But convertible into what?

Patisserie Valerie’s management snubbed a £30m deal that would have protected small investors, it has been revealed, as furious shareholders rounded on the company last night.

Investment fund Crystal Amber was plotting a convertible debt deal to rescue the firm which would have meant investors would not have seen their stakes diluted by the emergency fund raise that offered up new shares at a huge discount.

Convertible into equity. Which means dilution, doesn’

Well, why not?

Ten years after Lehman Brothers collapsed, high-octane products like those which led to the destruction of the American banking giant are making a comeback.

A decade ago Lehman heavily pursued subprime mortgage-backed loans, which were put into complex bundles obscuring their risk and value. This left the firm highly exposed to movements in the housing market and eventually triggered the biggest bankruptcy in US history.

These mortgage-backed securities which have become the most identifiable trigger for the financial crisis are now attracting fresh interest among investors. This is despite some market experts describing the housing market as a “bubble on a bubble”.

Nowt wrong with sub prime mortgages as long as they’re priced right. And as long as the holders aren’t leveraged banks.

What’s the problem?

Willy Hutton doesn’t understand the word “cost”

The bill for all these mistakes would be picked up by wider society, with perpetrators suffering nothing – nationalising losses and privatising gain. The whole effect was to transmute capitalism into a system of value extraction rather than value creation, with knock-on effects that depressed wages and contractualised work into short-term and zero-hour contracts. The financial system, based in London and New York, had become damnable – the nightmare of our times.

The cumulative costs of this have become so large they can scarcely be comprehended. The total cost across the west of recapitalising bust banks, offering guarantees and making good disappeared liquidity is estimated at $14tn.

No, that’s the outlay. What was returned? For example, we taxpayers made a stonking profit – as we should – on the liquidity provision.

We live in a world in which the price of US Treasury bonds – a market of multi-trillion dollars – can move 10% in 10 minutes.

Eh? Absent a change in base rates (or Fed Funds) is that really true? Is it me just not noting or has Hutton managed to get something terribly wrong?

Note that price is price, that’s what he says, not yield.

Snigger

One final note that makes me chuckle. Elon made his big announcement on Twitter. He has also blocked a lot of people on Twitter–including me in 2013 or 2014. Well, selective disclosure of public information–giving it to some people earlier than others–violates Reg FD (“Regulation Fair Disclosure”). So by (a) blocking me (and many others) on , and (b) running his big brain waves through Twitter, Elon might have committed other securities violations.

Hahahaha.

Never fails, The Guardian and numbers

But does it mean cheaper holidays? Yes. According to cost-of-living website Numbeo, the price of a beer in Bodrum has fallen by £2.60 to £1.60,

It’s fallen from, to, not by.

The Turkish lira hasn’t fallen that much, Jeebus. Well, yet, wait ’till Spudda advises Erdogan. Maybe taxes should rise by 10% of GP instead of interest rates going up. You know, monetary policy doesn’t work, only fiscal does, that’s the lesson of MMT.

Oh Aye?

Tesla shares climbed as much as 13pc on Tuesday night after its mercurial co-founder Elon Musk announced he was considering taking the electric car maker private.

In a series of tweets Mr Musk, who has repeatedly complained about Tesla’s treatment on the public market and clashed with analysts, said he had already secured funding for the plan.

The company later released a statement, in which it said a final decision had not yet been made on whether to take Tesla private.

Well, that’s one way to boost the share price ahead of a capital raising. You know, say you’re going private, but haven’t quite decided, stock price jumps, have a rights issue instead claiming circumstances have changed.

What would be interesting to know is what the bond covenants say. Do holders have a change of control put on them? That would mean they’ve got to refinance all the debt at the same time. No, I don’t know. But it would, to me at least, indicate that the going private is less likely than the public capital raise.

And onto entire speculation. I don’t think – not that I’ve particularly studied it – that Tesla can get to mass market without more capital. But I also think that it’s only one more decent slug and they could. Thus it’s actually worth, for the long term perspective, destroying the current share price with a screw the fanbois massive rights issue. One that’s fully underwritten of course so they’re guaranteed the money.

But then there is a reason why I didn’t become a banker…..

All most amusing

The growth of modern capitalism is being charted at the National Theatre in London in the swashbuckling, immigrant-entrepreneurial tale of the Lehman brothers. They sold overalls in 1850s Alabama, bought farmers’ raw cotton to sell to factories, diversified into coffee, rail and oil, and finally gave up on solid objects to deal only money.

In the final moments of the play the last family board member (40 years before the financial crash) prophesies that the next stage in banking is to exploit credit, “break the barrier of need” and make buying as routine as breathing: “Anyone can buy anything, and everything is a bargain!”

And so the mass-consumption society was born, and skidded all the way to the modern subprime mortgage crisis.

Well, no. Actually, entirely the wrong way around. Lehman went bust – truly, properly, bust – as a result of investments in real assets. Property in the Inland Empire if memory serves, but it might not. The bank run, the subprime mortgage crisis, these were to denouement, not the cause.

So this stuff that everyone knows about what happened is entirely, wholly, wrong. Which is going to cause certain problems when people try to apply the lessons, isn’t it?

Well, yes, obviously

The problem that Britain has, partly as a result of cultural and governmental promotion of ownership, is that renting is, objectively speaking, second best. You can currently pay more in rent than an owner would in mortgage interest

The owner has to finance and then also maintain, doesn’t she?

An interesting assertion

The assault by shadow chancellor John McDonnell came as he pledged total, “permanent” and cost-free renationalisation of water, energy and rail if Labour won power at the next election.

The logic goes like this. Government can borrow more cheaply than the private sector (well, most often, not always).

Buy the companies with the cheap money, the dividend income more than covers the interest costs, free money!

Well, OK. But did it actually work out that way last time around? Actually, no, it didn’t. The nationalised industries were less efficient. Less profit that is, for any given level of charges and or quality of service. We can tell this because both profits and levels of service have risen since privatisation.

At which point the question becomes well, what’s the balance between that lesser efficiency and the cheapness of financing? Past experience of nationalised British companies doesn’t favour the financing side of that equation, does it?

Really, not quite what he’s done at all

A burger van owner is considering hanging up his apron after making a £9million while trading stocks and shares online.

Stephen Bliss, 34, manages his trading fund at night from his home in Redcar using the social platform eToro.

Firstly, the entire piece reads as an ad for that trading platform. Secondly, and candidly, he’s not made that amount at all.

Currently, almost 7,000 people have invested in Mr Bliss’s fund which has a value of $12.75 million – £9 million.

He’s managing £9 million for mug punters.

Hmm. That’s fun actually. So, this platform, what’s the manager’s take on such a fund? One answer would be not much, given that he’s working in a burger van. Another could be ….well, anyone want to go find out? 2 and 20 would be fun, no?

My guess would be that you cannot charge a fee because FCA or summat.

We’ll need to be slightly careful about this, no?

The Governor of the Bank of England has urged the Government to abandon the use of the retail prices index (RPI) as a measure of inflation, especially in the issuance of government bonds.

The intervention by Mark Carney could have profound implications for both savers and borrowers because RPI tends to run at 0.7 percentage points higher than the consumer prices index (CPI), which is increasingly considered to be a more reliable measure of inflation. Nevertheless, RPI is still widely used in government contracts.

“It would be helpful to have just one public-facing measure of cost of living for consumers,” Mr Carney told the House of Lords’ economic affairs committee. “At the moment we have the RPI, which most people acknowledge is of no merit, and CPI, which virtually everyone recognises and is the target in our remit.

“At some point it would be good to consolidate to focus on one [measure of inflation]”.

The change would mean that savers who invest in inflation-linked gilts would likely earn a lower return. With £311bn of such index-linked gilts in ­issuance, a 0.7 percentage point change in interest could save the Government in the region of £2.2bn per year.

There is no one measure of “inflation” so discussing which one we should use makes sense.

But there’s a significant difference between issuing new bonds which use the CPI and changing the old bonds in issue to use it.

Actually, I think it would be a great idea to issue the new ones using CPI. Then we can see, from he difference in market prices, what people think about it…..

Sigh

Deutsche Bank has been forced to defend plans to pay staff bigger bonuses despite racking up a third consecutive net loss for 2017.

A report in German newspaper Frankfurter Allgemeine Sonntagszeitung this weekend that Deutsche Bank is planning to more than double its bonus pool to more than one billion euros has sparked a political backlash in the country.

Martin Schulz, leader of the Social Democratic Party, which is in coalition talks with Angela Merkel’s ruling party, said the plan “hurts our solidarity”.

A German government spokesman ratcheted up the pressure further today, warning Deutsche Bank “the company management must of course ask what impression it leaves in public”.

On the one hand, bonuses and pay must be linked to actual results, results which come from the efforts of those gaining the bonuses and pay. That seems like a reasonable structure too. So, stock awards aren’t just because share prices in general rise, but are measured against, say, the stock prices of peers.

All quite fine by me.

So, now we’ve got the bank making a bit of a turnaround. Operating profits are, as I understand it at least, up. But accounting profits are down, into losses. Because of the change in US tax laws. This isn’t something created nor done by the work of those inside the bank now, is it? So bonuses, given the above insistence, should be affected by it or not?

And if the tax changes had added a few billion to the bank’s profit would all be fine with the bonus pool expanding? If not, why the whining now?

Err, no

Guardian, money and numbers, never a happy combination:

I don’t know what that means. In 2014, 50 Cent released an album called Animal Ambition, and he allowed fans to purchase it using cryptocurrency.

I have never heard of this album. Don’t worry, nor has anyone. The rapper made only 700 bitcoin from the scheme.

That isn’t a lot. Well, it wasn’t. But he apparently forgot to do anything with those 700 bitcoin, and now they have a value of almost $8m (£5.6m).

That’s stupid. I don’t even know how money works any more. What makes it stranger is that 50 Cent filed for bankruptcy in 2015.

Wait, he was broke? Well, at the time, he did Instagram himself sitting next to the word “BROKE” spelled out in piles of $100 bills, so who am I to argue?

But now he is rich again? This is apparently how 50 Cent operates. Before his bankruptcy, he reportedly made $100m when Vitamin Water – one of his early investments – was sold to Coca-Cola. But then he lost all his money. And now he is rich again, all because he forgot about a cryptocurrency that is in the grip of an unsustainable paroxysm of hyperinflation.

Not really sure that something which rises in value is in the grip of inflation. Well, yes, inflates in value, guess so, but usually not used in reference to money, rather the opposite.

HSBC fined for frontrunning – good

No, they really shouldn’t have done this:

HSBC said the conduct which led the Department of Justice to issue this second DPA took place between 2010 and 2011 and, according to the document, relates to its handling of a client order by Cairn Energy and financial services it provided to another unnamed company.

The Cairn Energy case included Mark Johnson who, in October, was found guilty of defrauding Cairn over a £3.5bn client order. A jury ruled that he had driven up the value of the pound against the dollar by buying sterling prior to the transaction in order to make a bigger profit for HSBC.

Frontrunning. It’s not that they’ve screwed the market, it’s that they’ve screwed their own client.

HSBC has agreed to pay just over $100m (£72m) in penalties to settle a US Department of Justice probe into currency rigging.

Currency rigging isn’t really right, not the correct description, but a decent fine is.

Why did anyone think it would be different?

Consumers face higher prices and new “service charges” as retailers and businesses plan to circumvent the Government’s ban on credit card fees.

From Jan 13, “rip off” fees of up to 3 per cent charged by firms and ­government bodies when people pay by credit card – ostensibly to off-set charges paid to card companies – will be ­prohibited.

But The Sunday Telegraph has learned that some retailers and other companies are planning measures to “sneak” around the rules. These include: refusing credit card payments; increasing shelf prices; introducing new “service charges” across the board.

It costs money to run a credit card system. Someone has to pay those costs. Why not the people who use credit cards?

Snigger

Suspect Trading Leads Germany to Change How It Releases Data
Suspicious patterns in the trading of currency futures, discovered in an analysis by The Wall Street Journal, helped prompt Germany’s statistics agency to stop sending the sensitive economic data to journalists before the figures are publicly available.

The logic runs this way.

German journalists are German professionals. German professionals would never trade on early release information given to them in the course of their lives as German professionals.

Err, yes.

Err, yes, this is rather the point of the exercise

European banks will be allowed to operate as normal in the UK after Brexit under plans due to be announced by the Bank of England, according to reports.

The BoE’s plans are said to allow European banks to carry on operating without having to convert their branches in the UK into subsidiaries and without having to adhere to additional regulations.

The disclosure is likely to spark political controversy as it comes after Michel Barnier, the EU’s chief Brexit negotiator, ruled out a special deal to protect the City of London’s ability to trade on the continent.

Do we think it is of benefit to us that EU banks operate here as branches? What’s that? We do? Great, so that’s what we’ll o then.

What Johnny Foreigner does in Johnny Foreign is up to him, isn’t it? That’s rather the point of delinking from Johnny Foreign, no?