I'm Matt Levine, Money Stuff columnist at Bloomberg. Ask me anything.

Occasionally I'll meet someone and ask them what they do and they say, "oh, I work in finance."

A few times I've really tried to drag it out of them with questions like, "when you get in to the office in the morning, do you open Excel? Mathematica? Like, what is the most rudimentary explanation of your job?" Never has this worked.

What questions should I be asking strangers who work in finance to understand what they're up to? (I'm an architect who draws shapes on a computer and writes emails.)

Thanks - love the newsletter, it's the best thing I've found to understand what "finance" is.

I dunno that sounds like a fine question, though thinking about my time in banking I am not sure I could have answered it. Like in what I did - a capital-markets-and-derivatives desk in the investment banking group at a giant bank - a lot of my day-to-day work was pretty project-oriented. You'd be working to get a trade done, which meant opening proprietary pricing software to price the trade, and opening Excel to make some charts and financial analyses for the client to understand how the trade worked, and then opening Word to mark up an offering memo or an ISDA confirm, and then sending emails to lawyers to ask about those documents, and then making a new spreadsheet and sending it to credit to get credit approval, and then writing a committee memo in Word, and a lot of emails along the way.

And another big part of my work was writing and reviewing pitchbooks (in Word, oddly; GS does pitchbooks in Word and I have basically no idea how to use PowerPoint), and then getting on planes to visit companies and be like "the convert market is hot, you could do a bond at 1s up 30, let's do it," and having them nod politely, and then getting back on the plane.

1. Some of your articles used to be pretty technical (e.g. explaining derivative structuring on specific deals). Why did you stop writing those?
2. What might you do instead of writing your newsletter for Bloomberg?

1. That is a hard question having to do with audience appeal and my own interests and skills evolving, but one part of the answer is that in the few years after the financial crisis there were a lot of really detailed disclosures--often from court documents--about derivatives deals gone wrong. Since the statute of limitations ran on a lot of this stuff, there are fewer of those things. It is hard to write in detail about derivatives structures when, as is often the case, the actual deal terms are not public.
2. I dunno, do you have any ideas? I do think that what I do is fun for me and people seem to like it, and there are not super obvious things that I would be better at. One answer is I suppose "structure weird deals for hedge funds"; like, I admire the people who came up with the Codere/etc. trades and it might be fun to be one of them. (Lucrative too.)

Where do you find all of the weird and wonderful stuff you are reporting on? What percentage are tips sent directly to you vs stuff you find yourself?

Super boring: I have an RSS feed of many (mostly obvious) sources, I spend a lot of time on Twitter, I skim the web pages of major financial publications, and people email me stuff. Probably the majority of things I write about, especially at the top of the newsletter, are just things that have been in Bloomberg News or the WSJ or FT or Times or wherever. A significant minority are SEC enforcement actions, etc., which tend to come in through my RSS. The rest is sometimes from RSS but probably mostly from tips.

Appreciate you showing the value of an open web standard (RSS) for your (awesome) work.

Ugh I love RSS and it is utterly essential to what I do; I just wonder how many people are in a similar boat. Not too many I gather.

I love RSS, but mostly get blank stares when I mention it to other ppl!

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What RSS aggregator do you use, feedly?

Yeah. I pay for the premium version. It is ... fine.

everyone i know in sell-side equity research uses RSS

Oh I did not know that, that is actually nice to hear.

Howdy Matt.

As a former investment banker and reporter who has probably seen a lot of goofy stuff pitched (trades, underwritings, financing deals, ICOs, holiday party locations) - what is the worst pitch you have ever seen that was successful?

Oh man. I don't have a great answer here because it is hard to measure success but here are two stories, both of which I have probably told in some form:

1. As a journalist, my favorite bad pitch is Dentacoin, the cryptocurrency for dentists. What is bad about this is (1) cryptocurrency for dentists and (2) they have sent me daily emails about it for months. Each email is about a new dental practice adopting it or something (???), so I assume they are having some kind of success.
2. As a banker, I kept a folder of Bad Pitchbook Pages. When I left, out of misplaced scrupulousness, I handed it off to someone else on my desk rather than sneaking it out with me. One of my favorites was a page listing clients we had previously worked with on some sort of transaction. But the transaction was confidential - not like a bond offering but something that companies don't disclose (I forget what, maybe a tax thing or something). And so the list was an *accurate*, real list of like 60 companies names, *all of them blacked out*. Just 60 black bars on a page with like "Our Satisfied Clients" at the top.

Hey Matt, just wanted to say I'm a huge fan and your newsletter and writing style has had a huge impact on my life, both professionally and otherwise.

Your last ama you had mentioned The Mezzanine having a sort of impact on your writing and I read it (and loved it) on your recommendation. What other books do you recommend? What are you currently reading?

More on topic, what's your outlook for the future of finance in the next 5 - 10 years? Will it stay the same, will some fields sink, etc.

I hope your column continues for a very long time and I look forward to reading it as long as I can.

P.S. We need more content on your snapchat story

I'm bad at recommending books, I read a lot of books, I dunno. I am currently reading (at the suggestion of my Bloomberg colleague Max Abelson actually) Elaine Pagels's "The Gnostic Gospels," which is pretty fun. I have recently really enjoyed the Rachel Cusk novels. This year I re-read "Diary of a Very Bad Year," which looks like a book about the financial crisis but is *really* a book about how it feels to work in finance and how a smart hedge-fund manager thinks about the world, I recommend it very highly.

I tend not to be good at predicting. I assume more automation, more algorithmic trading of more product types, etc., but maybe that is pure recency bias and the next crisis will bring a huge artisanal backlash to blind indexy investing. I don't know why it would, though, the last one didn't.

Yeah Snapchat terrifies me so I have just stopped doing it.

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Hey Matt you talk a lot about he you used to work in investment banking and how much of a grind that industry is. I went to a target school for IB and most of my fellow finance majors are now in IB and hate their lives/are just using it as a means to get into private equity. In your opinion, is there a breaking point here where this trend will stop, or will kids continue to work 80 hour weeks to prove how “dedicated” they are?

Hahaha you know all the banks are now claiming that things are much better, that analysts get weekends off, etc. But here we are.

I dunno medical residencies have been hellish for much longer than I have been alive, I don't see any reason why prestigious careers *can't* begin with apprenticeships that involve a lot of overwork and hazing.

Is it possible that the math underlying the Robinhood "checking & savings" debacle actually works out? Has anyone done an analysis or are we still just fuming at the name and their misleading statements regarding the SIPC coverage.

What is your view on dark pools?

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I don't think it's impossible! Short-term Tsys at 2.4%, I guess it depends on how much people use their debit cards and how many interchange fees they generate. I don't think there's enough information that's public yet to "do the analysis."

I am generally sort of libertarian on market structures; if people want to trade with each other without publicizing their orders, why not let them? Obviously there are in practice implementation issues in many dark pools, which I've written about; dark-pool sponsors tend to promise institutions "you can just trade with natural institutional flow here," then find there's not enough flow to actually do any trades, and then quietly sneak in some HFTs with bad consequences.

Hi Matt Levine! I absolutely love your newsletter

I know you've heard some requests on doing podcasts. Let me shout out against that! I find the written word (1) so much more convenient (2) much funnier! Articles are searchable, I can read them whenever I like, and the footnotes are a great bonus. Do you plan to stick to newsletter format?

Thank you, for all your insightful and hilarious content!

Thank you, I agree. I may eventually do a podcast because they seem fun, but it would be an adjunct to (or totally separate from) the newsletter, not replace it. I much prefer writing and like searchability too.

Hi, sorry but I think I have to stop. Thank you so much for all the questions, I am sorry if I did not get to yours.

Hi Matt, my friends and I were having an argument the other day and we thought perhaps you would have the answer...

"If Rupert Murdoch had suppressed the Theranos story and then sold his shares would that have been insider trading??"

I was saying no because Murdoch would have not been taking this info from Theranos but from his other businesses. My friend disagreed. What are your thoughts?

Also do you ever read the comments on your columns? I greatly enjoy all the Levine & Co jokes from what I imagine are guys from dealbreaker but I was wondering if you did too.

The Theranos question is hard because (1) he is arguably misappropriating from his own company, but arguably he owns it and can do what he wants -- depends really on what the actual institutional arrangements are, but since he is not the sole owner I suspect he can't actually do whatever he wants and has fiduciary duties not to misuse the information, and (2) Theranos was/is *not public* so he couldn't just "sell his shares." He'd have to find a buyer, and negotiate a deal, and get Theranos's permission, and at some point the buyer would ask him to rep that he had no negative information, and then there'd be trouble.

When I started at Dealbreaker I had (obviously) never written on the internet before, and everyone was like "don't read the comments," so I never did. Occasionally Bess would read me one if it was nice, or if there was some substantive point that needed to be corrected. I had to check just now to be sure that Bloomberg Opinion still has comments. I do read Twitter, though, for better or worse.

Hi Matt, huge fan, have recommended your email to everyone I know. What's going on with McKinsey these days?

Ha that's a good question. Nothing, really, right? Like I doubt much about McKinsey's approach has changed dramatically in the last decade. The changes seem to be external; there is just more of a PR risk to advising "bad" regimes than there used to be. Why that happened feels very complicated and you could probably throw some big words (Trump? millennials?) into your explanation, but it does feel like there are higher expectations that advisory firms should choose only "good" clients now.

I read your column every night while I eat Seamless at my desk - I especially love your recent takes on manufactured defaults in the CDS market.

Lately, it seems like the pressure has been ratcheting up on ISDA to figure out a way to prevent / solve these. I’m curious what decision you would make if it were up to you, and if you think ISDA will even be able to come to a solution that will be accepted by market participants, especially other regulators (namely the CFTC)?

I think the solution is non-obvious but there is some low-hanging fruit. Excluding de minimis defaults, defaults on debt held by affiliates, etc., might rule out stuff like Hovnanian. Maybe you do some maturity bucketing or something to make it harder to deliver a customized low-value instrument into CDS. But the basic problem is that a lot of companies are going to be *near* default, with a real chance of defaulting and a real chance of not defaulting, and whichever they choose will have significant economic consequences for CDS holders that might in some cases be more significant than the consequences to the company. I don't think this is like a 20-trades-a-year type thing, but it might be, like, 5.

One solution is just "have a lot less CDS on every company than it has debt outstanding," which seems like a quite plausible solution though not one ISDA would necessarily love.

Matt - I’m a Big Law stuck-in-a-rut type. I admire your career path - how did you make the leap from some very highly compensated jobs to (I assume) less compensation but perhaps (I assume again) more satisfaction and more time? Does it bug you to write about and sort of “live amongst” all of these people making gazillions of dollars in finance or whatever when you opted out of that track?

I made the leap by making the leap. I had no particular background or reason to think I'd be good at blogging about finance on the internet, but I didn't really want to be a banker anymore and I thought it'd be fun, so I did it. It was helpful that I had saved up, not only enough money to subsidize working at Dealbreaker for a while, but also a certain amount of, like, prestige. Like if I went and screwed around at Dealbreaker for six months and it was a disaster, I'd still have Harvard/Yale/Wachtell/Goldman on my resume and I could probably bounce back somehow.

I ... look there are moments when I wished I could afford more real estate, but I gotta tell you it almost never bugs me not to work in finance. So far the tradeoffs have been, not just worth it, but comically, obviously worth it.

(But that said I've gotten very lucky in what I do now and if I were not, like, writing this newsletter for Bloomberg I might have a different perspective.)

Do you believe that any of the three cryptocurrency narratives will succeed? Why or why not?

Sound money – “Trustless money” that cannot be inflated by any trusted authority such as a central bank.

Web3 – “Trustless internet” where Internet architecture is free of trusted centralized data & service monopolies. Users have more control over their data and Internet usage. These networks also compensate participants for economic value generated in the network.

Open finance – “Trustless financial systems” that extend cryptocurrency to provide open software primitives for equities, debt, derivatives, checking accounts, remittances, work contracts, retirement accounts, property etc.

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I think "sound money" is ludicrous.

I think "Web3" is really appealing and might even work though it is hard to see practical examples; Bitcoin arguably is one but the specific application here (payments?) is sort of specialized and entangled with the other arguments. But I certainly *like* the "Web3" narrative.

I am not averse to "open finance" but I think it is less plausible than "Web3." In particular I am not sure it needs *crypto*; you could get to a lot of the same place with some software standards and most of the current institutional architecture of finance. But that might be wrong, and the "open" part of it might really matter.

Hi Matt, I am a long time reader, and on many days your newsletter is one of the highlights behind the desk. I have two questions:

1) Microsoft and Blackrock have announced a cooperation on revolutionizing the US retirement industry using AI. Given the cooperation between Berkshire and Amazon announced earlier, is this the final proof that BigTechnobanks will be the monopoly of the future?

2) Do you think hedge funds will manage to pull of the same trick with Venezuelan, as they did with Argentinian? If so, do you see it going along the same lines as Jay Newman does?

1. I dunno but I kind of don't understand why there isn't more, like, bigtechnobanking. They have all those computers, all that data, all that AI talent, why not use it to predict stock prices etc. etc. etc.
2. The *same* trick? Exploiting pari passu? It seems unlikely, though not impossible; I feel like there is some (untested but plausible) technology for sovereigns to avoid the problem. (The Buchheit & Gulati "cryonic solution," etc.) On the other hand Venezuela has valuable assets outside of the U.S., and a stream of oil revenue, so there's certainly a lot that hedge funds can do, and are starting to do it.

Hey Matt, will Robinhood get fined? Will they get to keep the emails (probably around 1 million) they gathered?

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I'm thinking Robinhood did the whole fake account thing right! Wells Fargo employees had the bright idea of creating fake accounts.  The problem is that they were actually real! As a result they lost money operating those accounts and then lost even more money paying fines.  

Robinhood did it right!  If you want to create fake accounts, make sure they're really fake!  Sure, the SIPC and SEC will shut you down, but who cares.  You just got 1 million emails (maybe more).  You get to keep the emails without doing the fiddly bits of actually opening accounts!

I don't see why they'd get fined. They didn't do anything wrong. They said they would, but then they didn't.

I don't see how the SEC could force them to disgorge email addresses, though that would be a funny penalty. I am also not sure how valuable those emails are - presumably some number of people who signed up for a "checking & savings" account and then found out that (1) there's no such thing and (2) the account they'll actually get will take a long time to launch, will just feel burned.

One of the indirect impacts of the Great Recession has been the slow collapse of hiring prospects for humanities majors. Prior to 08, classics / English / history / what have you students from top schools were not uncommon hires at banks and consulting firms. As far as I can tell that’s pretty much ended, and many schools have drastically cut back on their humanities budgets as the departments have lost students.

While I realize your route took a detour through law, as a fellow humanities major now working in finance, any thoughts on the impact of the professionalization of college and what it means for careers, students, and society going forward?

Is that true? I sort of took an opposite view of it here; it seems to me that banks were having a harder time *attracting* humanities majors, as the global financial crisis tarnished the brand and made finance less of a prestigious default option. Certainly I would have loved to hire a classics major for Goldman when I last interviewed bankers, probably in 2010 or 2011, but I couldn't find any.

My views on the professionalization of college are complicated but basically I tend to think of a top school degree as largely a luxury consumption good, and I find it a little strange to be careerist about it. But I am almost 20 (!?) years out of college and perhaps that is all wrong.

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Hi Matt,

Your newsletters helped me pretend like I knew what I was talking about through an internship in finance and so I thank you for that.

I have a couple questions:

1) do you suggest a top-down or bottom approach to reading some of the great classics? Like would you recommend learning latin/greek first and then tackling the works, or reading translations?

2) how have social relations changed with your yale law/wlrk/goldman buddies since you became a newsletter writer? Like I imagine they’re more financially successful but you’re more famous - who gets better reservations? Do you wish you could buy things that you can’t? Do they wish they had the influence you do?

1. Oh I do not know. I think knowing languages is great but I have not for instance read the Iliad all the way through in Greek - I have read maybe a third of it, slowly, with dictionaries, decades ago - and it is worth reading the Iliad repeatedly. I guess I would say ... both? Like, read the classics in translation, but have some languages too?
2. I do not want to generalize but my impression is that many of my WLRK/GS friends are more envious of my freedom/fun than I am of their money. I have no ability whatsoever to get reservations, though this is rarely a problem since I don't go out much.

Hi Matt, wanted to thank you for your time today and for entertaining me just about every weekday. You're column has become a staple of my lunchtime.

Your background as a Classics major and your general love for reading has led to me discovering some interesting books and topics to read about as you allude to them in your column and on twitter. I have enjoyed many of these books! What are some books you would recommend for:

1) Someone who enjoys reading the Classics but never delved much beyond what you would learn from a survey course in high school / undegraduate (Homer, Virgil, Ovid, Cicero)

2) Anyone who enjoys reading

Also, I know you generally write in response to what is happening around you, but if you were forced to, what topics do you think people will be worried about in 2019?

I've greatly enjoyed reading your column these past few years and hope you will continue to write in the future. Thanks again, and happy holidays.

Ugh again I am bad at recommending books but I will say that as someone interested in classics, I loved Frances Yates's books about, like, classicism and magic and science and esotericism in early modern Europe. "The Art of Memory" is the most famous one, "Giordano Bruno and the Hermetic Tradition" is wild too.

Hi Matt! Glad you're doing another AMA. I'd like to think you had a good time last time around and wanted to do another (on arguably a more appropriate subreddit).

I watched (listened to) the whole FTC livestream on common ownership. I was struck by how the investment industry and academics were on totally separate pages.

In short, asset managemers focused a lot on the mechanism ("we don't tell firms to not compete"). Academics say "mechanism doesn't really matter, it's about data and economic first principles". Why do you think there's this vast difference?

(Btw if you want to weigh in, I'd love your opinion on my suggestion to nationalize index funds; no need to make them illegal.)

The vast difference is probably because the investment managers talk to companies and the academics don't!

You should read Matt Bruenig on nationalizing index funds.

What has been your favorite finance story (or even little oddity) to cover, and why?

Man I love Juicero so much, I couldn't tell you why. It just makes me laugh so much. It's not really finance.

I love "should index funds be illegal." I love it because academics and regulators are fascinated by it even as practical people in finance mostly think it's ridiculous. I love it because "se non e vero e ben trovato": Even if there is no empirical evidence that the rise of common ownership actually reduces competition, *it should in theory be true*, and if your theory is that corporations are responsible to shareholders etc. etc. etc. it seems silly to just dismiss it. I love it because if you do take it seriously the consequences are ridiculously grave, and because they suggest real stakes to a conflict between citizens as investors and citizens as consumers. I love it because if you *don't* take it seriously - if you think that common ownership doesn't harm competition - then that is an argument in favor of socialism. It is just a deep weird puzzle with surprising implications, where your priors will lead you to strange places.

At Dealbreaker I wrote about (1) JPMorgan's electricity manipulation and (2) Credit Suisse's derivative on its derivativesthat it sold to itself, which are to me still high points of, like, structuring.

When you hear about exceedingly "clever" trades, e.g. the Hovnanian trade, to what extent do you wish that you had come up with that when you were still working on Wall Street? Is there any one trade you consider especially clever?

TO A LARGE EXTENT. I mean, no, I miss the intellectual energy of coming up with things like that, but to be fair (1) it's not like I did, exactly, when I worked on Wall Street, (2) I do not envy the hours and stress of people who do trades like that, and (3) it's not like there are many jobs that are "do weird trades"; even weird-trade-hedge-fund types tend to specialize a bit, and you don't see too many people who do that sort of stuff over and over again. You see some though.

What has been your favorite job you've held so far and why?

Federal appellate law clerk by miles and miles. This is second, Dealbreaker third, then Wachtell, then Goldman, then high school Latin teaching, though I have mostly good things to say about all of them; none of those were bad jobs. That ranking by the way is *mostly* a ranking of *how good I was at them*. I would have liked teaching Latin a lot more if I hadn't been awful at it, and Goldman would have been more fun if I had been any good at sales and small talk.

Have you ever wanted to do more interview-style reporting, or investigative stuff? Maybe like Michael Lewis? I feel like you'd tell a really good story.

Or is "news synthesis" your highest-and-best-use?

News synthesis with some jokes and analysis seems like my highest and best use! I have no reason to believe that I'd be any good at "interview-style reporting, or investigative stuff." Like I have no training in it, I've never done it, I don't love talking to people, etc. Perhaps I am wrong but I do not have compelling incentives to find out.

What does this mean for the future of deposit like accounts? I feel like there have been three very interesting developments for deposit like accounts in the last year:

#1 The Narrow Bank announces they'll just park your money at the Fed (if you happen to be a large institution). The Fed says "No!" - that could cause systemic risk, cause it's too Safe!!!!

#2 Robinhood announces "Checking & Savings" SIPC and SEC says "No!" that's too risky.

#3 Betterment announces "Smart Saver" which is basically a CMA account that they invest proceeds transparently in treasuries and corporate bonds. Regulators seem fine with this, cause it's not pretending to be something it's not. Wealthfront will probably do something similar soon too.

I dunno. I do think there will eventually be some movement in the direction of narrow banking. TNB itself is not really a retail narrow bank, it is a particular sort of institutional rate-arb play, but between the pressures of smart people who believe in narrow banking and the pressures of cryptocurrency / "central bank digital currency," it is just hard to believe that something more narrow-bank-like will not spread more broadly.

As for the Robinhood thing, ignoring the "Checking & Savings" name, the general question is will there be more regulatory arbitrages of the form of "short-term/demand debt to fund slightly riskier assets in non-bank forms"? On the one hand, that is much of the story of financial innovation generally, so why shouldn't we expect more of it? On the other hand, that is very specifically the story of the 2008 GFC, so it's definitely a thing that regulators are attuned to and skeptical of.

Hi Matt, long time, first time. Do you think there’s anything that the finance sector as a whole can do to help the general public restore trust in it? What aren’t banks and the like doing that they should which might help?

Secondly, any chance of one of your London based colleagues doing a similar newsletter for the Europe region?

Thanks- any lunch tips always hugely appreciated.

I mean I do not think there is, like, a grand gesture that could help. The trick is to stop having scandals for a while, but that trick is surprisingly hard to pull off!

I like to hope that my newsletter is not easy to replicate regionally but who knows ...

Hi Matt. As a finance professional that is keenly aware of both the business intricacies behind headlines as well as human nature -- what do you think of the photos that mainstream media uses to promote stories regarding to stock market sell-offs. They usually consist of NYSE brokers scratching their noses or wiping a stray hair from their foreheads, but seem to be perpetuating an, "oh sweet jesus, the stock market is collapsing; god help us!". Do you find that this is simply annoying or media's attempt to over-dramatize index sell-offs?

Oh man! That is mostly, like, you need a photo at the top, so what are you gonna put there? Probably a sad trader? That is not overdramatization, it is just sort of a demand of the format that there be a photo, and it's hard to put a photo on a story about a stock market sell-off.

Try putting a photo on a column about dark pools or HFT sometime; I have done it and I must say, it is impossible.

What do you think about "The Law" as an information system dominated by memes that fall in and out of favor with exceptions for particularly powerful memes such as "trail by jury," "free speech," and the like?

I am not sure what that means, but I am a very very very committed believer in "The Law" as an empirical description and prediction of what powerful people will do, rather than as a set of words written down with a transparent meaning and self-generating binding power. This is called "Legal Realism" and is, I have argued, having a bit of a (melancholy) golden age.

What is your speaking fee?

I don't do paid speeches because (1) I am a Bloomberg employee so it's a conflict of interest and (2) if I did paid speeches I would have to write and deliver a speech and have it be worth $X,000, which seems like a lot of pressure. But people do occasionally ask me to do paid speeches and I always ask them: Well, if I could, how much *would* you pay? I never get a straight answer but I guess I'll ask you too.

What are the odds the founders of Robinhood channel their inner Elon Musk and are later quoted as saying "I literally have zero respect for the SEC"?

Oh nil, nil, there is a difference between running a public company and running a broker-dealer. They absolutely need the SEC's goodwill.

hey matt! love your newsletter. i also run a daily newsletter and was wondering if you feel burn out ever? and if you do, how do you push through it?

All the time. I dunno, I mostly push through by having a job, wanting to get paid, etc. Usually I spend a couple of days wallowing in misery and something hilarious happens and I get to write about it and I feel better again.

How accurate, all things considered, do you think big bank financial results are? Like the book value of a GS or BAC - is that accurate to within a billion dollars? 10 B?

I dunno. Like some stuff is very marketable and so valued very accurately; some stuff is very Level 3 and so not. But the way I think about it is that in a lot of lines of work you like build a factory and account for it at cost and then sell widgets and account for their revenue as it comes in. And sometimes in other businesses someone will get the bright idea of like "we signed up a customer, let's account for the next 20 years of expected profit from that customer as profit now," and they'll have great results and eventually this method will come out and everyone will be like "well why did that seem like a good idea."

But with financial assets everything is like that: Everything is the PV of its expected cash flows, and as those expectations change the present value changes. If you run a hardware store and people don't buy as many hammers this quarter, you have less revenue. But if you run a bank and people don't pay their mortgages this quarter, every future quarter's lowered expectations of mortgage payments flow into the current market value of your mortgage-backed securities, and your revenue is (depending on how you account for those MBS!) reduced by all those future expectations, not just by the actual missed payments this quarter.

So when you ask "is that accurate," it is hard to know what the question is. One way to judge is if you could see how every bank (hedge fund etc.) valued every asset, you could get a sense of the dispersion on valuations, and there'd be some: Some people would value a position at $X, and some people would value the same position higher or lower. But more broadly the way to judge is like, if a bank values a position at $10 million, and in fact over the future life of that position it only brings in $5 million, then the valuation was off by $5 million (ignoring time value). But that's not really an "inaccuracy" or a mistake or fraud or whatever; maybe the thing's market value really was $10 million and circumstances changed.

Hey Matt,

What are your thoughts on the reasons for why we have differences in market structure between equities and fixed income. We have exchanges and a single price (in theory, Reg NMS) for equities whereas for fixed income we have many broker dealers and no exchanges. The result is that even the best places for individual investors to buy and sell secondary bonds (Schwab, last time I checked) have significant spreads for single-bond quotes. Even forgetting about corporates, does Treasury not care about small-scale individual investors being able to trade their securities at the single-bond level with as good of prices as institutional ones (presumably they could force treasuries to be sold at a single price nationwide with no minimum trade size)? Why or why not?

I assume the answer has to do with bonds being a more institutional product while stocks are more of a retail-speculation product. But even institutionally it is hard to electronify bonds because there are so many bonds, so many don't trade much, etc. That is less true in Treasuries obviously.

Matt,

Big fan. Are we living in a simulation? Does the answer matter as it relates to everyday life?

I would say no and no but it is hard to have much confidence in those answers.

In Money:Whence It Came, Where It Went, John Kenneth Galbraith specifically relates how banking is different than any other profession. He relates how bankers are endlessly serious and contrasts it with Evelyn Waugh's Decline and Fall depiction of doctors being funny and even inebriated.

Will there ever appear in literature--or, ideally, in real life--a drunken banker? Is money slowly becoming fun? Will it ever?

Wait what? Have you read Liar's Poker? There are plenty of drunken bankers though the modern stereotype tends to involve cocaine.

When will you start a loan market liquidity section?

I've done it once or twice. It feels like a rerun of PAWABML and honestly I am tired. I got so many complaints about PAWABML, people were so bored, and my response was always "well yes I am bored too," so it seemed like a good time to stop. If PAWALML ever becomes interestingly *different*, we'll see.

Hi Matt, a regular reader here from within the ivory tower. What is your opinion on the finance industry recruiting people with advanced degrees in physics, computer science, statistics and such?

The problem in academia is that a lot of people consider going for such jobs as "selling out", while there simply aren't enough faculty or research positions for every talented grad student on the job market.

I have friends in finance who feel they are caught in a rut, and do monotonous work far removed from what they were trained for.

I would talk to hard-science PhDs in finance who were like "I feel like I have so much more of an immediate impact, I have an idea and code it and then we do it a week later, as opposed to physics where it took years to accomplish anything." But they may have just meant "the money is better."

I have to say though it mostly seems like a good problem? Like basically the deal is that if you get a good physics PhD then the best case is you get to be a physicist and the worst case is you get paid a lot of money doing somewhat boring finance work. That's a good fallback! In the humanities no one wants a PhD because the academic job market is so terrible and because the non-academic market doesn't know what to do with a humanities PhD, which means that humanities PhD programs probably have a tough time attracting the most talented students. But physics PhD programs can get great people because they know their fallback option is just fine.

Any advice on how to tell someone responsible for your income (boss, investor, committee) that their investment idea will lose money?

It seems that linking up with rational people should lead to interactions where they value your ability to dodge landmines, but it's hard to get attribution for successful avoids - leading to strange behavioral outcomes.

Oh man "hard to get attribution for successful avoids" is a core problem in finance, if I knew the answer I would probably be rich, or at least write it.

Surely the main advice is "get a boss who wants to be told that when appropriate." If your boss doesn't then that seems risky for other reasons.

Matt, just want to say I’m an enormous fan of yours. Look forward to your newsletter every morning. I worked as an IB intern this past summer and your newsletter would get me through the morning when interns had to be in the office, but there was no work (fucking banks).

Anyway my question is, what’s your rule regarding politics in your newsletter? I always find it artful how you constantly toe the political line but very rarely give outright opinions on hot political issues. Is this just how your style has evolved (focusing on nuances rather than macro arguments) or is it a purposeful attempt at not alienating any readers.

Also you’re freaking hilarious and never fail to make me smile with your wit

My rules are mostly

1. It is a newsletter about finance, so I try to write about finance and not other things. This rule is very flexible - I write about food in bowls! - but I try to mostly break it for things that are really funny or interesting.
2. People seem to enjoy it, and I want them to enjoy it free of sad political things, and also I enjoy writing it, and I want to enjoy writing it free of sad political things. Like I would not enjoy writing a lot about hot political issues, and somewhere between 50 and 90 percent of my readers (the ones who disagree and many who agree!) would not enjoy reading it, so why do it?

Hey Matt, Where would you host your Christmas party? Tangentially, do you know what happened to ARA Libertad? Gracias

Probably at my house, I am so boring.

I think it is still sailing around being an Argentine navy, like, mascot? It's a tall ship, it does not have a ton of military value. But it docked in New York like a year ago and a bunch of financial bloggers were talking about going to visit it, I am not sure if that ever happened.

My dad likes finance. What book or books would you recommed for the holidays?

How much finance does he like? "Bad Blood" and "Billion-Dollar Whale" are both recent books that are sort of thriller-y business stories.