T+Lunchtime: Settlement, Musk, Hwang
2024-05-31 00:37:39
<p>The audio companion to Bloomberg Opinion’s beloved Money Stuff column hosted by its author Matt Levine, “whose deadpan style mixes technical elucidation and wit” (NY Times). Once a week, Matt and his friend, Bloomberg News reporter and TV host Katie Greifeld, talk about Wall Street, finance and…other stuff. New episodes every Friday.</p>
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I'm Maria Konnikova. And I'm Nate Silver. And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players, and that's the lens we're going to use to approach this entire show. We're going to be discussing everything from high stakes poker to personal questions.
Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too. Listen to Risky Business wherever you get your podcasts.
Bloomberg Audio Studios. Podcasts, radio, news.
Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.
And I'm Katie Greifeld. I'm a reporter with Bloomberg News and an anchor for Bloomberg Television.
Katie did that off script and was sort of clutching the table as she did it.
I forgot. Usually when you print out the intro, I forgot to do that this week, but I do have a strong sense of self.
Okay. What are we talking about this week, Katie? Off script?
Great question. Freestyle. Yeah. T plus one.
T plus one.
It's finally here in the U.
S. And in Canada and Mexico. I don't think that's possible. Maybe it's happening in India soon, but we're going to talk about Elon Musk. We have a few different things to talk about with Elon Musk, but I really like the attention auction that you wrote about this week.
So we're going to talk about that. And we're going to talk about Bill Wang.
Anything's possible. And there'll be a mailbag.
We do have a mailbag. That was not...
That was.
. Cut that out.
I like that you sang and I didn't. Usually it's the other way around.
T plus one. It's here. It feels like this was abrupt. Maybe I just haven't been paying attention.
I think that if you had been reading articles for the last three months or so, you would
have gotten very bored. I don't think that's news for a long time. I think that's like news the week before and then news the week. it happens. But yeah, it's T plus one.
It's T plus one. It happened at the start of this week that we're recording the podcast. And there was a beautiful day where trades from both Tuesday and Friday settled on the same day. It was like a lunar eclipse or a solar eclipse, whatever you wanted to call it. It seems like it was a little bit of both.
I feel like things are actually going fine.
Right. I know you root for chaos.
I do.
And I root for having funny things to write about. And so clearly it would have been more chaotic had T plus one kind of broken the financial system. But in fact, things seem to be going very smoothly. And in fact, the fail rate so far seems to be a little bit lower than the fail rate last week. Meaning that if you do a securities trade and it settles T plus two last week, T plus one this week, then, like in two days, you have to deliver the stock and the other person has to deliver the money.
And if you don't do that in time, it's called a fail and people keep track of the fail rate. And every so often people have conspiracy theories about naked short selling because of, like, the fail rates going up or whatever. And the fail rate, like last week, was like 2% or whatever.
2.
09%.
2.
09%. And then this week, like the first day of T plus one, it was like a little bit lower.
It was 1.
9%.
So everything's going great. I was wondering what that means, like that, the fail rate is lower. Like one possibility is that they spend all this time modernizing their systems and they turn on the modernized systems and it just works better, right?
There you go.
That's a possibility. Another possibility is that everyone's in the office this week. If you work in settlement, you're definitely not on vacation this week. No. You're definitely like paying total attention to making sure the fail rate stays low.
Yeah. Maybe the real thing to watch will be, of course, next week. We do have another test coming up on Friday. The MSCI indexes are going to rebalance. So that's another potential hurdle.
But yeah, definitely the optimistic take here is that all the preparation that Bloomberg News and other outlets have been writing about, that the banks and everyone else are undertaking, maybe it paid off. And this is a total Y2K moment.
Y2K in the sense of it's not like that. the fears were misplaced. It's just that people worked really hard to fix them, and they succeeded, right?
We did it, guys.
Yeah. Congratulations, all the settlement professionals. I think, probably if you're a settlement professional and you spent like the last three months complaining about this, like probably some part of you wants there to be a disaster. Yeah. So you can be like, I told you.
But yeah, seems fine.
Yeah. I was saying to Matt this morning that this would be a lot more fun had there been a disaster. But I guess it comes into question, what's next? I know that some people talk about T plus zero. Gensler himself actually suggested that T plus evening could be a possibility.
But what's the point?
Well, part of why they moved to T plus one is like the credit risk involved in waiting two days to settle a trade. And I think the big impetus was the meme stock failures in 2021, when, well, when a lot of brokers got the large margin calls because of the crazy volatility in the meme stocks and Robinhood had to go out and raise money and, like a lot of brokers, shut off trading and GameStop for a while. So all that stuff felt kind of bad and rickety. And so they wanted to change that. But I do think another part of the impetus for this is just like there's a general sense that payments, and like financial transactions, should be real time.
That wasn't always people's sense, right? They used to like mail, a check or whatever. But now, you know, you look at the Venmo sort of, you know, like people's desire to be able to make real time payments on their phone. And like people find it weird that the US banking system doesn't support that. And with securities transactions, I do think there's the example of crypto, where crypto doesn't always move like instantly, but like a crypto trade on the blockchain settles when it happens, right?
It's like it's instantaneous settlement. And people sort of are introduced to the financial world through that. And they look at stock trading and they're like, why does it take two days or even why does it take one day? So I think there's just like a sort of sense that, like in a modern computerized age, it shouldn't take any time to settle a transaction. And I think that's like wrong.
I think it's like people confuse, like the computer mechanics of like moving the stuff around with the actual sort of like financial mechanics of it. Non-stock trading is like very efficient and very sort of just in time. And so when people want to buy stock, they don't have money sitting in their account. Most people do. But big hedge funds want to buy stock.
They don't have money just like sitting around in their account. They have to like go to their financing prime broker to like lend them the money the moment after they agree to the trade, right? There's a lot of like. you agree to a trade before you have the money sitting in the account. Sometimes you agree to the trade before you have the stock, right?
All those sort of business processes happen after you agree to the trade. And if you moved to like very fast settlement, which I don't know exactly what very fast means, like maybe T-plus evening is still like slow enough.
I want like T-plus lunchtime.
Yeah. If you move to like instantaneous settlement, then, like everything, changes. Like you have to pre-fund trades. You have to have the money sitting in the account before you do the trade. And again, like in crypto, it kind of works that way.
Like in crypto, you kind of pre-fund everything. And so people are like, there's like a model for that. But it's not really how the modern financial system works.
Yeah. I know I'm being dramatic when I say this, but I don't know. the notion of taking pages out of crypto infrastructure and bringing it into like the equity market feels very weird for me. This is the second time that we're sort of talking about that. Like we talked about 24-hour trading a few weeks or months or years ago.
at this point. I can't remember what it feels like. But the idea that maybe stocks being able to trade 24-7 or 24-5, maybe that's a reality in the future. Crypto doesn't. And here, instantaneous settlement, crypto does it.
Why not equities?
Crypto is a financial system that grew up entirely around computers and in the computer era. It dates to like 2009.. I think if you were just like designing a financial system from first principles, you'd be like, well, it'll be on computers. And then it'll be like, well, should it open at 930 in the morning? No, it's on a computer.
The internet is open 24 hours a day. So you'd sort of design a system like that. And similarly, if you're like, well, I've got a database of stocks and a database of dollars. And like when I agree a trade, we swap the dollars to the stocks, it's like, yeah, that should happen like on a computer, like immediately, right? If you're designing a financial system in 2009 or in 2024 around computers, like, you'll naturally have 24 hour real-time trades, right?
It just so happens that the actual financial system grew up over hundreds of years and wasn't built around computers. And the processes that have built up around that are very path dependent and historically determined, but some of them are good-ish or like. They work for humans or they work for a financial system. So, with 24 hour trading, what we talked about was, in fact, in modern markets, people like concentrated liquidity. You know, the stock markets open six and a half hours a day, but, like people actually like, largely trade at the close, because that's when everyone else is trading and it's good to be able to trade when everyone else is trading.
And if you spread out your trading over 24 hours, you'll have fewer people to trade with in like 3 a.
m. And similarly here, it's yeah, like if everything moved instantaneously, like, in some ways that would look more efficient, but it would mean that you'd need to have the money in your account before you did a trade. And so there'd be like weird stuff. A lot of the problems that people worried about with T plus one were foreign investors having to convert currency. If you're a foreign investor and you want to buy a U.S.
stock, you can just decide to do that and then figure out how to convert your euros into dollars later. Not like much later, but like two minutes later and an instantaneous settlement world, you wouldn't be able to do that. No. Maybe your FX transaction would also settle instantaneously and everything would like just in time, work out, but it's like trickier.
It does seem really complicated, especially, I mean, the FX piece, talking about T plus one. when it comes to just domestic U.S. equities, that's somewhat easy to wrap one's mind around. But thinking about the FX piece and the international investor piece, I was talking to someone on TV sometime this week and they said you went from having 12 hours to source your U.S. dollars to having like two hours.
Yeah.
And like, I don't know, you tell that to a normal person, and it's like, how long does it take for your bank to convert your euros into dollars?
I've never thought about it.
It's like a computer, right?
Yeah.
Like it should theoretically kind of should take a millisecond.
Yeah. Right? Well, maybe that's...
It's just like computer entries, but still.
That's the world we're rapidly hurtling towards, or maybe we're already in. Can we talk about the thing I really want to talk about? Okay. So I cover ETFs in my day job, and a thing that a lot of ETF issuers do is securities lending. Sure.
They lend out the securities in their portfolio. It gets them a few basis points for doing that. They make that. But think about the expense ratios on a lot of these ETFs, and they're like three basis points. So a couple of basis points is super meaningful.
I don't really understand how securities lending is impacted by this move to T plus one. It seems like it would be a headache, not just in ETFs, but mutual funds, et cetera.
It's a huge headache, I think. So here's how it works. So you're a mutual fund or you're an ETF. You lend out your stocks. You own stocks.
You lend them out. Then you decide to sell them because you have outflows or because your index is rebalancing, or whatever. You decide to sell your stocks. So between the minute you sell the stock, the minute your sell order executes on the stock exchange and the settlement date, you have to get the stock. You've loaned it out.
You don't have it in your possession. So you have to call back the borrow.
So you had two days to do that. Now you have one day to do it. Now you call back the borrow by. you've loaned the stock out, probably through a broker who's loaned it out to a short seller. So you call your broker and you say, call the intermediary.
and you say, I want the stock back. And the intermediary calls the hedge fund who borrowed it and said, we want the stock back. And the hedge fund doesn't have it either. They've sold the stock. So they have to find it somewhere else.
Now maybe they borrow it from some other mutual fund or some other lender. And then they borrow it in like four hours and they deliver it to you within 24 hours. And then you deliver it to settle your sale. But another possibility is like they can't borrow it and they have to buy in their short, but then that settles T plus one. So they're doing a trade after you that has to settle before you in order to give you the stock so that you can deliver it on your sale.
So it's like very tricky. And I think that like one thing that mutual funds have been at least talking about doing to address this is calling in their borrow before they sell their stock. If you know you're having like an index rebalancing or whatever, instead of hitting sell and then calling back your borrow, you call back your borrow the day before, so you make sure it settles and then you hit sell. Larry Tavit of Bloomberg Intelligence has written about like the problems of that, in terms of both you lose like a day of that lending income, but you also maybe tip your hand that you're going to be selling the stock because you're calling a sophisticated hedge fund and saying, we need our borrow back. The hedge fund gets some information from that.
they know you're selling.
Yeah. I guess, from my perspective as someone who cares about the ETF and a little bit the mutual fund world, the fact that you do lose a day of that fee coming in and...
I don't think that's a big deal.
You lose a day and also.
One day of 20 basis points of earnings.
Hey, that sounds pretty good. I mean, we're talking about razor thin margins on some of these ETFs. I'm wondering if it'll make securities lending a less appealing proposition for some of these companies.
I'd be surprised if it moves the needle on that, because it's still money. You know, if you're like an indexy, you're not selling stock that often.
All right. That's everything I wanted to know about this.
That's probably everything I wanted to say about it.
I guess we'll talk about it when we do move to T plus zero, because actually it surprised me to learn that we only moved to T plus two in 2017.
Oh yeah. I was there. I was like...
I was not. I mean, I was there. actually. I just was not paying attention.
Yeah. No.
What was I doing?
Was it really 2017?
? Yeah. I remember that. It was T plus three for my whole career. That's a while.
And it was like T plus five in like the 60s or something.
Yeah. We moved to T plus three, I guess, in 1993..
My favorite part is that I didn't know this until, like this week. It was T plus one until the 1920s, right? I always sort of imagined that, like the reason it was T plus three or whatever, you know, I grew up in T plus three. The reason it was T plus three is because, like you, needed to like load the stock certificates on a horse and buggy and take them across town and count them by hand.
That was happening in the 90s.
But yeah. No. It was happening in the 20s. But like there are only so many stock certificates. So you could do all of that in one day.
Right. Yeah. And so it only became like a longer settlement process when there were more trades and they were not like fully computerized. And so you had, you know, maxed out at T plus five, where it was like still a pretty manual process, but there were a lot of trades. And now there are many more trades, but it's a much less manual process.
Okay.
There we are. Horse and buggies.
Apollo's customized capital solutions help drive innovation and growth, turning the great businesses of today into leaders of tomorrow. As one of the world's largest alternative asset managers, Apollo is helping to fuel the real economy by generating investment grade credit, helping to fill gaps in America's financial ecosystem and providing greater access to more resilient and diverse pools of capital. By providing companies with access to flexible financing solutions and partnering with management teams to help grow their businesses, Apollo is there every step of the way to drive positive outcomes for companies and power economic growth. Apollo, investing in tomorrow, today. Learn more at Apollo.com slash private investment grade.
I'm Maria Konnikova. And I'm Nate Silver. And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players, and that's the lens we're going to use to approach this entire show.
We're going to be discussing everything from high stakes poker to personal questions.
Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too. Listen to Risky Business wherever you get your podcasts.
Oh,
boy, Elon Musk. It's been several weeks since we really, really dug in.
Part of me feels like Elon Musk. It's always the same story. I don't know.
Matt is checking his phone. He just checked the time. He doesn't want to talk about this. We are drawing closer and closer to that. shareholder vote.
Yeah.
So Elon Musk, he had a huge package of options from Tesla in like 2018.
. You know, everyone says it's $56 billion. It doesn't really matter. And then this year, a Delaware judge said, no, we're taking those back. And in reaction to that, Tesla wants two things.
They want the shareholders to vote to give them back the options. And they want the shareholders to vote to reincorporate the company in Texas, so that no Delaware judge can ever again take away Elon Musk's money. Both of those votes since June 13th.
Like he met the targets. Yeah. That he was supposed to hit.
Like, I'm not a big Elon Musk booster necessarily, but I feel like he earned this money. Yeah. I feel like he should get the money. Maybe this is just projecting, but my impression is that the maybe like most standard view among the institutional investors in Tesla is, one, he should get the money. Fair is fair.
And two, they should not reincorporate in Texas.
Yeah. So let's attack the first point because I've been thinking about why that doesn't feel great. So, yes, fair is fair here in the money, but like, I, feel like you have to kind of forget about everything that has happened in the past year or so. I mean, I'm talking pretty short term when I talk about the year to date performance of Tesla, but it's been pretty bad. We've seen a big drawdown in market cap and they're facing real business problems right now.
You're right. When I say here in the money, I mean like. he was granted this money in 2018 with the goal of taking the market cap from like $50 billion to $650 billion, and he did that by like 2021.. Yeah. And so he earned the money and they gave him the grants, and then now they've been taken away.
But like since then, yeah. Yeah. Things have changed. It's weird. It's a very backward looking pay award.
Yes. Because it was a forward looking pay award in 2018, that has now been reversed. But the question is, should they give him this backward looking pay award because he did accomplish all these things in the past? And I kind of think the answer is yes, that's fair. But I do think that if you're just hyper rational investor looking at things today, it's like, is it a good idea to give him all this money, given what has he done for me lately?
Yeah. Yeah. I mean, Tesla has a pretty sizable retail. I mean, a lot of them are huge fans of Elon Musk, but I would just imagine that human psychology is going to play in, as in what has he done for me lately? Oh, yeah.
Yeah.
Yeah. The retail people are there because they love Elon Musk. Yeah. The institutions, I think it's more.
I mean, you have seen, like Glass Lewis, come out and say that they probably shouldn't vote for this. There are a few others.
Glass Lewis came out against it in 2018 as well. And they voted for it then.
Something that keeps coming up is, and this is something you've written about, is just that he's got a lot going on. This man is the CEO of six companies. It's clear that Tesla isn't like really the only thing occupying his mindshare right now. He was really into his AI startup, SpaceX, Skark. I forgot actually that the Poring Company was still in there as well.
The Poring Company is the one I always mention because it's like, I think, if you rank, how much does Elon Musk speak publicly about, pay attention to, and care about his companies, Tesla is really volatile. And, like right now, Tesla may be like having some problems in terms of getting his attention, although the vote complicates that. But, like Poring Company is usually toward the bottom because its name is the Boring Company. It digs tunnels. It's like just sort of less.
It's like the cash in the portfolio. You know, you don't really talk about it.
Sort of. It's not literally like that.
No. Just in terms of like a small allocation that you don't really think about. Neuralink is real, obviously. When you look at the portfolio of his companies, Twitter is the weirdest one to me. X.
I'm sorry.
Elon Musk is really into AI, right? Yeah. He's kind of always been into AI. He was a founder of OpenAI, right? He's now not affiliated and angry about and like suing OpenAI, but he was like there at the beginning.
And he's very into AI right now. And everyone's kind of really into AI right now. And in some ways, it's like weirdly trend following for Elon Musk to be like, I also have a large language model startup, right? That's never been his thing, right? He's not like, oh, I'm founding the 10th electric car company or the 10th commercial rocket company, right?
He's not, like, you know, in fierce competition in like the tunnel digging business, right? It's like all of his ideas have been sort of unusual. And then X. AI. He's like, yeah, I'll do a large language model.
Why not? But it did seem like he had big AI plans for Twitter and, like Tesla, does do a lot of, not like large language models, but like a lot of AI for like the self-driving cars. And it's a little strange that he has instead started a separate company for AI and ramped it up and has a $24 billion valuation now and is raising money. And it seems to be, to some extent, the apple of his eye and Tesla's maybe a little neglected.
Yeah, it does feel like that. And you think about, I mean, his threat is that if he doesn't get this pay package, then he'll devote his energy and time elsewhere. It seems like he's doing that already. And even if the pay package was re-approved again on June 13th, I believe the vote is, it's not clear that would get him re-excited about Tesla.
So two things. One, like Glass Lewis, one of their objections to his pay package is that he's clearly not been focused on Tesla. Yeah. Tesla put out this response that says, stockholders should care enormously about value creation and not about whether Elon's perceived focus, in scare quotes, was strong enough. And like, that's fair, but it depends on your timeframe.
And in recent months, the value creation has maybe tracked his lack of focus, right? Since the Twitter deal, like his lack of focus has been bad for shareholders. Now, again, this pay package is for like the work he did from 2018 to 2021, so I can see approving it. But as a going forward matter, yeah, you'd be worried about his lack of focus. Not only because you keep reading articles about the other stuff he's doing, but also because the stock price is down and, like it's, raising business challenges.
The other thing I'd say is Tesla's in a weird position in terms of like how much of Elon Musk's focus it gets or it will get going forward, because it's his only public company and also it's his biggest company. And so, on the one hand, that means it is his like cash source. It is, I think, more important to his fortune than any of the other companies, because if he needs a billion dollars, he can get it by selling Tesla stock, borrowing against Tesla stock much more easily than he can from his other companies. And so he sometimes has need for a large amount of money, for example, to buy Twitter. And when he does that, he sells Tesla stock.
So Tesla's really important to him. And if some of his other companies like evaporated, he'd be fine. But if Tesla evaporated, it would be a big problem. On the other hand, he hates running a public company. He's not a public company guy.
It doesn't work. He goes around saying, I do not respect the SEC. He gets in trouble. He gets sued by shareholders. He pushes the boundaries in a way that when you have a private company where all of the shareholders are your fans and understand that they're there to support you, it kind of works.
But in a public company where anyone can buy stock and then sue you and, like a judge or the SEC, can just get involved, it doesn't work that well. And he clearly hates it. He sort of tried to take Tesla private in a deal that got him in trouble with the SEC. And he's said off and on over the years that he hates running a public company. And will SpaceX eventually go public?
Probably. I would love that. It's possible that it would have gone public before now, were it not run by Elon Musk, who has had a bad experience of running public companies. So if he has some great idea, does he want to do it at Tesla, where it's going to be subject to public company scrutiny, or is he going to want to focus on his other companies that he has much more control over?
It feels like we're heading towards a rubber, meets the road moment. when it comes to the shareholder vote. I mean, either it's re-approved and he's a happy man, maybe, or maybe he leaves. And then we, as we spoke about a few weeks ago, maybe we find out what the Musk premium to Tesla actually is. And we find out, I don't know, whether Tesla needs Elon Musk at this point, whether it would do better with a traditional auto type CEO.
When you think about, I don't know, the fact that EV demand is drying up for everyone, not just for Tesla. It feels like a kind of existential moment for the EV market.
Yeah. It's not clear that his skill set is what's really needed at Tesla right now, because it's like a mature auto company with auto company problems. And he's off putting wires in people's brains, right? Maybe the move is, in fact, for him to step back as CEO. But that's hard for the stock price.
Like, you, get a lot of valuation premium from the retail investors who love him. I mean, that's the other thing about being a public company. is it's the only place that his retail investors can invest with him. Yeah. You can't buy SpaceX.
You know what a neat solution would be?
Taking SpaceX public?
A closed end fund.
Sure, sure, sure.
And invest in all the Elon Musk companies. We can publicly list it, too, and that would be really fun to watch.
That's actually a really good idea.
Thanks. That one's for free, but...
No.
You get a commission on that one.
This podcast is supported by Apollo Global Management. When it comes to building and financing stronger businesses, Apollo turns some of the world's most complex challenges into growth opportunities. Apollo's customized capital solutions help drive innovation and growth, turning the great businesses of today into leaders of tomorrow. As one of the world's largest alternative asset managers, Apollo is helping to fuel the real economy by generating investment grade credit, helping to fill gaps in America's financial ecosystem and providing greater access to more resilient and diverse pools of capital. By providing companies with access to flexible financing solutions and partnering with management teams to help grow their businesses, Apollo is there every step of the way to drive positive outcomes for companies and power economic growth.
Apollo. Investing in tomorrow, today. Learn more at Apollo.com slash private investment grade.
I'm Maria Konnikova. And I'm Nate Silver. And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players, and that's the lens we're going to use to approach this entire show. We're going to be discussing everything from high stakes poker to personal questions.
Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too. Listen to Risky Business wherever you get your podcasts.
Bill Wang. Bill Wang.
So Bill Wang is on trial for his family office, Archegos Capital Management, imploded a while back and lost 30-something billion dollar fortune for him and billions of dollars for several banks, including Credit Suisse, which didn't fail because of Archegos.
It's not here anymore.
Yeah, it didn't help. But he's on trial for kind of two things, like market manipulation, because he bought all these stocks and pushed them way up, and then they crashed when he stopped buying them, and for lying to banks, because basically he borrowed a lot of money from banks to buy all these stocks and had the banks known the true extent of his positions, they wouldn't have lent him all the money. And he's on trial this week. And I have to say, it seems to be kind of going okay for him in the sense that they haven't really done the market manipulation case yet, but like it just sort of sounds, like the evidence is like he bought a lot of these stocks, which is weird, but it's not proof of market manipulation by itself. It doesn't seem to be any smoking gun of him being like, I'm buying these stocks so that I can like artificially inflate their price so that I can do something, because he didn't do something.
He bought all the stocks and then they crashed and he lost all his money. He wasn't like doing it for some nefarious plan, as far as I can tell. But the other thing he's on trial for is lying to the banks. And like there was definitely some lying to the banks. There's a lot of testimony that there was lying to the banks, but it wasn't from him.
Yeah.
It was like from his employees.
Yeah. So far we've heard from Scott Becker, for example, who was a risk manager at Archegos, and he testified that he lied. He told several banks that Archegos was heavily invested in FAANG stocks like Apple, Amazon, et cetera, et cetera. In actuality, actually, they were really invested in ADRs for companies like Tencent and Baidu, et cetera. That was a large part of the portfolio.
So that was a lie. And he's not...
But also, like, you know, Viacom was like 70% of the company or something like that. Yeah. Absurd quantities of a few, like a handful of stocks.
Yeah. But I guess what looks good for Bill Wang so far is that it's not clear that he necessarily told those employees to lie.
Yeah, there's no email from him being like, make sure to lie to the banks, which sometimes, in some cases, they have that.
Yeah.
This one, they don't. Yeah.
But I mean, you raised the point, why did they lie then?
I was thinking about that. There's a sort of like, he was the boss. There's some sort of implicit assumption of, well, if the employees were lying to the banks to keep Archegos going, they were doing it because that's what their boss wanted of them, which, first of all, I'm not sure is enough for it to be a crime. But secondly, I'm not sure that's true. I feel like people who have jobs are motivated to do a good job at work.
It's not like they're like, I need to make this trade work out because my boss told me to. It's, I need to make this trade work out. Cause I'm like trying to be a good employee. And, like, you know, you sort of have a general...
You want to create value. Yeah.
You want to create value and you're whatever, you've been at that company for a while and you have some sense of commitment to the company and some sense of professional desire to do a good job at whatever it is you do. And if what you're doing is keeping this extremely concentrated portfolio from crashing, then maybe you'll lie to a bank to do that, right? And maybe you're just doing it because that's, in the very short term, the way to improve your own performance and you're just trying to do a good job. So, so is that his fault? I don't know.
It's like kind of his fault.
So we're a couple of days into. testimony. Seems okay-ish for Bo Wang at the moment, just to meditate on Scott Becker a little bit longer. He's definitely not having a great week or a great last couple of weeks. Again, testified.
He did say he lied. He also apparently texted in 2018 that he hoped that his boss would die in a plane crash, and then in 2020, hoped that he would die. a quote, slow, painful death from COVID. He said, of the texts, I obviously regret that.
It's not inconsistent with what I said before, right? You'd be like really motivated to do a good job and also have days when you wish your boss would die in a plane crash.
That's why I never want to get sued. I mean, for a lot of reasons. I don't want anyone to go through my text messages. They're all super clean though. But anyway, that was a fun little-.
A little go through the outtakes of the Money Stuff podcast.
Exactly. We burn every recording. We smash it with bats. Anyway, that was a fun little detail that came out in testimony. Also coming out was the Goldman fat finger, which wasn't previously known, I believe.
That's amazing. Yeah. It's amazing. At the end of Arcega's, they had scraps of money at different banks and they were getting furious margin calls, and they were also trying to buy more of these stocks to prop them up. And so they were going to every bank and saying, oh, we have $100 million at your bank, send us the $100 million.
And some banks were doing it. Even though they were like a day away from bankruptcy. And so they did that to Goldman. They were like, we have $470 million at Goldman. Can you send it to us?
Except they like hit the wrong button. And instead of asking for $470 million from Goldman, they sent $470 million to Goldman. Then they called Goldman and were like, hey, can we have that money back? And Goldman was like, no. Or sort of.
They were like, oh, we need to like-. Yeah. They like sort of dragged their feet a little bit. And then, by the time they stopped dragging their feet, like, it was clear that Arcega's was bust and Goldman kept the money.
Didn't they request a meeting? Yeah.
They were like, yeah, you can have the money back. Let's just talk to your chief trader to make sure everything's okay.
And they were like, he's busy right now.
I think anyone, if you get a call saying, can we have all of our money back? You're like, are they okay there? Because, Goldman, they weren't just holding $470 million for them. They were also lending them enormous amounts of money against concentrated stock positions. And if you're like, oh, Arcega's needs money.
Your next thought is, are all of these derivatives positions that we have with them, are they good for them? Yeah. And the answer was very much no. And so Goldman kept the money.
There was testimony from a Jeffries managing director as well, who, when she got the call, her reaction was, what's the emergency? Like, why do you need all the money back right now?
When you get a call from your customer being like, I need every penny in my account wired to me immediately. If you're just their bank, maybe you do that, right? But if you also have like an enormous loan out to them and you're like, wait a minute. Yeah.
Mailbag.
On this very podcast last week, we talked about, well, we talked about several city fat finger errors.
Seems to be a somewhat regular occurrence.
But we talked specifically about the one where they, like, they, sold a ton of European stocks and crashed all the markets. And then we're like, oops, we meant to sell $50 million, but we sold $440 billion.
Who among us?
Who among us? indeed. Because every time I write or talk about a fat figure, I get emails from people that like, yeah, here's my fat finger story. I got a good one from a reader. He said that, um, is trading his personal account.
He made some money on call options, right? So like bought some call options on some stock. He sold the call options. He had the a hundred thousand dollars. He says, well, he's trying to figure out what to do with the money.
He decided to put it into the bill ETF, like a short-term money market ETF. It's like a hundred thousand dollars. And he says on his brokerage screen, like when you sell an option and then you go to do another trade, it defaults to doing an options trade. And so he was like, I'm going to put a hundred thousand dollars into bill. And instead he bought a hundred thousand dollars of call options on the bill money market ETF, which is like, there is no more boring investment than the bill ETF, but there's no crazier investment than call options on the bill ETF.
That's wild. And so he bought a lot of the, or he hit buy on a lot of these options. And he said that they executed like one contract and moved the market and he noticed and canceled the rest of it. And it was only a few hundred dollars, but I thought it was an amazing.
Because we were talking in relation to the, uh, the city system, how it was. maybe just designed poorly. And, uh, I mean, here's a great example, a real life example, of a person in their personal account falling victim to maybe an unintuitive trading screen.
Right. Right. If I were designing a trading system, I would probably make it default to trading cash, not options, every trade. But, of course, if I were a retail broker, I would want to encourage as much option trading as possible, because that's how the retail brokers make money. So maybe I would, uh, you know, maybe I would encourage.
I would want the text to be as big as possible, like a really large font size. Those always make me feel safe. Anyway, time to go.
That was the Money Stuff Podcast. I don't have my script. And that was the Money Stuff Podcast. I'm Matt Levine.
And I'm Katie Kruepel.
We're not actually doing that. And that was the Money Stuff Podcast. I'm Matt Levine.
And I'm Katie Kruepel.
You can find my work by subscribing to the Money Stuff Newsletter on Bloomberg.
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Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.
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