Oversimplification Together With Fiscal Criminal Offence (Felix Salmon Edition)
I sometimes joke that at 1 time accounts similar virginity cite to 1 soil alone - whereas fiscal criminal offense - equally does sin - refers to a multitude.
This spider web log aims to render - inward business office - a morphology of sin - too alas similar the loss-of-virginity too relationships that ensue - it is complicated.
Not everybody ever sees it that way. Felix Salmon posted almost "the article Felix links indicates - that the demeanour in all likelihood isn't illegal. It should be. I don't disagree amongst Felix's catch hither - exactly the fact of illegality is non clear.
Olympus
The Olympus scandal is alas much harder. I spent almost 18 (almost continuous) hours late looking at Olympus. I want the story was equally uncomplicated equally Felix indicates because you lot would purchase the stock amongst your ears pinned back. If the story was that $2.5 billion were exactly stolen therefore you lot would choose a concern that could generate $2.5 billion (which makes it a rattling valuable business) too the looting would likely halt now. If the story was equally uncomplicated equally Felix says you lot would purchase the stock equally the concern volition function on to hold upward highly profitable too the stock has cratered.
But Felix's story isn't fifty-fifty the official story now. The official story is that Olympus made around rattling large (albeit genuine) trading losses over a decade ago. It hid them. And hid them. And hid them. And its books did non residuum therefore the hiding involved many senior staff. Then after many years (and towards the halt of the careers of the malefactors) they sought to choose the books dorsum into balance. So they jigged upward around large mistaken acquisitions too paid a yoke of billion for them. The coin soundless was non looted - it was recirculated to fill upward the hole inward the residuum canvass from the trading losses.
If that story were truthful you lot would soundless in all likelihood purchase the stock because that is soundless a story almost a rattling profitable underlying concern that volition in all likelihood retain its profitability too a stock that has cratered.
Alas I am non certain fifty-fifty that story is true. At the substance of Olympus is an amazingly profitable medical devices business. It makes gastrointestinal endoscopes - devices you lot stick you lot know where - too hold back for colorectal cancer. These devices are also used inward operations. Stated revenue for this segment was 355 billion yen too operating turn a profit was 69 billion yen. Put this inward dollars because I don't cry upward inward yen - that is $4.6 billion inward revenue too $890 1 G 1000 inward operating profit. That is a lot of turn a profit too a lot of revenue from peering where the Sun don't shine.
My fearfulness was that was too much profit. I could non convince myself that this concern should hold upward equally profitable equally all that. An choice hypothesis occurred to me - which was that Olympus was sharply overstating the turn a profit of its substance medical devices business. Over fourth dimension their accounts would therefore shift from reality - perchance past times cumulatively to a greater extent than than a billion dollars. So around twenty-four hr catamenia they would chose to fill upward the hole (just equally they supposedly filled the hole on the hidden trading losses). And therefore they did the mistaken acquisitions.
If my choice hypothesis is right therefore the representative for buying Olympus stock evaporates. What you lot choose is a cratered stock too a concern that had been fraudulently overstating profits for years. And it has a lot of debt.
The underlying low-level-of-profitability hypothesis is to a greater extent than consistent amongst the debt load.
Olympus exactly isn't equally uncomplicated equally Felix makes out - too the differences choose investment implications. If alone it were exactly looted.
MF Global
What happened at MFGlobal is not clear. There is no query that client cash is missing - but at that topographic point is around dubiety equally to whether it was "stolen" or whether something else happened to it.
Influenza A virus subtype H5N1 USA based broker-dealer (though non broker-dealers inward other jurisdictions) is obliged to hold client assets (usually securities) form out from theatre assets. Usually this agency that client assets which are non required to hold upward pledged to back upward client balances are kept inward a client segregated account. Client assets are allowed to hold upward pledged but alone to a depression multiple (usually 1.4 times) the client residuum too therefore alone to back upward client obligations. In other words client assets tin forcefulness out hold upward pledged if the clients are leveraged.
Client cash is also meant to hold upward segregated nether similar terms. The occupation is that client cash is non kept equally cash - that is it is non bits of newspaper sitting inward vaults. Client cash is kept equally people unremarkably hold cash - inward depository fiscal establishment deposits when it is pocket-size inward majority too maybe inward curt dated regime securities when it is large inward volume. Brokers choose ever been allowed to purchase regime securities equally a purpose of client cash.
If they held Euro cash therefore they would presumably hold upward allowed to purchase Euro regime securities (and inward Europe at nowadays that agency High German Bunds).
Robert Lenzer inward Forbes suggested (and perchance amongst skilful evidence) that the cash was held equally Italian, Greek too Castilian regime bonds - perchance longer dated. These are Euro regime bonds held against Euro cash - which would hold upward OK if it were USA Government bonds against USA cash. But inward Europe its a problem: European governments can't impress the Euro therefore they are non riskless too the assets were long dated. In which representative MF Global may choose legally speculated amongst client money. This is not the simple, easy-to-understand illegal too unethical demeanour of Felix's spider web log postal service - rather a glaring policy loophole. Moreover Lenzer suggests that MF Global actively lobbied to hold the loophole open.
Still I am non fifty-fifty certain of the Lenzer story. There is a story doing the rounds inward Asia (meaning I choose heard it from multiple sources) that Deutsch Bank and/or Goldman Sachs got the client assets - the client assets were posted equally collateral maybe for client positions too maybe for MF Global's ain positions. And the bulge-bracket guys snitched it.
Now if it were clearly marked equally client collateral and DB or GS snitched it therefore the big-boys would hold upward involved inward theft. But if were non clearly marked equally or somehow DB too GS were non informed that it was client collateral therefore DB too GS would hold upward entitled to choose handgrip of it. And if they grabbed client collateral therefore alas it is non at that topographic point for the clients.
So it is a existent query equally to what collateral was posted to whom too who snatched it. That volition hold upward litigated for a long fourth dimension - too a malicious - or for that affair a not-guilty political party at MF Global is probable to enjoin the jury that they posted the collateral to Goldman Sachs too clearly told Goldies it was client collateral and that Goldman Sachs pinched it anyway. It may hold upward a uncomplicated criminal offense - but a uncomplicated defence forcefulness - too 1 that many people would respect intuitively appealing - is that Goldman Sachs et al, non MF Global, stole the money.
Summary
All I am maxim is that Felix has picked yet around other 3 which practice non come across Felix's criteria of "simple, easy-to-understand illegal too unethical behavior". Financial criminal offense - similar whatsoever morphology of sin - is complicated. Almost always.
John
This spider web log aims to render - inward business office - a morphology of sin - too alas similar the loss-of-virginity too relationships that ensue - it is complicated.
Not everybody ever sees it that way. Felix Salmon posted almost "the article Felix links indicates - that the demeanour in all likelihood isn't illegal. It should be. I don't disagree amongst Felix's catch hither - exactly the fact of illegality is non clear.
Olympus
The Olympus scandal is alas much harder. I spent almost 18 (almost continuous) hours late looking at Olympus. I want the story was equally uncomplicated equally Felix indicates because you lot would purchase the stock amongst your ears pinned back. If the story was that $2.5 billion were exactly stolen therefore you lot would choose a concern that could generate $2.5 billion (which makes it a rattling valuable business) too the looting would likely halt now. If the story was equally uncomplicated equally Felix says you lot would purchase the stock equally the concern volition function on to hold upward highly profitable too the stock has cratered.
But Felix's story isn't fifty-fifty the official story now. The official story is that Olympus made around rattling large (albeit genuine) trading losses over a decade ago. It hid them. And hid them. And hid them. And its books did non residuum therefore the hiding involved many senior staff. Then after many years (and towards the halt of the careers of the malefactors) they sought to choose the books dorsum into balance. So they jigged upward around large mistaken acquisitions too paid a yoke of billion for them. The coin soundless was non looted - it was recirculated to fill upward the hole inward the residuum canvass from the trading losses.
If that story were truthful you lot would soundless in all likelihood purchase the stock because that is soundless a story almost a rattling profitable underlying concern that volition in all likelihood retain its profitability too a stock that has cratered.
Alas I am non certain fifty-fifty that story is true. At the substance of Olympus is an amazingly profitable medical devices business. It makes gastrointestinal endoscopes - devices you lot stick you lot know where - too hold back for colorectal cancer. These devices are also used inward operations. Stated revenue for this segment was 355 billion yen too operating turn a profit was 69 billion yen. Put this inward dollars because I don't cry upward inward yen - that is $4.6 billion inward revenue too $890 1 G 1000 inward operating profit. That is a lot of turn a profit too a lot of revenue from peering where the Sun don't shine.
My fearfulness was that was too much profit. I could non convince myself that this concern should hold upward equally profitable equally all that. An choice hypothesis occurred to me - which was that Olympus was sharply overstating the turn a profit of its substance medical devices business. Over fourth dimension their accounts would therefore shift from reality - perchance past times cumulatively to a greater extent than than a billion dollars. So around twenty-four hr catamenia they would chose to fill upward the hole (just equally they supposedly filled the hole on the hidden trading losses). And therefore they did the mistaken acquisitions.
If my choice hypothesis is right therefore the representative for buying Olympus stock evaporates. What you lot choose is a cratered stock too a concern that had been fraudulently overstating profits for years. And it has a lot of debt.
The underlying low-level-of-profitability hypothesis is to a greater extent than consistent amongst the debt load.
Olympus exactly isn't equally uncomplicated equally Felix makes out - too the differences choose investment implications. If alone it were exactly looted.
MF Global
What happened at MFGlobal is not clear. There is no query that client cash is missing - but at that topographic point is around dubiety equally to whether it was "stolen" or whether something else happened to it.
Influenza A virus subtype H5N1 USA based broker-dealer (though non broker-dealers inward other jurisdictions) is obliged to hold client assets (usually securities) form out from theatre assets. Usually this agency that client assets which are non required to hold upward pledged to back upward client balances are kept inward a client segregated account. Client assets are allowed to hold upward pledged but alone to a depression multiple (usually 1.4 times) the client residuum too therefore alone to back upward client obligations. In other words client assets tin forcefulness out hold upward pledged if the clients are leveraged.
Client cash is also meant to hold upward segregated nether similar terms. The occupation is that client cash is non kept equally cash - that is it is non bits of newspaper sitting inward vaults. Client cash is kept equally people unremarkably hold cash - inward depository fiscal establishment deposits when it is pocket-size inward majority too maybe inward curt dated regime securities when it is large inward volume. Brokers choose ever been allowed to purchase regime securities equally a purpose of client cash.
If they held Euro cash therefore they would presumably hold upward allowed to purchase Euro regime securities (and inward Europe at nowadays that agency High German Bunds).
Robert Lenzer inward Forbes suggested (and perchance amongst skilful evidence) that the cash was held equally Italian, Greek too Castilian regime bonds - perchance longer dated. These are Euro regime bonds held against Euro cash - which would hold upward OK if it were USA Government bonds against USA cash. But inward Europe its a problem: European governments can't impress the Euro therefore they are non riskless too the assets were long dated. In which representative MF Global may choose legally speculated amongst client money. This is not the simple, easy-to-understand illegal too unethical demeanour of Felix's spider web log postal service - rather a glaring policy loophole. Moreover Lenzer suggests that MF Global actively lobbied to hold the loophole open.
Still I am non fifty-fifty certain of the Lenzer story. There is a story doing the rounds inward Asia (meaning I choose heard it from multiple sources) that Deutsch Bank and/or Goldman Sachs got the client assets - the client assets were posted equally collateral maybe for client positions too maybe for MF Global's ain positions. And the bulge-bracket guys snitched it.
Now if it were clearly marked equally client collateral and DB or GS snitched it therefore the big-boys would hold upward involved inward theft. But if were non clearly marked equally or somehow DB too GS were non informed that it was client collateral therefore DB too GS would hold upward entitled to choose handgrip of it. And if they grabbed client collateral therefore alas it is non at that topographic point for the clients.
So it is a existent query equally to what collateral was posted to whom too who snatched it. That volition hold upward litigated for a long fourth dimension - too a malicious - or for that affair a not-guilty political party at MF Global is probable to enjoin the jury that they posted the collateral to Goldman Sachs too clearly told Goldies it was client collateral and that Goldman Sachs pinched it anyway. It may hold upward a uncomplicated criminal offense - but a uncomplicated defence forcefulness - too 1 that many people would respect intuitively appealing - is that Goldman Sachs et al, non MF Global, stole the money.
Summary
All I am maxim is that Felix has picked yet around other 3 which practice non come across Felix's criteria of "simple, easy-to-understand illegal too unethical behavior". Financial criminal offense - similar whatsoever morphology of sin - is complicated. Almost always.
John
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