You Can Pay Credit Suisse Not to Work There | Hacker News Reader

You Can Pay Credit Suisse Not to Work There

bloomberg.com

145 pointsdsalzman63 comments

I loved this indictment of Movie Pass (or WeWork) style companies:

> "There are other business models. For instance you could make a product that people kind of want, or that they would want if it were affordable. Then you convince people to buy it by selling it for much less than it costs you to make it, or by paying them to buy it. If you do this well, you will have high revenue and rapid revenue growth, because lots of people are buying your product. You will not, however, get rich, because you’ll be spending more money making the product than you get from your customers. Your revenue will be high but your net income will be negative; it will cost you money to run this business.

> But then you will go to investors, and you will say “look, I have a company with rapidly growing revenue, that’s worth something, you should pay me for a share of my company.” And they will agree—“we love rapid revenue growth,” they will say—and you will sell stock in the company for hundreds of millions of dollars. And then it will cost them money to run the business, and you will be rich. There are various possible endgames; in some of them you go to prison but in quite a lot of them you just stay rich and become an elder statesman admired for your business acumen."

The later part about the Chinese coffee company fraud also getting caught by motivated short sellers was also great:

> "The thing about inflating your revenue by pretending that you sold more coffee than you did is that people can go to your stores and watch you sell coffee. It is a reasonable bet that they won’t do that, because it’s incredibly boring. “Who is going to send 1,500 people to our stores to watch us sell coffee all day, count how much we sell and compare it to our financial statements,” Luckin could reasonably have thought. 1 But the answer was “short sellers”! They actually hired people to sit around watching the coffee get made, so they caught the fraud."

Matt Levine is a good writer (often funny too) - I'm impressed he can continually write up these high quality newsletters almost every day.

Between this, Stratechery, and Preet's podcast I find it really hard to actually read all of this.

How do other people do this?

It's hard to really have the time for even just one newsletter or podcast (at least with the podcasts you used to be able to listen in the car, back when we still drove places).

> But the answer was “short sellers”! They actually hired people to sit around watching the coffee get made, so they caught the fraud."

Is it legal to report negatively on a company you're short selling? Wouldn't that count as market manipulation, even if your reports are true? Or will simply disclosing that you have a position while simultaneously disclosing the information make it safe and legal?

Not if your report is true

Matt Levine has talked about this, too

Edit: got distracted but here's his link: https://www.bloomberg.com/opinion/articles/2018-02-09/can-no...

Also, I hate amp

Here's the relevant bit:

> "Wait," people ask, "how is it not manipulation to short a stock and then publicly announce that the stock is bad?" I am always confused by this complaint. Just flip it around: It's not manipulation, surely, to own a stock and then publicly announce that the stock is good. That's like half of financial television. It is also a big chunk of what corporate chief executive officers -- who all own their companies' stocks -- do. It's fine to short a stock and trash the company, or buy a stock and praise the company -- as long as, in each case, you're telling the truth.

"It is also a big chunk of what corporate chief executive officers ... do". This is a small example of how most of Mr. Levine's writing is reductive to the point of being crude.

Executives are allowed to advocate for their companies. But only with information that has already been publicly disclosed. Don't believe me? How did the SEC feel about Elon Musk tweeting non-public information about his public company?

Mr. Levine is correct that this action by short sellers is legal. But that part of his analogy is wrong. He could have ended the analogy with "That's like half of financial television." However he chose to add on a point that is not applicable to the situation.

For a long time I enjoyed Mr. Levine's writings. Until I started to read his opinions on topics in which I have domain knowledge. At which point I realized his writing lack nuance and offers analogies that feel cut & dry but are anything but.

I realize this is true of many opinion writers. But Mr. Levine enjoys a great deal of notoriety for opinions that lack sophistication & rigor.

> How did the SEC feel about Elon Musk tweeting non-public information about his public company

While executives are encouraged to report market moving public information in a standard format, that's not why the SEC took issue with his tweets

His tweets about taking Tesla private at some valuation above its current stock price were completely false (eg "funding confirmed")

Once again, the requirement of truth rears its head

No, it is not illegal, nor is it market manipulation. Nor is it illegal to report positively on companies you're long on.

Everyone knows a hedge fund is talking its book. But that doesn't make its research or facts untrue.

Short sellers writing reports is an important part of the way securities reach more accurate prices.

This is implicit in your point, but it's a way to subsidize that research

> As the Second Circuit wrote in 2007, “To be actionable as a manipulative act, short selling must be willfully combined with something more to create a false impression of how market participants value a security.”

https://clsbluesky.law.columbia.edu/2019/03/18/short-selling...

Not a laywer, etc.

Yes, that is the whole point of the markets in fact and the reason we allow short-selling. You want information from both sides to be incorporated because it will give you much better price discovery. You want people to figure out that companies are frauds and to tell the world about it and to get people to do that you incentivize them financially by allowing them to go short.

Look at recent private fundraising and VC to see what can happen in markets with no short selling.

Wonder why VC firms don't come up with some structure to allow short selling?

If they believe a company will do well, yet someone else believes otherwise, there is money to be earned by whoever is right.

If it's legal to praise a company you own shares in, then it's legal to criticize a company you've sold short.

This is not always true...

If you're an insider (i.e., involved in management or have access to non-public information), then you can't simply praise the company you own shares in if the praise would be fraudulent.

Similarly, if you're a short seller, you can't simply make negative shit up--your criticism of the company must be grounded in facts or information reasonably believed to be correct.

"Everything is Securities Fraud"

If you read Levine for a while, you start to notice that he uses a lot of words to express short ideas (which is fine, it's "spinning a yarn") and that he says the same things over and over again (because the financial crimes and skulduggery he writes about keep happening over and over.)

Thanks - I guess at that point there's a diminishing return and you've learned most of the ideas.

I'm still new to it so I feel like I'm learning a lot.

It's still good writing in the sense that it's interesting and engaging even as someone with relatively limited interest in the topic.

His challenge is that he has to write about bond market liquidity as both an inside joke for the regular audience and as something comprehensible to a first time reader.

I do enjoy the compromise he's found.

The first part covered a bunch of stuff I hadn’t read from him before.

Sure he has some themes he keeps returning to (everything is securities fraud), but he keeps that fresh with new examples and different takes.

> "They actually hired people to sit around watching the coffee get made, so they caught the fraud."

There's (was at least, not sure if it's still going) an undercover unit in HMRC (the UK IRS) who's job it was to go to pubs and make sure they aren't under reporting sales by counting how many pints they sold. Of course to blend in they had to spend the whole day on the piss.

A popular team.

I'm going to guess this is one of those mostly-mythical enforcement tactics. You do it once to one pub, and then talk about it loudly in pub industry magazines because you don't have the resources to sit in every pub every day just to check a few pints of beer tax don't go unpaid.

It's not, at least not in the US. The '97 Congressional investigation on IRS abuse dug up a few cases where IRSA agents used this method as an excuse to get piss faced at bars or free vacations at casinos.

> in some of them you go to prison but in quite a lot of them you just stay rich and become an elder statesman admired for your business acumen."

Would you take a diceroll where 1/10 outcomes you go to minimum security prison for 2 years, and 9/10 of outcomes you become rich for the rest of your life?

If it was that simple, I would, but the price of the gamble is that you commit fraud, or something awfully close to it, and real people are getting hurt in the wake of this.

But you can't see the poors you screwed out of the money in your fraud from your new yacht!

I wish this level of morality existed more often, but I suspect lots of people would take the "Screw everyone; get rich maybe" route.

I'm running out of time - and I just signed up for Dithering which I think is well worth the money :-)

Yeah me too, moving from standard publishing to really high quality independent publishers is a huge improvement. I hope most of news media trends this direction.

The brands of even famous papers like the NYT don't mean much to me when they also publish a lot of bad content. I want to follow and support individual writers like Li Yuan (https://twitter.com/LiYuan6, who wrote this: https://www.nytimes.com/2020/05/27/business/china-coronaviru...).

I'm happy to pay these individuals for the work they do, but I don't want to pay for a paper that has some quality writers among a bunch of garbage inside of a primarily ad-driven business model. Vox publishes a lot of great stuff, but they also publish Kara Swisher and terrible articles like that handshake one about Covid-19. I don't want to support the bad along with the good.

Let me pay individual people like Steven Levy directly - I want writers to become their own independent publishers. I'm happy some are already doing this, but I think there's an opportunity for someone to solve the discovery problem here and make it better.

A long time ago individual videogame developers were famous, but at some point the effort required to make a modern "AAA" game scaled up over the abilities for an individual to be able to do it themselves. For writing the opposite happened with the internet, and costs to publish cratered. Since cost to publish and distribute isn't really a constraint anymore, individuals should own their own brand and publish themselves under their own reputation.

Ben Thompson, Sam Harris, and Preet Bharara are all doing this. There should be more.

Even in games (where the constraint still exists) we still have successful indies.

We can probably help, not by making yet another centralized Medium type of site that obscures the writer's name and reputation to own their traffic, but by making it easy for writer's to spin up their own entirely owned publishing site (host, domain, mailing list, etc.)

The barrier to entry to do this without giving up your ownership is too high - non-technical writers are not going to use github pages or configure some DNS CNAME.

That said, the quality of the first few people that have figured out how to do this well makes me optimistic for this kind of future.

Lying about the true costs was how japanese animation (anime) got started - Osamu Tezuka flat out lied about how it all costs as his investors would never give him money for the real cost. That cost then kinda got normalized and expected and to this day animators in Japan are not paid very well considering the high costs of living, especially given that they usually have to work in the very expensive city center. Yet manny still do it out of passion.

Animation shop in the city center seems like a silly idea, especially if costs have to be tightly controlled to keep the business viable...

I think everyone is missing a key possible outcome here (regarding the startup business model). Tantalising users for a services via cheap prices can actually mean users change their behaviour and preferences.

This can then mean that when prices are increased, the changed preferences will affect how users perceive the value for the service. Suddenly they might be willing to buy it at the higher price.

I’m not sure it’s being missed - that’s the explanation used by both good companies and stupid companies to raise the money.

The problem is some VCs can’t tell the difference.

It feels like it's being missed to me. It rarely gets mentioned as a possible outcome. Usually in media the writing just seems to echo something like "stupid startup thinks reducing prices will help grow a sustainable business", when it's a lot more complex than that.

My previously employer offers just that : you could spend money to 'buy' up to 10 (more) days of holidays per year (for context, you start with 20 mandatory days, plus 10 to 15 depending on your seniority and your age). It would cost you exactly what it would costs the company to pay you, and seems redondant with simply taking un-paid holiday. They were several benefits to this though : those extra days would become part of your offical compensation, so you are entitled to take them in the year, and you do not need his approbation. It is also slightly better for your pension and your taxes to buy those days rather than take un-paid holidays.

Interesting idea. I assume you're buying that time with post-tax money? As opposed to an unpaid holiday which would lower your taxable income.

I'm in a similar situation, and its all setup pre-tax. You elect it at the beginning of the year, and it effectively lowers your salary by the fraction you choose not to work.

Pretty neat, but its capped, otherwise I suspect there would be people who elect to work for 4 months a year (or something similar) for 1/3 of their salary.

Isn't that just regular part time work? People do that all the time.

In the Netherlands there's even a law that states that you can request working part time in basically any fraction of a full work week and the company _must_ grant it unless they can show grave impact to their business that couldn't be resolved by hiring and/or training more people. Your pay is altered in the same proportion, ie you can work 50% of the time for 50% of the pay. This would probably be more difficult in the states, since health insurance is not as strongly linked to having a job over here.

But doesn't this cost the company more due to taxes and salary side costs.

At least in Germany this would either not be a good deal for the employee or employer.

Also I'm not sure how legal it would be in Germany and other EU countries.

This would conceivably work by adjusting the work schedule. So if you want 2 extra vacation days this month you simply get assigned to a 90% working time (and salary). Your standard holiday days stay untouched but your salary goes down proportionally, and so do the employer's taxes.

It's a regular feature in NL. You can even do arbitrage. Buy extra vacation days, save some of the days you regularly get in excess of the legal limit (the legal days expire in 18 months, those above in 60 months). Sell those at a later date for your then current income. Beats saving.

Edit: thanks, spelling

Off-topic nit: I think you mean "arbitrage", the practice of buying something where it's cheap and selling it where it's expensive. "Arbitration" is a method of resolving disputes by having a neutral third party decide what the correct outcome is.

Strictly speaking, this is not an arbitrage, because (a) you run the risk of not getting an above-inflation pay rise, and (b) even if such a pay rise is a certainty, you are locking your money up while you wait for it. The latter point makes it a carry trade, rather than an arbitrage.

If you could sell your future interest in refundable vacation days now, for more than it cost you to buy them, that would be an arbitrage.

I do something similar though different with my German employer. My employer lets me send my yearly bonus (or part of it) into a time account, i.e. the money gets converted into hours based on my hourly salary. Every five years, I have the option of withdrawing hours from the time account to take a sabbatical (with the normal salary payments just continuing in the meantime). And if I don't withdraw all of it by the time of retirement, the rest gets withdrawn for an early retirement with full pay.

It's always tough to figure out which part of a Matt Levine article the OP wanted to talk about, since the title just covers the first one. They're all interesting. If I had to guess I'd say the Luckin Coffee one, since it also mocks certain startup business models.

And shows another reason why companies prefer not to go public and are happy to take money from private investors instead. You don't need to publish your accounts and you don't have to worry about someone looking into them to make money showing you're a fraud.

That's definitely a theme that Matt Levine touches on a lot, especially when he talks about the WeWork and Uber IPOs: basically in the private VC market, your investors either pass on the investment, or they invest. They cannot short.

So the investors participating in your market (not the ones who chose to sit on the sidelines) are already selected for being the people that are overly positive or at least believe in the vision. Even if they have suspicions, their incentive is to pump pump pump the valuation and the narrative so they can ultimately dump the company onto the public markets. This largely worked for Uber, but not for WeWork.

Once you're public, you're exposed to short sellers and 10000x the scrutiny.

To expand more, if you're in the private market and don't believe in X company, you could invest in a competitor Y instead of shorting company X, but only if you think the market opportunity is legit and company X is going about it wrong and that company Y is any good. Pretty narrow case.

Matt Levine has a half-funny half-serious suggestion for essentially shorting in the private VC markets if you think the whole market is crap: found a company and have VCs pay you a shit ton of money to run it, and take a golden parachute before the house cards falls.

> They have a fixed life, some number of months, and then they end and, if you still own them, you have to take delivery of oil.

so far so good, this creates stability for companies depending on oil.

> You can build a perpetual strategy around them—buy next month’s futures, wait, and as they get closer to expiry sell them and buy the following month’s futures, etc.—but then the thing you are betting on is not quite the thing you want. You are betting on the relative value of different futures, the shape of the curve, the cost of rolling futures, all this technical stuff.

this looks more like gambling than real economic activity, how does this create new value?

in any case in the end, this is not what the market actually has because "that product is actually impossible to manufacture"

this looks more like gambling than real economic activity, how does this create new value?

It creates liquidity, which is very useful to oil producing companies, which can sell their product months in advance of it being actually produced.

This is also true of academia: you can buy your way out of the stipulated teaching load. Some faculty members with large research grants or side businesses (and little interest in teaching) find this well worth it.

Meanwhile adjunct faculty - who used to only account for a small fraction of higher ed - today do the majority of college-level teaching (generally with low pay and benefits and nonexistent job security).

I don't like the straw-man near the end:

> I feel like “quickly doing math on lots of different potential combinations” is actually a specialty of computers? Usually when I read defenses of floor traders they are focused on the humans’ calm common sense, not their superior ability to rapidly do complex computations.

in response to:

> Because of the sheer number of possible combinations when every underlying futures contract, expiration month and strike price is taken into account, human market-makers shouting and flashing hand signals can work faster and at lower cost than robots, according to the humans.

I mean, sure, we've got algorithms that can short-circuit combinatorics problems for certain specific categories of problem, but the human brain is still the most powerful general-purpose parallel processor known to humanity.

We lose a dollar on every unit, and make it up in volume!

In response to the article about USO:

If you wanted to build a financial entity to track oil prices, couldn't you just form a company that just buys a warehouse and stores a large amount of oil? Then its value would be roughly equivalent to the amount of oil it has stored?

Then I guess at the end of the month, the company would buy or sell more oil to align its value. Maybe operate like an etf that tracks an index?

Storing oil safely is hard: https://www.bloomberg.com/news/articles/2015-11-03/that-time...

That strategy is discussed in footnote #2. Though one of the interesting things about such a physical oil fund is it makes it clear that you're just frittering away investor money on storage costs (discussed in footnote #4), which are more abstract/less obvious when you're spending the money trading futures rather than on a big bin to hold the oil.

And so the difference between May and June futures should be constrained by the cost of storing oil for a month (the price of oil for June should be <= may + 1 month storage). Of course, storage facilities take time and money to build and shutdown, so there ends up being supply and demand based fluctuations for the cost of storing oil, and so if we run out of storage space (as happened at the end of April), you can get a huge difference in prices for futures that are a short time apart (which also happened at the end of April).

Goldman Sachs did that with aluminum.

https://www.nytimes.com/2013/07/21/business/a-shuffle-of-alu...

My enjoyment came from learning a new term "contango" [0] which set me off down the rabbit hole. This whole article is a joy from the oil futures to the coffee shop.

[0]https://www.investopedia.com/terms/c/contango.asp

A podcast version of today's newsletter. https://anchor.fm/talking-money-stuff

This is great, thanks. I'm always behind on Matt's daily email and this will help me catch up. I do wish he would guest on more podcasts!

This is an interesting way to spin an unpaid furlough... which many people are being forced to take right now.

It's basically equivalent. "You are going to be furloughed for 2 weeks without pay" means, "You have an additional 2 weeks of vacation, but we're going to cut your annual salary by 1/26th."

Which is the same thing as, "Give us back 1/26th of your annual salary, and we'll give you 2 additional weeks of PTO."

Levine can spin the most mundane things, like unpaid time off, into salacious stories.

This is a particularly entertaining article.

On one hand, capitalistic systems are clearly optimizing for peak efficiency during global instability which is reassuring in some minor or maybe not so minor way.

On the other, just be nice and give your employees some extra official time off because they're obviously not working as much. Life is slowly returning to normal, but it's still wacked out and stressful - just be nice. Giving kindness when it's needed most pays long-term dividends.

> Life is slowly returning to normal, but it's still wacked out and stressful - just be nice.

I think that the most privileged (of whom I, and I expect many of us on here, am one) are experiencing less of the hardships associated to coronavirus than they did in the first flush of the reaction, and that, in the US at least, there is a rush to try to act as if things are returning to normal, but I don't think that there's much realistic sense in which things are actually returning to normal, slowly or otherwise.

No thanks, I’m already not working there for free

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