I'm surprised Matt Levine would write a somewhat clickbaity title.
If the net equity value of Credit Suisse was very low or perhaps even negative, depending on the accounting, then UBS in fact paid quite a high price because of all the liabilities.
And that's why UBS not only paid not a lot but also got a guarantee from the Swiss National Bank for about, I don't know, perhaps 100 billion Swiss francs.
It was 9 billion. UBS is on the hook for the first five billion in losses, the Swiss National Bank for the next nine, and UBS anything else above that.
Is that a common structure? Seems a bit odd to me to want a backer for the middle bit, but I suppose be so confident that it won't be worse than that that you're happy with the tail?
True! Good point. Assuming it's the same in this kind of deal as insurance I'm familiar with then, it's just.. yeah, ideally you wouldn't, but you can't get (well, I suppose there's a price..?) someone to take all your risk, so you just beat it down to some acceptable level that you can't imagine needing more than.
Although in this case, with the insurance agent being the one to push UBS to go through with the deal, I would have thought UBS could get better terms.
No ... in the worst case scenario the Swiss protect deposits, possibly nationalize the infrastructure needed to service those deposits, then let the rest of the structure collapse into bankruptcy. You don't bankrupt your national economy to protect foreign speculators. You salvage the part that your citizens depend on (and were meant to be able to trust). Once you're talking 100 billion plus, global investor confidence will recover over time long before you recover from a financial hit like that. Basically the approach that Sweden took in 2008.
I doubt he did write the title, aren't editors usually responsible for titles. Which is unfortunate because the article's title is Betteridge's law without a question mark.
Credit Suisse has a half trillion in deposits (aka liabilities), so UBS paid a half trillion dollars for Credit Suisse, minus the hard to value assets of Credit Suisse.
I'm pretty sure he writes his own titles in this case, this is a very personal column/newsletter, the titles are often references to previous things he mentioned and so on, a random title editor would not be up to par.
He writes his own titles; Money Stuff is a newsletter he enjoys substantial editorial control over. It's not an ordinary article or op ed at a news outlet.
It may be more conventional in the US. But yes, especially on words like 'be', & 'its' makes it read very 'Oh My God You Will Not Believe These 6 Reasons ...' to me.
And I'm British reading with British English so it is my 'quote-unquote' 'wish' that it wasn't this way, you deal with that? My god this is a boring tangent.
"You can, on the internet, find various expressions of astonishment that a bank as old and important as Credit Suisse turned out to be worth only $3 billion.[3] But this is, I think, the wrong way to look at it. Credit Suisse is not worth $3 billion; it is worth half a trillion dollars, more or less.[4] It's just that virtually all of that value — more than 99% of it — belongs to its creditors."
Not GP, but it's by my reading to show that it's not at all clickbaity, Levine certainly understands your point, and the headline position is reasoned.
I think when you say 'paid' you mean the literal transaction value + liabilities, whereas when Levine says it he means net of liabilities but also assets.
Which is a bit different from not thinking about the liabilities at all (the classic layman response to a company bought out of administration for £1) in that it massively affects the scale - while it's not £1 it's still 'nothing', it's a rounding error on the liabilities, I don't have it hand to quote but there was something about 'as you can tell from the fact they tripled (? whatever it was) shareholder payout in a matter of hours'.
> The upshot of this for UBS is not that it paid CHF 3 billion to buy its historic competitor. The upshot of this is that it has assumed hundreds of billions of francs of liabilities, and taken on a bunch of assets that are probably worth more than that, but it’s hard to tell over a weekend, or ever really.
> it’s hard to tell over a weekend, or ever really.
they likely have gotten some sort of guarantee on those long dated bond assets from the gov't (either in secret, or something similar), to take on the risk. No business is going to willingly take on liabilities that they dont know, and is unsure they will profit off.
Negative, and likely with a non-negligible value. From what I understand the acquisition came with considerable state guarantees given to UBS for Credit Swisses liabilities. To a degree that I have heard it called a disguised bailout.
On paper, UBS gets 35bn of CET1 + 16bn from the AT1 write off, for 3bn.
You would have to believe the assets are massively mismarked for this to be off. I am not aware that it is the claim made against CS. The claim against CS I understand is not being able to turn a profit and large mishaps. Not the same thing as a bad book.
The interesting part is the part about the AT1 "bonds". I put them in quotation marks because according to the article, they are more like a form of subordinate equity. In some ways. Weird and fascinating instrument, it's not often I come across a new one.
Yes, they wiped out these CoCo (Contingent Convertable) bonds, which are floated to provide money to provide a "capital cushion" in the case of stress. As bonds they're definitely weird, because (in this case) they are effectively subordinate to equity. This wipeout may make it difficult to issue any more AT1s, which removes another barrier created in 2008 that was supposed to prevent public bailouts. I am a bit surprised they didn't just convert an payout at the fairly cheap stock price, which it sounds like other regulators are saying they will do?
The article actually discusses AT1's at length, and pre-addresses all of your arguments. I'm not sure I find Levine's argument 100% compelling — I mean, we're dealing with a sentiment based sale, not calculating engines — but I don't think he's as close to wrong as you seem to imply.
I don't have a strong opinion, and simply posted one of the many articles discussing it today. It's definitely water cooler talk, and I wouldn't say it's discussion is really 'at length' or base any significant legal or monetary decisions on it.
edit: If you have Bloomberg Intelligence there's a nice graphic on Additional Tier 1 bonds with Triggers, Loss Absorption, and and Write Up by Issurer. It was known that both UBS and CS were non-recoverable.
The thing that's interesting about cocos is that research has established that cocos don't really do what they were originally designed for and instead incentivise risk-taking[1] by banks and especially so if the conversion terms protect existing shareholders too much from dilution.
So why does anyone buy these "bonds"? it seems like their pay out isn't high enough to really be worth the potential risk. Or is it a matter of investors not reading the fine print (which i find to be not likely)?
Although you may not find it likely, that is sort of the case. Bond prospectuses are very long (100s of pages sometimes) and complicated with tons and tons of boilerplate language so most people focus on exactly 1 page of that (the "waterfall" describing payout and loss priorities).[1] Things like under what circumstances an instrument will convert are sometimes very complicated and people like Elliot Capital have basically made a career out of actually doing the homework and figuring this out better than everyone else. You can bet all sides have teams of securities lawyers pouring over the conditions of conversion of every single coco bond out there and these most of all.
Part of the calculus for AT1/Coco bonds seems to have been that investors thought the bonds would basically never convert (and were certainly not pricing in the likelihood of being wiped out in this way) so they were getting paid for nothing. That is why the coco bond market has been so spooked by this. Some investors have been saying the cbanks have made a mistake because noone will ever buy AT1 bonds again, but cbanks seem to have gone off the whole AT1 idea and would prefer just real normal tier 1 capital instead so probably wouldn't mind that outcome too much.
[1] Real life example: I was involved in the structuring of a bond and after a team of us working on it for 6 months and having poured over the prospectus through multiple drafts, after it had been in investors hands for 6 months we disagreed with lawyers about a very basic point (whether there were physical bond certificates or not) and ended up being wrong (there were - stuck in a custodian vault somewhere).
The pay out is nothing to sneeze at - I have some perpetual bonds that pay a coupon of 6.5%. In some rare cases they are slightly riskier than stocks (remember, Credit Suisse shareholders still lost 90%), but unless a major crisis occurs they are still safer than bonds. A 6-7% interest unless a major crisis occurs seems like a decent deal for a small part of my portfolio.
Though the fact that this ia a CoCo is a red herring. I don't think it was singled out for bailin because it had a CoCo trigger (what Levin goes through at length), I believe it was bailed in because it was the most junior, non-common equity, instrument on the balance sheet (i.e. rank=junior subordinated).
If the swiss authorities needed to do a bigger bailin to generate more equity, they could have also written off the next instruments in the investor hiearchy which are the T2 instruments (i.e. rank=subordinated). And if they needed even more they could have gone after the bailin bonds (i.e. rank=senior unsecured - in theory pari-passu to uninsured deposits but issued out of a different legal entity so they can be singled-out). None of which have CoCo triggers.
The Fed could do the same with preference shares (rank=junior subordinated) issued by US banks that have no CoCo feature (US doesn't care about Basel regulations).
So the solution to the banking collapse is to create even MORE too-big-to-fail monopoly banks? The corruption has gotten so far out of control at this point it's laughable.
The protest outside of Credit Suisse in Switzerland is about that
Specifically the variety of undemocratic processes to reach this result in the past and now. Federal Council overriding parliament and the population, specifically to override the potential will of shareholders in the company.
Yes, the solution for a distressed bad medium-sized bank is for a larger good bank to buy them before they unwind chaotically have bring down other banks / the economy. That’s been the correct/reasonable approach for centuries.
No one is really getting bailed out here: CS shareholders will lose ~80% vs what they were worth a couple weeks ago, the AT1 shareholders got wiped out, and if you look at UBS’s share price, it’s not like people think they got an extraordinary gift from the regulators. UBS management at will have to suffer an enormous headache to integrate the operations.
Where is the corruption in any of this? That is a strong accusation without any semblance of an argument.
During a downturn the stronger companies often acquire distressed competitors and consolidate. Evidence of corruption would be CS being propped up and executives allowed to pay themselves big bonuses. I'm not seeing anything like that, are you?
There are a couple 1000 people who will be awaiting a salary this or next week, it is a bit a financial pandorras box, but with the properties of a bottomless pit.
In all seriousness, I know a couple cs folks with rather expensive flats and habits, this will not end too good for some of them.
If they were on the inside did they not see this coming? I was reading about the incoming demise of CS about 3-4 months ago on WallStreetBets subreddit...
1T$ will never explode and drag it down, it's "QE saved by the state" kind of money, so if UBS is overleveraged, it makes sense to buy Credit Suisse, this way if it all goes to shit they'll blame it on CS and if it doesn't then they got a bank for cheap.
There is no agreement in my opinion and there never is on QE, but what choice does any government have between "1 Trillion loss that can trigger more loss and potentially cause a revolution, a famine, a war, etc..." and "kick it down like those before me did and those after me will do", the can has already been kicked enough times, might as well continue until some genius comes up with a new financial system adapted to the 21st century.
People always expect solutions, sometimes there aren't any that are satisfactory.
The people who added so little value to the market and got so much out of it pulled that money from somewhere, someone built those houses etc... sure war and conquest has helped modern empires like the US, but it can only get you so far before you start risking nuclear armageddon, plus it's really, really, really, evil, kids getting bombed for oil is evil no matter how you put it... the alternative is well crafter financial systems that borrom from the future to spend today, aka QE, your grandkids will pay those interests on that loan the fed printed and lent the treasury, but you will have a more comfortable life.
Interesting reading. The bit that really jumped out at me was this: "Saudi National Bank — the Swiss bank’s largest shareholder" -> so here we have part of the problem, with all of these banks owning all or some of each other it is no wonder that when one of them gets into trouble the others are immediately discounted on the stock market. Not only do they get indirectly affected because they likely engage in similar practices, they also are interlinked through various stock holdings. And the solution here? More such linkage! Why didn't the Swiss government or the Swiss national bank end up owning it? Instead it is now - again - part of another such complex.
You have to wonder how long it will be before UBS will have to be rescued.
Another random thought: If even the Swiss can't keep it together financially we're in real trouble.
I'm no expert in the field, but my understanding is that CS was, in fact, rather too big for the nation of Switzerland to bail out. Their two biggest banks (CS and UBS) do an awful lot of non-Swiss business, so that is possible for them in a way that it would not be for a nation like the U.S.A. So, they made UBS take it (all accounts are that UBS was not interested until the Swiss government told them that yes they were interested).
Also, UBS has more skill at running a bank than the Swiss government, although arguably the Swiss government might have had more skill at running a bank than Credit Suisse.
"all these banks owning each others": Which other banks? This is fairly unusual as the capital treatment of equity ownership is very punitive. Banks shareholders typically aren't banks.
That quote isn't what I wrote. And the relevant bank is mentioned just prior to the bit you quoted. And now they have a new shareholder: UBS. Which is also a bank.
> If even the Swiss can't keep it together financially we're in real trouble.
Eventually all financialized systems go the way of the dodo bird.
The Republic of Genoa is the classic example for this, as they had made their fortunes via trade (including slave trade) starting with the 1200s, but by the 1500s almost all of their wealth-creation had started to rely on providing "financial" services. And then they crashed. I'm also of the opinion that the UK's problems are caused by the same phenomenon, that's why they have never quite recovered from the 2008-2010 global financial crisis.
Afaik Switzerland is not yet a fully financialized economic system but it's certainly up there. The future will be interesting for them.
Finance and investing is largely based on trust in the future. I wonder if a long enough period of stability makes us too comfortable with taking risk and bad investments, only to expose us to massive downside far enough down the line. Then the inevitable black swan event happens, and finance/investment based wealth gets wiped out.
It doesn't help that the mind set a successful trader or banker needs is how to maximize their own net worth - not how to build a long term stable and profitable business.
"Finance and investing" are basically just gambling. You might as well bet on horses, dogs, cards, or crypto.
Money is neither a thing nor a limited resource. Money is a political tool certain groups use to ration power and accountability. It used to be based on scarce objects, but now it's pure abstraction.
An important part of that is making sure insiders have special opportunities and backstops most of us don't. For the real insiders it's a rigged house. And for the most inside of the insiders it's impossible to lose more than token amounts.
You can be sure that whatever happens to banking, there will be people whose gambles will somehow miraculously be made whole while the rest of us are told "Oh dear, suddenly there is no money. Again."
Gambling means you have guaranteed net negative return because you’re against the house and the rules of the house are designed in such a way, mathematically speaking.
Trading mortgages, financing a building, betting that an airline will have a bad quarter after the first WW lockdowns of covid, can have a net positive return. you are playing player vs player and you bet and structure the trades trying to get the odds in your favor.
they’re two different things, you just seem ignorant.
not to mention other uses of finance such as edging. farmers, companies of sll kinds, even countries, want and should edge their wipe outs and black swan events type of risks for example. and a Citedel will happily underwrite your options.
> Afaik Switzerland is not yet a fully financialized economic system but it's certainly up there. The future will be interesting for them.
Too late. I can't find the data at the moment, but deposits in Swiss banks are more than 400% of GDP. (The US's economy is about the least reliant on financials, with deposits at slightly more than 100% of GDP.)
That's another common Matt Levine (the article author) theme that very large index funds are a weird form of insider trading.
I subscribe to his email mailing list which is literally his articles from the website without the infinite ads and requirement for registration and subscription.
Can't find it because he has so many articles but there was one that talks about how ESG makes sense from an index fund owning oil point of view because it's an excuse for the fund managers to basically coordinate collusion among the oil companies. If they all have the same shareholders then those shareholders can tell of them to produce less oil and the price will increase. The usual concern of defecting is taken care of because of the collusion. If one of the companies doesn't produce less the fund managers can vote them out for not being "ESG" enough.
I've always found it odd that a person can buy stocks in both Microsoft and Google, for example, or both Coca-Cola and PepsiCo at the same time.
For regular non-filthy-rich people it won't affect anything, but it is very interesting to think about with institutional investing. What does it mean when competitors have some level of shared ownership?
> Why didn't the Swiss government or the Swiss national bank end up owning it?
The Swiss don’t want to own half a trillion francs of specialised liabilities. There is zero precedent for a nationalised investment bank of all things.
> large state holding companies and sovereign wealth funds (Norway, Singapore, ME/Gulf countries) a special case of national investment banks
With respect to the latter, no. They’re less levered. And they’re principals. Investment banks are levered, mostly sell-side beasts with highly-specialised, highly-compensated (and similarly lucrative) staff with a penchant for blowing up.
>Another random thought: If even the Swiss can't keep it together financially we're in real trouble.
The Swiss government(and the SNB) could have easily saved Credit Suisse, but the politicians lacked the backbone to do so. They panicked at the first sign of trouble. Saving the bank was important for Switzerland’s image in the financial world, but it seems that they no longer care about their own country.
By letting a 167-year-old bank fail instead of simply buying it for 16 billion, they lost a lot of trust.
Well they could just bought the brand name then? The rest of the balance sheet doesen't seem to be worth that much when you balance everything and the executives were clearly a huge net negative...
> The Swiss government(and the SNB) could have easily saved Credit Suisse, but the politicians lacked the backbone to do so. They panicked at the first sign of trouble. Saving the bank was important for Switzerland’s image in the financial world, but it seems that they no longer care about their own country.
All your assertions here fly in the face of reported facts. Anyone you talk to in the banking and finance industry would tell you that the failure of CS isn’t a recent thing, and there was no “panic at the first sign of trouble”, which would be YEARS ago. if widely circulated rumors (more reliable than your baseless assertions) are to be believed, the Swiss government basically forced UBS to save the failing bank.
And why didn’t UBS want to buy CS at a discount? Because their liabilities are likely way more than the value gained from buying it.
There was a question last week about mark-to-mark accounting for banks in the wake of the SVB failure. The question was (to paraphrase): why aren't banks forced to mark every asset for every financial statement. This article pretty comprehensively describes why such a thing is not really possible, let alone desirable.
In regards to this article, I have to laugh at the asset managers holding cocos who thought that they were trading pseudo-warrants. I respect the shamelessness of these guys to try and blame other people for their own mistakes -- a lot of portfolio managers were successfully able to convince investors that their losses during the GFC were due to the ratings or govt agencies -- but they're not going to convince the central banks to eat the losses on this one. There is absolutely no incentive to make Swiss taxpayers eat tens of billions of losses because some fund manager didn't read the literal name of the instrument he was buying.
The Swiss are extremely pissed. They spent a lot of capital and time to put up the to big to fail laws which this bank met yet it still failed.
CS paid over 32 Billion in bonuses since 2013![1] Meanwhile people aren't getting paid more to balance the inflation.
I also see a lot of US blaming going around specifically because of the capital regulations that the EU and Switzerland put in place since 2008 and supposedly the US did not. Also supposedly profited over them because they did not need to meet as strict of capital requirements. I don't hear much about SVB however.
The news has also reported that the Swiss government wanted to let the US branch of CS fail but there was enormous pressure from the US to prevent this.
There are a lot of details of this deal that aren't clear yet but I do have the feeling everyone here more or less agrees this was the only option. The focus seems to be on why it came to this situation in the first place. There is also a push from some parties for a government investigation.
I also expect the next pension law adjustment coming up to have a very hard time after all this.
> spent a lot of capital and time to put up the to big to fail laws which this bank met yet it still failed
At a marginal CHF 9 billion contingent senior taxpayer expense. Not great. But being able to tank $17bn of AT1s was $17bn UBS won’t have to raise and Bern won’t have to finance.
>I do have the feeling everyone here more or less agrees this was the only option.
It was certainly not the only option. The Swiss seem to bury everything that was once important to them. They are not truly neutral anymore, and now they have let one of their oldest banks fail. The image of Switzerland as being a place of stability and smart decisions takes a big hit.
The worst thing about the new left is how lame they made being left. 30 years ago we would have had illegal raves during the lockdowns. Today we had illegal church services.
> Today countries like Austria, Switzerland and Germany are full of people who will blame bad weather on the US.
Obviously, if anyone has a weather control system today, it's the US - specifically, either the CIA or the DOD. I mean, this is what the TV has been telling us for the past 50+ years.
This is the flip side of Hollywood being the cultural propaganda arm of the USA. You have to take the good with the bad!
Worse than that, they were roping in Russia - more successfully than in the past eight centuries - and those economic ties were blown worse than the pipeline.
Those economic ties were broken the moment Russia started threatening to cut off the gas unless Germany did what they wanted, which took about 3 days and escalated over the next several months. It has been transparently clear for a decade that Germany was the one being "roped" by Russia, not the one "roping" Russia.
Some people think so, looking at the raw geopolitics instead of the news fodder - e.g. in 2015:
"So, the primordial interest of the United States over which for centuries we have fought wars, the first, second and cold war has been the relationship between Germany and Russia. Because united they are the only force that could threaten us, and to make sure that that doesn’t happen."
The Germans made a series of bad decisions despite being warned for years by not just the US, but also half their neighbors, and basic common sense.
At the point the pipeline was blown up, Russia had already essentially cut off the flow with their "oh dear, the turbine seems to be malfunctioning" antics.
US: Hey Germany, you shouldn't be so reliant on Russian NG/Oil (buy ours instead)
Germany: We're ok, thank you for your concern
Russia: cuts back NG/Oil going through pipelines to Germany
US: Let's just make that permanent. Germany doesn't know what's good for itself. Boom. Hey Germany, now that you can't get it from Russia, would you like to buy some of ours? We've been telling you, ahem, warning you, for years, friend.
Everything in international politics (and many other things) is about leverage, power, etc.
Allies are just those with interests that align closely enough that destroying each other would hurt everyone more than it’s worth. Doesn’t stop the manipulation.
Germany, you shouldn't be so reliant on Russian gas/oil while they are actively invading their neighbors, shooting down airliners, blowing up ammunition depots and using nerve agents on NATO territory.
"You're making the wrong decision, so we're going to 'help' by make the decision for you" is how you treat subjects and vassals, not peer nations and allies. Don't spin it like it was a favour.
Imagine the reaction if, say, the Saudis, or China blew up the Keystone pipeline... Because the US is making the wrong decision of being reliant on the wrong source of foreign oil.
Regardless of the merits of their argument, it's not their pipeline, it's not their call to make.
1. Why are you taking Russian disinfo at face value?
2. Others were affected by the construction of the pipeline, yet their concerns were brushed aside with nothing better than hand waving and a load of Wandel durch Handel rubbish. To be honest, I'm not sure why anyone east of Germany should care one bit about what German anti-NATO boomers think. To make it crystal clear, national security of Eastern European allies is not something for Germany to trade away -- it never was. We will have our security, if it comes to that, at the cost of German jobs. Not that Germany needs much help with that, what with the genius level planning that went into the Energiewende and all that.
As far as I can tell this opinion is not uncommon, outside of the German speaking bubble.
Germany: Hey, Russia, supplier of our energy, screw you for feeling threatened by NATO countries (like us) and US interfering with a huge neighboring country. Hope your not offended by the Leopard tanks and artillery we just sent to kill your soldiers.
Russia: cuts back NG/Oil going through pipelines to Germany
That's conspiracist talk, pipelines blow up by themselves all the time.
There is no plausible way that the party that's both eager to export LNG, and has a geopolitical interest in seeing Germany distance itself from Russia (without getting cold feet when the winter starts, and everyone actually gets cold feet) had anything to do with it.
What's more plausible, that the party that routinely blows up warehouses and murders people on NATO soil did it, or the party that has kept Germany safe for more than 70 years did it?
"The average intellectual of the Left believed, for instance, that the war was lost in 1940, that the Germans were bound to overrun Egypt in 1942, that the Japanese would never be driven out of the lands they had conquered, and that the Anglo-American bombing offensive was making no impression on Germany. He could believe these things because his hatred for the British ruling class forbade him to admit that British plans could succeed. There is no limit to the follies that can be swallowed if one is under the influence of feelings of this kind. I have heard it confidently stated, for instance, that the American troops had been brought to Europe not to fight the Germans but to crush an English revolution. One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool. "
I'm an European person and generally mildly suspicious of American govs intentions. Nevertheless, in this case I do hope they blew up the pipeline, because Germany lack of action towards Russia's invasion of Ukraine is an absolute stain for Europe.
>CS paid over 32 Billion in bonuses since 2013![1] Meanwhile people aren't getting paid more to balance the inflation.
It's worth noting that in certain industries, bonuses make up a fair chunk of total comp and are expected. They should therefore be thought of as being closer to employee compensation than some sort of extraordinary reward.
Yes, but in banking, government bailouts have also come to be expected. Clearly the public should consider bailouts and fat profits and bonuses as fundamentally incompatible.
>bailouts and fat profits and bonuses as fundamentally incompatible.
I noticed you specifically called out "bonuses" but not salaries or wages, implying that bonuses are bad but salaries and wages are not. However, as I pointed out, the bonuses should effectively be counted as wages because they're expected.
Exactly. Unfortunately in finance they give you the bonus as 'the missing piece of your salary' for the majority of rank and file. Go after the executive bonuses if you must. The rest of them are just chumps who wait til Feb/March to get the rest of their pay.
That's a valid concern, but "32 Billion in bonuses" is a poor way to argue for the reasons I outlined above. 32 billion over 9 years works out to be 3.5B per year. Is that a lot? It would depend on how many employees they have. How much of that is "expected" vs "bonus for a job well done"? How does total comp track with jobs at other industries with similar requirements?
I understand what you are saying. I understand that every single thing a person gets is compensation, whether bonuses, healthcare, paid vacations, sick days, everything is part of the compensation.
It's not really even about Credit Suisse. It's about worldwide C-suite compensation. It is disgusting.
I did just look at comparisons between USA CEOs to European and Japanese, and America is a horror show compared to them. This is CEOs so I'm not sure how the entire C-suite or top executives would fare against the same in America - maybe European companies spread it out more evenly to top-level executives.
But if the $3.2 billion per year in bonuses still went to the top 20 people, it is essentially the same, at least to me.
But I do know the USA better, so I will comment to that even though Credit Suisse is Euro. For example, Tim Cook of Apple made $100 million in 2021, not including $754 million in stock shares. Cook "voluntarily" took a "cut" in compensation to $50 million per year this year. Oh, thanks, Tim. But is Tim Cook going to quit and do nothing if he was paid $5 million all along? Yeah, maybe now he would, given that he is a billionaire, but if from the start, no he would not quit, nor stop working as hard. People are motivated by more than money. They will take it, of course, who wouldn't?
Nobody, but nobody, needs that much money. How many pairs of shoes and pants does one need? And I use shoes and pants metaphorically. How much shit does one need?
And partly, or mostly, it is driven by boards of directors, who make $300K or $400K or whatever it is per year by going to 4 meetings per year. Not bad job, if you can get it. Just looked it up - Harvard Law School report says it is $290K for large cap, $217K for medium cap, and $164K for small. These board of directors are always high executive levels and KNOW if they as a group across the USA vote the average CEO and C-suite higher compensation, they will eventually get it too, so it is a conflict of interest that screw over the shareholders, and all other workers who are down the chain.
In the 1960s, CEO compensation was 60 times the average worker, or 6,000%. Not bad. Now it is 350 times the average worker, or 35,000% more.
From the beginning of income tax, for most of USA history, the tax rate was 70-90% on the top tax bracket. It came down to 50% when Reagan was elected in 1980, and then down to about 35% in 1986 and stayed there until present. Guess when the inequalities between the richest 10% and the other 90% started occuring...you guessed it, in 1986. you get a 35-55% tax break, you tend to make more money, kinda sorta.
As a matter of fact, the only time that the income tax level went down to the richest tax bracket was in the late 1920s....and then the market collapse happened and the Great Depression happened...correlation, or causation...I vote causation. And the exact same scenario is playing out now. Unmitigated greed is happening.
And what happened is that when the wealthy hit the top tax bracket, there was no reason to earn more. Their salary was capped, in essense. And that is why CEO compensation was only 6000% more than the average worker.
People make the bogus argument that the best won't then work. That's totally wrong, as the best don't work for compensation. They work for competition. And what else are they going to do if tax is at 70-90%? Sit around and do nothing? They still have to send kids to college and pay mortgages. And everyone else is subject to the same restrictions. And when we had the higher top tax bracket, that is when "normal" people had lower tuitions paid for by the public, hospital costs were less, etc. And I've read all the other "reasons&qu...
The reason the bank is worth nothing is because it's all liabilities (responsibility to provide customer deposits) and no profit.
However it's similar to when people fight over the most important projects and tickets in a company. They fight over something with "negative" value (more work, risky initiatives) because it increases how "critical" or important they are to the company which can be leveraged into far more value later on.
Is someone going to make a ChatGPT synthesis of Matt Levine's writings?
Imagine you have, like, a writer who is really knowledgeable about a subject, and you have readers who would like to learn about this subject, but also have limited time. And, I mean, the writer is really prolific and sometimes feels almost a bit too verbose. In these kinds of markets, sometimes there is no deal to be struck, and...that's fine? But imagine if there were an intermediary who could summarize the writing in a way more accessible to people who are casually interested.
> And, I mean, the writer is really prolific and sometimes feels almost a bit too verbose.
I've honestly never felt this way about Matt Levine's newsletter. He provides a lot of educational context that news articles generally don't, and that to me (other than the excellent writing) is its value – if you get rid of that, what's left?
And just like in any written medium, you are always free to skip sections. How should an LLM make the decision for you whether a given section is relevant or even interesting to you?
I realize it's an unpopular opinion, but something about his writing style can feel a bit circuitous at times. This particular one was a bit more direct, but sometimes I find them a bit of a slog. If they weren't really interesting, I simply wouldn't read them. They are, though. That's the dilemma.
I don't agree in this case, but you can absolutely find something interesting yet also think it could be better, in any number of ways but including if it was denser.
It definitely does, but that is exactly the didactic value, I'd argue. Examining the same situation through different lenses in a somewhat verbose way can make things click in a way that a dry and concise statement of facts sometimes can't.
I'm not saying that there are no original ideas in his writing that could be extracted as bullet points, but on average, I think that's not the main reason why people read the column:
If you're a finance pro, you probably come for the ideas and the clever writing; if you're an interested novice, you come for the writing and/or the didactic value. Remove the writing and the didactics, and you're probably left with a very small audience.
Matt Levine's newsletters are valuable for their ability to take very complex news, distill them down into simplified terms and make them witty and entertaining. TL;DR of his writings provide little value here.
> But imagine if there were an intermediary who could summarize the writing in a way more accessible to people who are casually interested.
I find this stage of the economic/business cycle to be truly fascinating. A lot of things happen in such a short amount of time that we typically only read about or see in movies
UBS's main calculus is risk, which is why the offer can double in a matter of hours. If the crisis is not stabilised, UBS could potentially be liable for tens of billions and face potential downfall.
This is why UBS needed a guarantee from the Swiss National Bank and a MAC clause to proceed with the deal.
I respectfully suggest that there may be a slight misunderstanding regarding the situation at hand. It is important to note that the Swiss National Bank (SNB) is the protagonist here, not UBS.
Credit Suisse (CS) is hated by everyone, which has made it difficult to provide them with a direct bailout. However, allowing the bank to fail will lead to a crisis that surpasses the GFC.
Therefore, the SNB sidestepped CS and its shareholders to craft a deal in such a way that it is too good for UBS to refuse. I would like to reiterate that neither CS nor UBS wants this, its being forced upon them by the SNB through the carrot (sweet deal) or the stick (coercion).
I'm not absolving any of the individual parties from responsibility but I have to state the obvious here. The current state of affairs is a direct result of a chain of events that has led us to this point. The government implemented a set of measures including a lockdown and a dangerous stimulus and liquidity program. However, just as we were on the brink of hyperinflation, they began rapidly draining liquidity from the system.
It is essential to acknowledge that it is not a mere possibility but rather an absolute certainty that something will break. Upon delving deeper into how the banking system operates, this becomes abundantly clear.
The entire economy is built around deposit stability, without this stability, banks are unable to hold long-term assets on their balance sheets. These long-term assets include mortgages, business loans, corporate bonds, municipal loans, government bonds, and others. This is what is meant when people refer to the economy as a credit-based system.
To put it simply, the banking system essentially acts as a quasi-arm of the government, enabling the welfare state to function. The banks and the government have an implicit agreement that they will operate under the assumption that deposits are stable and, in exchange, the government will provide insurance against any potential volatility.
Throughout the past century, numerous financial crises have occurred, all of which could have been prevented by passing a simple law. This law could be as short as a single page and would simply state that customer deposits cannot be utilized to purchase assets. If a bank wants to use these funds in such a manner, they would need to enter into an agreement with the customer, similar to the relationship between Limited Partners (LPs) and General Partners (GPs) in a venture capital fund.
It is unlikely that such a law will ever be passed because it would have the potential to bring about the collapse of the nation-state as we know it. This is just the tip of the iceberg; as one delves deeper into the issue, they begin to realize that the government has largely transformed into a set of insurance programs.
If we examine the budgets of major Western governments, we can see that the overwhelming majority of their expenditures are directed towards insurance programs and interest payments. These programs encompass areas such as military spending, healthcare, pensions, unemployment/food assistance, and education.
"Banks are speculative investment funds grafted on top of critical infrastructure", no, they're not supposed to be. That's why there's rules about percentage of depositors money that is risked. Basel III rules.
Credit Suisse went from ~$4 billion minor problem in August to we need ~$54 billion to "Switzerland is offering UBS $100 billion "safety" loan and gives it to you for free and regardless if you want it you are getting it this weekend."
164 comments
[ 3.4 ms ] story [ 238 ms ] threadIf the net equity value of Credit Suisse was very low or perhaps even negative, depending on the accounting, then UBS in fact paid quite a high price because of all the liabilities.
In other words: UBS 5 billion then Swiss National Bank 9 billion then UBS as long as they can and finally Swiss National Bank the rest.
Credit Suisse has a half trillion in deposits (aka liabilities), so UBS paid a half trillion dollars for Credit Suisse, minus the hard to value assets of Credit Suisse.
- Credit Suisse Puts On a Brave Face
- Silicon Valley Bank Is For Sale
- Crypto Bank Had a Boring Collapse
- Goldman Wants to Be More Boring
- AMC Apes Hate AMC's APEs
... He writes them.
(And How I Wish He'd Drop The BuzzFeed-Style Casing)
Isn't it just conventional Title Case? Or are you objecting to capitalizing some particular words?
https://www.bbc.co.uk/
https://www.thetimes.co.uk/
https://www.theguardian.com/
https://www.bbc.co.uk/
https://www.thetimes.co.uk/
https://www.theguardian.com/
Huh? Doesn't it reinforce the point that UBS paid quite a lot for Credit Suisse?
Which is a bit different from not thinking about the liabilities at all (the classic layman response to a company bought out of administration for £1) in that it massively affects the scale - while it's not £1 it's still 'nothing', it's a rounding error on the liabilities, I don't have it hand to quote but there was something about 'as you can tell from the fact they tripled (? whatever it was) shareholder payout in a matter of hours'.
That's the dictionary definition. And I imagine what the vast majority of HN readers will have in mind. Hence why I said the headline is clickbaity.
> The upshot of this for UBS is not that it paid CHF 3 billion to buy its historic competitor. The upshot of this is that it has assumed hundreds of billions of francs of liabilities, and taken on a bunch of assets that are probably worth more than that, but it’s hard to tell over a weekend, or ever really.
they likely have gotten some sort of guarantee on those long dated bond assets from the gov't (either in secret, or something similar), to take on the risk. No business is going to willingly take on liabilities that they dont know, and is unsure they will profit off.
You would have to believe the assets are massively mismarked for this to be off. I am not aware that it is the claim made against CS. The claim against CS I understand is not being able to turn a profit and large mishaps. Not the same thing as a bad book.
https://www.investing.com/news/stock-market-news/explainerwh...
edit: If you have Bloomberg Intelligence there's a nice graphic on Additional Tier 1 bonds with Triggers, Loss Absorption, and and Write Up by Issurer. It was known that both UBS and CS were non-recoverable.
[1] https://www.bankofengland.co.uk/-/media/boe/files/working-pa...
Part of the calculus for AT1/Coco bonds seems to have been that investors thought the bonds would basically never convert (and were certainly not pricing in the likelihood of being wiped out in this way) so they were getting paid for nothing. That is why the coco bond market has been so spooked by this. Some investors have been saying the cbanks have made a mistake because noone will ever buy AT1 bonds again, but cbanks seem to have gone off the whole AT1 idea and would prefer just real normal tier 1 capital instead so probably wouldn't mind that outcome too much.
[1] Real life example: I was involved in the structuring of a bond and after a team of us working on it for 6 months and having poured over the prospectus through multiple drafts, after it had been in investors hands for 6 months we disagreed with lawyers about a very basic point (whether there were physical bond certificates or not) and ended up being wrong (there were - stuck in a custodian vault somewhere).
sounds like the calculus for the CDS (credit default swaps) for AAA mortgage bonds...before the GFC!
If the swiss authorities needed to do a bigger bailin to generate more equity, they could have also written off the next instruments in the investor hiearchy which are the T2 instruments (i.e. rank=subordinated). And if they needed even more they could have gone after the bailin bonds (i.e. rank=senior unsecured - in theory pari-passu to uninsured deposits but issued out of a different legal entity so they can be singled-out). None of which have CoCo triggers.
The Fed could do the same with preference shares (rank=junior subordinated) issued by US banks that have no CoCo feature (US doesn't care about Basel regulations).
Specifically the variety of undemocratic processes to reach this result in the past and now. Federal Council overriding parliament and the population, specifically to override the potential will of shareholders in the company.
No one is really getting bailed out here: CS shareholders will lose ~80% vs what they were worth a couple weeks ago, the AT1 shareholders got wiped out, and if you look at UBS’s share price, it’s not like people think they got an extraordinary gift from the regulators. UBS management at will have to suffer an enormous headache to integrate the operations.
During a downturn the stronger companies often acquire distressed competitors and consolidate. Evidence of corruption would be CS being propped up and executives allowed to pay themselves big bonuses. I'm not seeing anything like that, are you?
There are a couple 1000 people who will be awaiting a salary this or next week, it is a bit a financial pandorras box, but with the properties of a bottomless pit.
In all seriousness, I know a couple cs folks with rather expensive flats and habits, this will not end too good for some of them.
There is no agreement in my opinion and there never is on QE, but what choice does any government have between "1 Trillion loss that can trigger more loss and potentially cause a revolution, a famine, a war, etc..." and "kick it down like those before me did and those after me will do", the can has already been kicked enough times, might as well continue until some genius comes up with a new financial system adapted to the 21st century.
People always expect solutions, sometimes there aren't any that are satisfactory.
The people who added so little value to the market and got so much out of it pulled that money from somewhere, someone built those houses etc... sure war and conquest has helped modern empires like the US, but it can only get you so far before you start risking nuclear armageddon, plus it's really, really, really, evil, kids getting bombed for oil is evil no matter how you put it... the alternative is well crafter financial systems that borrom from the future to spend today, aka QE, your grandkids will pay those interests on that loan the fed printed and lent the treasury, but you will have a more comfortable life.
You have to wonder how long it will be before UBS will have to be rescued.
Another random thought: If even the Swiss can't keep it together financially we're in real trouble.
Also, UBS has more skill at running a bank than the Swiss government, although arguably the Swiss government might have had more skill at running a bank than Credit Suisse.
Eventually all financialized systems go the way of the dodo bird.
The Republic of Genoa is the classic example for this, as they had made their fortunes via trade (including slave trade) starting with the 1200s, but by the 1500s almost all of their wealth-creation had started to rely on providing "financial" services. And then they crashed. I'm also of the opinion that the UK's problems are caused by the same phenomenon, that's why they have never quite recovered from the 2008-2010 global financial crisis.
Afaik Switzerland is not yet a fully financialized economic system but it's certainly up there. The future will be interesting for them.
It doesn't help that the mind set a successful trader or banker needs is how to maximize their own net worth - not how to build a long term stable and profitable business.
Money is neither a thing nor a limited resource. Money is a political tool certain groups use to ration power and accountability. It used to be based on scarce objects, but now it's pure abstraction.
An important part of that is making sure insiders have special opportunities and backstops most of us don't. For the real insiders it's a rigged house. And for the most inside of the insiders it's impossible to lose more than token amounts.
You can be sure that whatever happens to banking, there will be people whose gambles will somehow miraculously be made whole while the rest of us are told "Oh dear, suddenly there is no money. Again."
Trading mortgages, financing a building, betting that an airline will have a bad quarter after the first WW lockdowns of covid, can have a net positive return. you are playing player vs player and you bet and structure the trades trying to get the odds in your favor.
they’re two different things, you just seem ignorant.
not to mention other uses of finance such as edging. farmers, companies of sll kinds, even countries, want and should edge their wipe outs and black swan events type of risks for example. and a Citedel will happily underwrite your options.
Too late. I can't find the data at the moment, but deposits in Swiss banks are more than 400% of GDP. (The US's economy is about the least reliant on financials, with deposits at slightly more than 100% of GDP.)
I subscribe to his email mailing list which is literally his articles from the website without the infinite ads and requirement for registration and subscription.
I've never heard of that theme and I'm intrigued.
I've always found it odd that a person can buy stocks in both Microsoft and Google, for example, or both Coca-Cola and PepsiCo at the same time.
For regular non-filthy-rich people it won't affect anything, but it is very interesting to think about with institutional investing. What does it mean when competitors have some level of shared ownership?
The Swiss don’t want to own half a trillion francs of specialised liabilities. There is zero precedent for a nationalised investment bank of all things.
Aren't large state holding companies and sovereign wealth funds (Norway, Singapore, ME/Gulf countries) a special case of national investment banks?
With respect to the latter, no. They’re less levered. And they’re principals. Investment banks are levered, mostly sell-side beasts with highly-specialised, highly-compensated (and similarly lucrative) staff with a penchant for blowing up.
The Swiss government(and the SNB) could have easily saved Credit Suisse, but the politicians lacked the backbone to do so. They panicked at the first sign of trouble. Saving the bank was important for Switzerland’s image in the financial world, but it seems that they no longer care about their own country.
By letting a 167-year-old bank fail instead of simply buying it for 16 billion, they lost a lot of trust.
All your assertions here fly in the face of reported facts. Anyone you talk to in the banking and finance industry would tell you that the failure of CS isn’t a recent thing, and there was no “panic at the first sign of trouble”, which would be YEARS ago. if widely circulated rumors (more reliable than your baseless assertions) are to be believed, the Swiss government basically forced UBS to save the failing bank.
And why didn’t UBS want to buy CS at a discount? Because their liabilities are likely way more than the value gained from buying it.
The Swiss banking industry has been overrated for a long time.
In this case it's not like a competent, sensibly run bank failed. Credit Suisse had a track record of being pretty terrible.
https://www.firstpost.com/explainers/from-cocaine-money-laun...
This was the plan B which would happen if UBS would reject the deal.
In regards to this article, I have to laugh at the asset managers holding cocos who thought that they were trading pseudo-warrants. I respect the shamelessness of these guys to try and blame other people for their own mistakes -- a lot of portfolio managers were successfully able to convince investors that their losses during the GFC were due to the ratings or govt agencies -- but they're not going to convince the central banks to eat the losses on this one. There is absolutely no incentive to make Swiss taxpayers eat tens of billions of losses because some fund manager didn't read the literal name of the instrument he was buying.
CS paid over 32 Billion in bonuses since 2013![1] Meanwhile people aren't getting paid more to balance the inflation.
I also see a lot of US blaming going around specifically because of the capital regulations that the EU and Switzerland put in place since 2008 and supposedly the US did not. Also supposedly profited over them because they did not need to meet as strict of capital requirements. I don't hear much about SVB however.
The news has also reported that the Swiss government wanted to let the US branch of CS fail but there was enormous pressure from the US to prevent this.
There are a lot of details of this deal that aren't clear yet but I do have the feeling everyone here more or less agrees this was the only option. The focus seems to be on why it came to this situation in the first place. There is also a push from some parties for a government investigation.
I also expect the next pension law adjustment coming up to have a very hard time after all this.
[1] https://www.blick.ch/politik/trotz-hilfe-vom-staat-darum-sol...
Edit: Spelling
At a marginal CHF 9 billion contingent senior taxpayer expense. Not great. But being able to tank $17bn of AT1s was $17bn UBS won’t have to raise and Bern won’t have to finance.
I think you mean supposedly
It was certainly not the only option. The Swiss seem to bury everything that was once important to them. They are not truly neutral anymore, and now they have let one of their oldest banks fail. The image of Switzerland as being a place of stability and smart decisions takes a big hit.
What the tuck is wrong with these people?
Social media has spread East German boomer anti-Americanism to the rest of the German-speaking world.
Today countries like Austria, Switzerland and Germany are full of people who will blame bad weather on the US.
Obviously, if anyone has a weather control system today, it's the US - specifically, either the CIA or the DOD. I mean, this is what the TV has been telling us for the past 50+ years.
This is the flip side of Hollywood being the cultural propaganda arm of the USA. You have to take the good with the bad!
Sorry, just getting out of the influence of someone similar. It’s a hit too painful.
How would you say that is “roping in Russia”?
"So, the primordial interest of the United States over which for centuries we have fought wars, the first, second and cold war has been the relationship between Germany and Russia. Because united they are the only force that could threaten us, and to make sure that that doesn’t happen."
https://uaposition.com/stratfor-founder-and-ceo-george-fried...
At the point the pipeline was blown up, Russia had already essentially cut off the flow with their "oh dear, the turbine seems to be malfunctioning" antics.
Germany: We're ok, thank you for your concern
Russia: cuts back NG/Oil going through pipelines to Germany
US: Let's just make that permanent. Germany doesn't know what's good for itself. Boom. Hey Germany, now that you can't get it from Russia, would you like to buy some of ours? We've been telling you, ahem, warning you, for years, friend.
Allies are just those with interests that align closely enough that destroying each other would hurt everyone more than it’s worth. Doesn’t stop the manipulation.
Germany, you shouldn't be so reliant on Russian gas/oil while they are actively invading their neighbors, shooting down airliners, blowing up ammunition depots and using nerve agents on NATO territory.
Germany, France: ...
Imagine the reaction if, say, the Saudis, or China blew up the Keystone pipeline... Because the US is making the wrong decision of being reliant on the wrong source of foreign oil.
Regardless of the merits of their argument, it's not their pipeline, it's not their call to make.
2. Others were affected by the construction of the pipeline, yet their concerns were brushed aside with nothing better than hand waving and a load of Wandel durch Handel rubbish. To be honest, I'm not sure why anyone east of Germany should care one bit about what German anti-NATO boomers think. To make it crystal clear, national security of Eastern European allies is not something for Germany to trade away -- it never was. We will have our security, if it comes to that, at the cost of German jobs. Not that Germany needs much help with that, what with the genius level planning that went into the Energiewende and all that.
As far as I can tell this opinion is not uncommon, outside of the German speaking bubble.
Germany: Hey, Russia, supplier of our energy, screw you for feeling threatened by NATO countries (like us) and US interfering with a huge neighboring country. Hope your not offended by the Leopard tanks and artillery we just sent to kill your soldiers.
Russia: cuts back NG/Oil going through pipelines to Germany
There is no plausible way that the party that's both eager to export LNG, and has a geopolitical interest in seeing Germany distance itself from Russia (without getting cold feet when the winter starts, and everyone actually gets cold feet) had anything to do with it.
"The average intellectual of the Left believed, for instance, that the war was lost in 1940, that the Germans were bound to overrun Egypt in 1942, that the Japanese would never be driven out of the lands they had conquered, and that the Anglo-American bombing offensive was making no impression on Germany. He could believe these things because his hatred for the British ruling class forbade him to admit that British plans could succeed. There is no limit to the follies that can be swallowed if one is under the influence of feelings of this kind. I have heard it confidently stated, for instance, that the American troops had been brought to Europe not to fight the Germans but to crush an English revolution. One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool. "
-- George Orwell, Notes on Nationalism (1945)
https://www.orwellfoundation.com/the-orwell-foundation/orwel...
It's worth noting that in certain industries, bonuses make up a fair chunk of total comp and are expected. They should therefore be thought of as being closer to employee compensation than some sort of extraordinary reward.
I noticed you specifically called out "bonuses" but not salaries or wages, implying that bonuses are bad but salaries and wages are not. However, as I pointed out, the bonuses should effectively be counted as wages because they're expected.
This is the only factor that matters, but I’d guess most bankers are over-compensated generally given the contributions made to society.
It's not really even about Credit Suisse. It's about worldwide C-suite compensation. It is disgusting.
I did just look at comparisons between USA CEOs to European and Japanese, and America is a horror show compared to them. This is CEOs so I'm not sure how the entire C-suite or top executives would fare against the same in America - maybe European companies spread it out more evenly to top-level executives.
https://www.wtwco.com/en-US/Insights/2020/12/ceo-pay-landsca...
But if the $3.2 billion per year in bonuses still went to the top 20 people, it is essentially the same, at least to me.
But I do know the USA better, so I will comment to that even though Credit Suisse is Euro. For example, Tim Cook of Apple made $100 million in 2021, not including $754 million in stock shares. Cook "voluntarily" took a "cut" in compensation to $50 million per year this year. Oh, thanks, Tim. But is Tim Cook going to quit and do nothing if he was paid $5 million all along? Yeah, maybe now he would, given that he is a billionaire, but if from the start, no he would not quit, nor stop working as hard. People are motivated by more than money. They will take it, of course, who wouldn't?
Nobody, but nobody, needs that much money. How many pairs of shoes and pants does one need? And I use shoes and pants metaphorically. How much shit does one need?
And partly, or mostly, it is driven by boards of directors, who make $300K or $400K or whatever it is per year by going to 4 meetings per year. Not bad job, if you can get it. Just looked it up - Harvard Law School report says it is $290K for large cap, $217K for medium cap, and $164K for small. These board of directors are always high executive levels and KNOW if they as a group across the USA vote the average CEO and C-suite higher compensation, they will eventually get it too, so it is a conflict of interest that screw over the shareholders, and all other workers who are down the chain.
In the 1960s, CEO compensation was 60 times the average worker, or 6,000%. Not bad. Now it is 350 times the average worker, or 35,000% more.
From the beginning of income tax, for most of USA history, the tax rate was 70-90% on the top tax bracket. It came down to 50% when Reagan was elected in 1980, and then down to about 35% in 1986 and stayed there until present. Guess when the inequalities between the richest 10% and the other 90% started occuring...you guessed it, in 1986. you get a 35-55% tax break, you tend to make more money, kinda sorta.
As a matter of fact, the only time that the income tax level went down to the richest tax bracket was in the late 1920s....and then the market collapse happened and the Great Depression happened...correlation, or causation...I vote causation. And the exact same scenario is playing out now. Unmitigated greed is happening.
And what happened is that when the wealthy hit the top tax bracket, there was no reason to earn more. Their salary was capped, in essense. And that is why CEO compensation was only 6000% more than the average worker.
People make the bogus argument that the best won't then work. That's totally wrong, as the best don't work for compensation. They work for competition. And what else are they going to do if tax is at 70-90%? Sit around and do nothing? They still have to send kids to college and pay mortgages. And everyone else is subject to the same restrictions. And when we had the higher top tax bracket, that is when "normal" people had lower tuitions paid for by the public, hospital costs were less, etc. And I've read all the other "reasons&qu...
However it's similar to when people fight over the most important projects and tickets in a company. They fight over something with "negative" value (more work, risky initiatives) because it increases how "critical" or important they are to the company which can be leveraged into far more value later on.
Imagine you have, like, a writer who is really knowledgeable about a subject, and you have readers who would like to learn about this subject, but also have limited time. And, I mean, the writer is really prolific and sometimes feels almost a bit too verbose. In these kinds of markets, sometimes there is no deal to be struck, and...that's fine? But imagine if there were an intermediary who could summarize the writing in a way more accessible to people who are casually interested.
I've honestly never felt this way about Matt Levine's newsletter. He provides a lot of educational context that news articles generally don't, and that to me (other than the excellent writing) is its value – if you get rid of that, what's left?
And just like in any written medium, you are always free to skip sections. How should an LLM make the decision for you whether a given section is relevant or even interesting to you?
> If they weren't really interesting, I simply wouldn't read them. They are, though. That's the dilemma.
To provide an analogy: it's almost like you're suggesting someone use technology to take a movie and distill it down into a 60s TikTok video.
I'm not saying that there are no original ideas in his writing that could be extracted as bullet points, but on average, I think that's not the main reason why people read the column:
If you're a finance pro, you probably come for the ideas and the clever writing; if you're an interested novice, you come for the writing and/or the didactic value. Remove the writing and the didactics, and you're probably left with a very small audience.
I might be misunderstanding your comment.
> But imagine if there were an intermediary who could summarize the writing in a way more accessible to people who are casually interested.
https://www.axios.com/
It was pretty good, he quoted (and linked to it, was on Twitter iirc) some in a newsletter around the time.
[1]: https://twitter.com/mattlevinebot
UBS's main calculus is risk, which is why the offer can double in a matter of hours. If the crisis is not stabilised, UBS could potentially be liable for tens of billions and face potential downfall.
This is why UBS needed a guarantee from the Swiss National Bank and a MAC clause to proceed with the deal.
Which means somebody gets a win out of this crisis after it's over, but the swiss taxpayer gets to take a loss if somehow it ends tits up.
Credit Suisse (CS) is hated by everyone, which has made it difficult to provide them with a direct bailout. However, allowing the bank to fail will lead to a crisis that surpasses the GFC.
Therefore, the SNB sidestepped CS and its shareholders to craft a deal in such a way that it is too good for UBS to refuse. I would like to reiterate that neither CS nor UBS wants this, its being forced upon them by the SNB through the carrot (sweet deal) or the stick (coercion).
I'm not absolving any of the individual parties from responsibility but I have to state the obvious here. The current state of affairs is a direct result of a chain of events that has led us to this point. The government implemented a set of measures including a lockdown and a dangerous stimulus and liquidity program. However, just as we were on the brink of hyperinflation, they began rapidly draining liquidity from the system.
It is essential to acknowledge that it is not a mere possibility but rather an absolute certainty that something will break. Upon delving deeper into how the banking system operates, this becomes abundantly clear.
The entire economy is built around deposit stability, without this stability, banks are unable to hold long-term assets on their balance sheets. These long-term assets include mortgages, business loans, corporate bonds, municipal loans, government bonds, and others. This is what is meant when people refer to the economy as a credit-based system.
Throughout the past century, numerous financial crises have occurred, all of which could have been prevented by passing a simple law. This law could be as short as a single page and would simply state that customer deposits cannot be utilized to purchase assets. If a bank wants to use these funds in such a manner, they would need to enter into an agreement with the customer, similar to the relationship between Limited Partners (LPs) and General Partners (GPs) in a venture capital fund.
It is unlikely that such a law will ever be passed because it would have the potential to bring about the collapse of the nation-state as we know it. This is just the tip of the iceberg; as one delves deeper into the issue, they begin to realize that the government has largely transformed into a set of insurance programs.
If we examine the budgets of major Western governments, we can see that the overwhelming majority of their expenditures are directed towards insurance programs and interest payments. These programs encompass areas such as military spending, healthcare, pensions, unemployment/food assistance, and education.
Credit Suisse went from ~$4 billion minor problem in August to we need ~$54 billion to "Switzerland is offering UBS $100 billion "safety" loan and gives it to you for free and regardless if you want it you are getting it this weekend."
It's not exactly a slam dunk deal.