Wouldn’t you buy a triple lizard just for the joy of saying it? “Give me three triple lizards please!” Who even cares what they are, they’re triple lizards.
Who Can Say What California Means?
> Imagine, as I do every day, being the Tesla Inc. “Designated Securities Counsel” whose job is to review Elon Musk’s draft tweets before he sends them out. (Bloomberg News calls this unnamed but undoubtedly accomplished lawyer “Musk’s Mystery Twitter Sitter.”)
Wherein Matt Levine then proceeds to imagine the discussion that must have taken place.
> I think these tweets are fine. If you don’t, you have to explain to me, specifically, how they violate the settlement.
> I am not giving you a formal legal opinion that it is illegal for you to tweet “California.” I am just telling you that it’s dumb.
> Apparently the compromise was that Musk tweeted the tweets, but first he changed his Twitter name to “Elon Tusk,” with an elephant emoji, to make them … less official? Less contemptuous? More annoying?
Warren Buffett’s Stocks Went Down
> Also a poison pill, BlackRock private equity, Windstream and a decacorn.
> Last year Sinovac Biotech Ltd., a U.S.-listed Chinese biopharmaceutical company incorporated in Antigua and Barbuda (why not), held an annual general meeting of shareholders to re-elect its board of directors. Some shareholders showed up at the meeting (in Beijing) and took the board by surprise by demanding to vote for different directors. This is generally viewed as somewhere between “extremely impolite” and “totally illegal,” because: Who goes to shareholder meetings? In most of the world, most of the time, the answer is almost nobody; all of the business of the meetings is conducted by proxies. If you want to nominate directors, you send in a notice months in advance, and navigate a bunch of tricky procedural formalities, and if all goes well you get to send a proxy card to all the shareholders asking them to vote for your directors, and if more shareholders send back proxies for your slate than for the management slate then your directors get elected. You don’t just show up at the meeting, nominate your directors and ask for a show of hands. The company’s managers will quite properly tell you that you are out of order, and you will respond “the whole system is out of order,” and there will be a lot of shouting and confusion.
And then it gets really weird.
> We have talked a lot recently about the question of who controls a corporation, and I have consistently pushed back on the naive view that shareholders “own” the corporation and get to choose its managers and directors and control how it operates. Here some shareholders wanted to vote out the old directors and vote in some new ones, and their new directors got more votes than the old ones did, and not only did this not have the effect of replacing the old directors with the new ones, but the old directors have decided to punish the shareholders who voted against them by taking away some of their shares. Whatever is happening here, it is hard to see it as the shareholders owning the corporation.
GE Powered the American Century—Then It Burned Out
> How the company that was once America’s biggest, the maker of power turbines, the seller of insurance, the broadcaster of ‘Seinfeld,’ became a shadow of its former self
The day Volkswagen briefly conquered the world
> In midst of the great financial crisis, something odd happened. Volkswagen, the German carmaker, became the biggest company in the world. For one, brief day. Looking back a decade, as many have recently, you’d be forgiven for thinking the worst asset to own was a US investment bank or mortgage originator. But it was nothing compared to being short the Wolfsburg-based business. Exactly 10 years (and 48 hours) later, here’s how it happened.
Eric Schmidt on the Life-Changing Magic of Systematizing, Scaling, and Saying “Thanks”
> Tyler questioned Schmidt about underused management strategies, what Google learned after interviewing one job candidate sixteen times, his opinion on early vs. late Picasso, the best reform in corporate governance, why we might see a bifurcation of the Internet, what technology will explode in the the next 10 years, the most underrated media source, and more.
> Well, turns out there were a few extra credit cards in the company floating around, and random things were showing up. This is how I ran things. But it’s important not to go to the person who bought the telephone booth and say, “You’re fired.” The important thing to do is take their credit card away.
> As a general rule, I try to blame the Internet for everything because everyone else does, and I think some of this is true and some of it’s false. That was a joke by the way. And you can’t joke anymore in the age of Twitter.