I was literally just talking to a SPAC CEO last weekend that was in a deal with Goldman that got dropped by them. Apparently, there are regulations coming down from the SEC and Goldman didn't want to deal with them and/or the regulations changed the profit calculus.
I suspect that similar to how the "market" has various things "priced in", larger financial firms want to stay ahead of regulation and essentially change their business models around ahead of regulations.
I think they all operate on the principle of being first for everything is more profitable, including exiting poor investments.
The best way to think of "priced in" when you are reading something that someone else wrote is to replace those two words with "I don't know". Nothing is priced in. Everything is priced in. When someone thinks of an idea, by virtue of sharing that idea it's deemed to be "priced in".
It’s really not. “It’s priced in” is just religion at this point and it’s really just surface level useless banter. The market is random and softly guided by macroeconomic forces. Interest rates go up and then the share price of Google goes up? Priced in. They go down and the share price goes up? Priced in. Company has a bad quarterly? Already pride in by the nefarious “market”. Etc. Recognizing things like that is a good first step toward having a coherent investment thesis.
> rates go up and then the share price of Google goes up? Priced in.
Google is profitable and trading at a below-market multiple. It's a poor rates play.
Rates directly influence broad-market multiples, which Google will track, but "market goes down and Google goes up...priced in" isn't an intelligent thing to say.
> Rates directly influence broad-market multiples, which Google will track, but "market goes down and Google goes up...priced in" isn't an intelligent thing to say.
Right.. which is why people should ignore "priced in" comments and instead read them as "I don't know what I'm talking about whatsoever".
There's no such thing as "priced in" - it's a contradiction and only used by people who are religiously inclined to talk about events that are random and don't have an explanation. If someone says "oh that was priced in" that's an extremely clear signal that they do not know what they are talking about.
> Google is profitable and trading at a below-market multiple. It's a poor rates play.
Did you intentionally miss the point or were you genuinely confused about what the discussion was about? It's very clear that I was not providing any sort of analysis about Google and interest rates rising (or lowering) and was talking about how people just say any action is "priced in" once it occurs.
"Priced in" is not explanatory, it is predictive and the prediction is that you cannot consistently beat the market (where you are a generic smart person with no particular reason to have an edge, like most HN commenters).
Can someone explain Goldman's role? What are they underwriting? SPAC's merge with companies with capital that SPAC's already have collected. Was Goldman underwriting the formation of new SPACs when those SPACs are initially collecting money?
> Was Goldman underwriting the formation of new SPACs when those SPACs are initially collecting money?
SPACs are chock full of fees to Wall Street.
When the SPAC goes public, it pays an IPO fee. The bank, having to comply with fewer regulations than in a traditional IPO, makes a healthy profit. When the SPAC negotiates a merger it pays M&A fees. When shareholders are presented with the merger and asked to vote that comes with a fee. If there is a PIPE, there are, of course, more fees.
Later, when the sponsors sell their stock, there will be brokerage fees for the block trade. And I assume, in the final stage of a SPAC’s lifecycle, there will be de-listing, liquidation and/or distressed debt fees.
Only if there is too much leverage and an poor accounting of who owns what
The Federal Reserve bought the shitty mortgage backed securities because they werent that shitty, the banks just had too many of them relative
to the size of their own assets.
Even of subprime mortgages and adjustible apr mortgages only ~7% went into default by 2008-2009
A portfolio of mortgages where 93% are going to pay vastly more interest to you than the home is worth and you still have the home if they really default? Thats a good portfolio
The banks issue at the time was that they were leveraged up 50x, and they didnt even realize they were levered up that much
so a single month of 7% defaulting could bankrupt them
While the fed has an infinite sized portfolio without leverage, and bought all the claims and let them just play out which they have continued to do. Theyre profitable, correctly performing investments.
More transparent accounting fixes the problem with re-collateralized re-securitized assets
Given the cash burn of the classic 2021 SPAC, if they're not riddled with debt yet they may well be as soon as the stock market ATM stops spitting money (which might be about now).
Which reminds me OP omitted dilution/share issuance as a mechanism for banker fees.
> Underwriting fees on SPACs are less than traditional IPO as it is easier to get done
True, but the margins are wider. Most of the documents are boiler plate. The same investors were buying them in comparable chunks from deal to deal. All this before the boatload of the other fees I mentioned.
SPACs themselves need to float before they can make an acquisition. The investment bank provides the primary markets support for this, sets up a syndicate, and markets the spac to the institutional investor community.
There may be a level of underwriting going on also, as is the case with a rights issue or IPO, but it's probably more the marketing and access to the bank's client base that the spac benefits from.
SPACs are ridiculous. The sponsors take the lions share of the profits. Free money in many cases.. and the small investors get absolutely nothing. The whole scheme was rife with manipulation and excess. Not surprised GS is taking the conservative route. It only means they know the hammer is coming down on the shenanigans that took place.
He had an overconfidence in himself in the last few years, and yes, that line was awful, but I’m sure any of us would have an insensitive line if we would be trying to do what All In podcast does: try to say controversial things as well to get a real debate going.
I would not. That line along with EVERY SINGLE SPAC he has promoted (created) has absolutely devastated his brand. I am not certain that was his intent.
> but I’m sure any of us would have an insensitive line if we would be trying to do what All In podcast does: try to say controversial things as well to get a real debate going.
“All of us have our weak moments on public television around sensitive topics like genocide, while speaking as a billionaire”
It's easy to hate on SPACs. The duds brought to market were numerous. However, it was refreshing to see some new companies go public, which briefly reversed the trend of companies staying private for longer and longer. Rather than hate on SPACs, I would like to ask: has any company that went public via a SPAC been successful?
Maybe you would have gotten some edifying responses if you had confidently declared "no such company has been successful"... even if you don't believe it, people like to contradict.
Even if the purchased firm were solvent after some elapsed time, that wouldn't necessarily mean the SPAC investors had made any money.
Related: I wrote some code that attempts to extract the latest SPAC data (which you can filter/export) from SEC filings as they're filed: https://docoh.com/spacs
I'll admit I have some recency bias here as I just re-read The Big Short about the '08 financial crash but I think you're probably right on the first point, they got a tip or heard around the proverbial finance industry watercooler that a crackdown was coming and decided to exit. I'm 100% certain they've got something else in the works, probably more opaque for regulators and the public with less risk to Goldman and a higher profit margin if history is to be believed.
It's not a big secret that the SEC doesn't like SPACs. They make these things really clear before they start taking action. They specifically have an issue with the fact that the prospectus for a de-SPAC merger isn't (yet) subject to all the same reporting rules as an S-1 filing.
When companies have to present their financials coldly instead of painting the nice warm dream, it's gonna deflate the market. Between that and the other factors hitting the market now (interest rates and inflation), there just isn't going to be a huge amount of work in the space in the future.
You really don't need to assume a conspiracy of some sort is involved when all the completely public factors justify this.
This not-big secret is also a not-new secret. These aspects of SPACs have been apparent since the invention of SPACs. What completely public factor accounts for the change in Goldman's policy ?
You really don't have to cape up for Goldman. They don't care what we think. They always have enough alumni in the government that they don't have to care. [0] The Biden administration is theoretically less infested with them than previous ones, but e.g. SEC Chair Gary Gensler and Examiner Adam Storch are both former Goldman people. There are probably more but I figured one minute on DDG was enough...
Why is it so important to you that a conspiracy must exist? What pushed you to ignore evidence so hard that you appear to think that a question I'd already answered is some giant gotcha? (What's different now? The market has cooled massively for other reasons.)
If you look at the new rules the SEC announced, they're so poorly written that no bank would see them as more than an accounting checkbox. Those rules are certainly not the reason for winding down a line of business.
If you want to attack connections between finance and the government, why not focus on real ones? Like, why are the new SEC policies so toothless? Who wrote them, and why?
It could easily be someone from GS, even! But people are a lot more likely to listen to you if you save your criticism for things that are based on facts and clear reasoning. A massive web of innuendo is worth a lot less than one direct problem.
As a firm they seem to be pretty interested in hearing stuff from the market. It was the only bank I worked with where they wanted some nugget off you each time we went out for dinner. The same people when moved to other banks would behave differently, so I guess it's part of the firm's culture: get some piece of info from each client.
Doesn't have to be nefarious though, if it doesn't make money for them they leave. Someone somewhere else in the business will find some other thing.
The SEC has been saying for months they were taking a harder look here. Just reading the writing on the wall. All the companies that have gone public via SPAC have not done well, not sure who would go public that way - I imagine no one will be holding the bag because most will give the money back and go away
Has anyone from Goldman ever actually been in trouble from the authorities?
That was my take from the 2008 financial crisis: the government had to fix everything. Again.
And no Hollywood movie about the European, American and Asian finance ministers who had to make sure the ATMs kept working.
Fabrice "Fabulous Fab" Tourre was basically Goldman's fall guy. Reasonably junior (in investment banking, VP is junior - analyst, associate, VP, director, MD) who had sent some stupid emails to his girlfriend ("The whole building is about to collapse anytime now. Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!").
His crime was he wrote about it in company email... And the fact that he did so in bombastic terms (aka widows and orphans) was only fodder for the media.
Remember, your corporate email is not yours. Especially at a financial services firm.
One need only look at the nickel commodities market to understand that Goldman socks measures these things in terms of expected value, where if the benefit exceeds the EXPECTED VALUE (probability*fine) of the fines, they will have an active desk for it.
However the SEC recently increased its "Crypto Assets and Cyber Unit" staff from 30 to 50. Hopefully they'll bring the hammer down on token offerings with enough force to scare the big VCs away, at least.
I sure hope those scams took place on a public immutable distributed ledger and with multiple sophisticated parties performing signal intelligence on the chain. Otherwise, it might be a challenge to find the scammers.
Matt Levine, much like most journalists, does not create any of the content, he just writes about it. E.g. etcetera the stories he tells are usually of 3rd parties (like what's happening in financial markets).
Would be much more interesting if he had personally experienced or orchestrated what he discusses. Otherwise you may as well just listen to anyone.
EDIT: As some people are responding and confused about how journalism works: E.g. he wrote about Elon Musk today yet is just getting his information from other articles or Twitter as I doubt he is speaking with Elon Musk or involved in the deal. At that point it's just hearsay.
No offense, but this is silly. The whole purpose of journalism is to report what is happening to other people.
Writing about your first hand accounts is not journalism. If for no other reason than it would be inherently biased. We have a term for stories from a person's life written by the person: autobiographies.
The BBC puts someone on the ground in Kyiv while it's being shelled. They write about what they see and learn while there--and you don't think that's journalism?
To be clear, the criticism of Levine from the GP is total bunk, but this definition is weird.
In the past, yes, but I mean what he writes about now. E.g. he wrote about Elon Musk today yet is just getting his information from other articles or Twitter. At that point it's just hearsay.
So say a science writer reviews peer-reviewed literature to write about some technology or technological claim (let's say CRISPR) but has done none of that direct research themselves...are you saying they are just writing hearsay?
Now maybe you can qualm about where he gets his information and how reputable it is, but I think your standard for journalism differs from most.
That's not a prerequisite to journalism, though I guess that can be your standard for it. Musk is notoriously media-hostile, which means it's often very difficult to get direct quotes or responses from him on a story that doesn't try to flatter him. By your standard, that'd mean Musk has unilateral ability to discredit journalism by just not participating.
He has been offering analysis and commentary on the process since the beginning, floating theories for various parties’ positions and debunking silly ideas that were being taken seriously at the time.
Well good thing he's not a journalist. He writes a comedic opinion column that pulls from his experience as an investment banker and M&A lawyer. He's a blogger.
Au contraire, the white house press pool gives you unconsidered takes because they have to keep in the good graces of those they're reporting on. You get an inherently biased take
He writes opinion and analysis. You don't have to only report on primary sources for your work to be seen as journalism or for it to be useful. Your claim is pretty bizarre.
John Tuld: Let me tell you something, Mr. Sullivan. Do you care to know why I'm in this chair with you all? I mean, why I earn the big bucks.
Peter Sullivan: Yes.
John Tuld: I'm here for one reason and one reason alone. I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more. And standing here tonight, I'm afraid that I don't hear - a - thing. Just... silence.
I agree. Margin Call and The Big Short (the book is sooo good even if you've seen the movie!) are the best two movies that came out of that entire debacle. That scene was enjoyable. They really nailed the casting and conversations.
The part that bothered me is that, as I recall, there was no actual margin call in the movie. I guess it all was done in advance of a margin call? I don't recall exactly.
By dumping all their portfolio, they avoided the margin call which would have destroyed the company. Their early and bold actions saved the firm. Sadly for the folks on the other end of the trades, it probably crushed them.
Margin call is by far the best movie about the financial crisis of 2008 that I've ever seen. I was working in the biz at that time and it all just rang so true. 7 AM pre-market meetings, lots of folks crunching data, Wall Street people actually living in Brooklyn and so much more.
Sadly, the movie is so esoteric that it never had a mainstream success. Such a shame because it had great actors and a fantastic script.
The plot centers around the possibility of going bankrupt given the high amount of leverage being used on volatile mortgage securities that were starting to fail IIRC. The scheme they cook up to offload their as much of their position as possible the next morning.
It pretty much happened to Knight Trading. They turned on a dev trading algo and wound up acquiring a massive amount of positions (and thus risk). Their clearing firm forced them to close all those positions and the cost of crossing the bid-ask spread wiped them out.
You could also say it happens to small banks. If you fail some sort of FDIC testing, you're classified as at-risk and they force you to sell to a larger bank so as not to risk depositor funds.
I think an even better quote for this situation is the one where the same character says “there are 3 ways to make money - be first, be smarter, or cheat. And the easiest is always to be first.”
It's a quote from the 2006 film "Kingdom of Heaven". I choose to interpret it as a comment on the pointlessness of posting a line of dialog from a movie as a response to an ongoing news story with no other commentary.
Yes, the person who was just briefed on what was happening, and in very simple terms because he doesn't understand the technical language of complex financial instruments - that's the person who's guessing what "the music" is going to do?
That whole movie is so shallow when you think about it for more than 2 seconds.
You have to watch it a bit closer. He didn't ask for the problem to be explained in simple terms because he didn't understand what was going on. Instead he wanted to make sure his subordinates understood the problem and didn't try to hide their ignorance behind needless complexity. This is a strategy used by all of the most effective managers in the real world ("pretend that I'm stupid", "explain it to me like I'm five"). It was clear from the get go that he was the smartest person in the room in every scene he was in.
The movie also makes clear multiple times that the only people who were surprised by what was going on were the little guys – risk analysts and middle management. People at the top got the news and were simply like "ok guess it's finally happening".
If you ask around people who do this stuff for a living, all of them will tell you that out of the dozens of movies about the financial crisis, Margin Call was conceptually the closest one to how things actually work in the industry (obviously disregarding the Hollywood-esque dialog and characters).
The portrayal of that character didn't work for me. I just didn't find him plausible as a high-level finance executive. It's like a portrayal of a CEO for people who have never interacted with such a person in their life. If that character works for you, then it makes sense that you can interpret things in a more generous way.
That's funny because he is literally based on two real people – Richard Fuld and John Thain (who were CEOs of Lehman Brothers and Merrill Lynch respectively at the time of the crisis).
You haven’t interacted with a lot of ceos outside of tech then. I’d say irons and especially bettany’s low level desk director portrayals are exactly spot on. In some way toned down even
I think you’re assuming a little too much about what Irons character does/doesn’t know about the overall state of financial system. He may had other analysts/industry insiders briefing him on various things for months by that point.
I wasn’t the one making the original claim bc sorkin didn’t include 10 mins of exposition explaining the ceo’s logic there which btw is completely irrelevant to the theme of this movie.
