Old-school traders Different times, man: Varadhan interviewed with a pair of senior Goldman executives including Tom Montag (now Bank of America's No. 2 man) over a ham sandwich, and spoke with then-CEO Jon Corzine. With the newfangled market for derivatives about to explode on Wall Street, the bank offered the 25-year-old more than $1 million in guaranteed pay when he joined in 1998. "It was a mind-boggling sum for an associate," said Michael Karp, a veteran recruiter who was involved in the process. "But he was the right man for the job." That's from a Bloomberg profile of Ashok Varadhan, one of three co-heads of Goldman Sachs Group Inc.'s securities division, and the only one who comes from trading—"the last link to another era at Goldman Sachs, to the time when the traders ruled." A time when 25-year-old associates joined on $1 million guarantees! Disclosure, I also joined Goldman as a lateral associate, and I did not interview with the CEO. I also did not get $1 million a year. Nor did I make partner four years after I joined, as Varadhan did. (Actually I quit four years after I joined.) Now, I interviewed nine years after Varadhan, and I was not especially the right man for the job. But the main difference is probably that he was a very productive trader and I was neither particularly productive nor a trader at all. "In his first six months as an associate, the brash young trader with a penchant for big bets"—him, not me—"raked in more than $300 million in gains." The profile describes two attributes that make for a good trader. One is that Varadhan—who grew up as a swaps trader—has a good sense of what will happen in the financial markets, whether interest rates will go up or down, that sort of thing: "When I need to know how markets will react to big macro-economic events, Ashok is my first call," said Chief Executive Officer David Solomon. … "Not many folks I take note of and listen to, but when he's talking about the macro environment, I put my pencil down and listen," Jim Zelter, a co-president at Apollo Global Management, said of Varadhan. The other is that he is good at getting people to trade with him, commercial and customer-friendly and willing to do big trades and take risks to help out customers: Goldman Sachs was just embarking on the most prosperous era in its history. Hedge funds and other large clients were starting to use derivatives as tools for managing risk on their books, and Varadhan was constantly showing up on the other side of those trades. ... "Ashok's accomplishments as a rainmaker in his professional life are the stuff of legend at Goldman," Ram Sundaram, a senior Goldman trading executive, said at an event last year. He went on to give him the moniker "Legend of Bleecker Street." These are separate attributes, and in a sense you might expect them to work against each other. (If Varadhan is so good at knowing what markets will do, why would people consistently want to be on the other side of trades from him?) Having both, though, is very useful: Being commercial and customer-friendly means that you can do lots of trades and take on lots of risk; making good directional calls means that those risks mostly pay off. If you're customer-friendly and not good at predicting markets, you will do a lot of trades but you will lose money on all of them, oops. If you're good at predicting markets and not customer-friendly, on the other hand, there are still plenty of ways to get rich. You can run a hedge fund where you just buy stuff that will go up, and it goes up and you make money. Also, though, in 1998 or even 2007, being good at the pure business of making bets was useful on its own for a trader at a bank. Banks had proprietary trading groups whose sole business was to make directional bets, not to help customers, and their ethos sort of seeped into customer-facilitation trading desks. Making big bets on what prices would do was an accepted critical part of the trader's job. In 2019, on the other hand, the Volcker Rule limits proprietary trading, and banks are capital-constrained and risk-averse and run by conservative investment bankers rather than brash young traders. Big bets are just not as central to the business. And so the other part of the job—the part about being customer-friendly, about figuring out what exposure customers might want and then finding ways to give it to them—is relatively more important. You can't run a bank trading business just by knowing what interest rates are going to do, or by hiring people who know what interest rates are going to do; you need to hire people who know what customers want, and give it to them. The betting-right part is still important though! The thing you are giving to customers, after all, is exposure, and you are taking the other side of that exposure. What customers really want is for you to lose a lot of money on your trades with them, and that's not a great way to run a business either. One worry that banks sometimes have is that the modern regime makes banks unattractive employers for talented risk-takers, brash or otherwise. If your special advantage is that you are really good at making correct bets on whether interest rates will go up or down, banks used to offer you a fairly straightforward way to turn that skill set into money and power; now they don't, so you go to a hedge fund instead. And without enough of those people, banks' trading divisions will increasingly be run by people who are good at giving customers what they want but who don't have a particularly good feel for risk. They might take fewer risks than the old guard, but they'll still take lots of risks—that is the nature of a trading business; you're always on the other side of your customers' risks—and those risks will be motivated not by a reasoned desire to take those particular risks but just by the needs of sales and marketing. Without good risk-takers in charge, the risks you take anyway might not work out so well. Libra taxes My basic model for Libra, Facebook Inc.'s hyped but so-far-nonexistent currency, is that it is inconvenient and half-baked as a medium of exchange in a world dominated by national currencies, but it makes clear and perfect sense if Facebook becomes the government of the world and adopts Libra as its only legal tender. I mean you wouldn't bet against it, would you? Facebook has a Supreme Court, somehow, and a weirdly outsized influence on elections around the world. I am not saying that Mark Zuckerberg will be anointed Galactic Emperor tomorrow, but you can't put the probability at zero. So Libra's value is indexed to a basket of world currencies, not any one currency. This, I wrote a couple of weeks ago, is very annoying if you live your life in dollars and use Libra occasionally to pay for stuff online: Your Libras will always fluctuate in value and you'll never quite know how much things cost online. But turn it around: If you live your life in the Republic of Facebook, use Libra for everything, and only occasionally use dollars to buy things at quaint non-Libra-accepting offline businesses, the dollars will start seeming annoying. How inconvenient that you never know how many Libras a dollar will buy, that the dollar fluctuates in value against the one world currency! Or take taxes: Facebook's proposed digital currency, Libra, will cause immediate tax problems for users in Europe that will hamper its mainstream adoption, according to leading tax lawyers. ... As global exchange rates change, the domestic value of a user's Libra holdings will change accordingly, creating capital gains and losses, which would be realised each time someone used Libra to make a purchase. Dan Neidle, a partner at the law firm Clifford Chance, said that this would be a "novel problem" for users who followed the law. "In most countries gains will be taxable, meaning consumers will have to file a detailed tax return showing all their transactions and the exchange rate at the time, and pay any tax due," he said. "This seems to us to be a significant barrier to wide adoption." Sure sure sure if you pay taxes in Europe or the U.S. or wherever, the fluctuating value of Libra will make it an extraordinarily inconvenient way to buy things. But once you start paying taxes to Facebook to fund the costs of world government, Libra will be the natural way to do that, and buying stuff with dollars and euros will start to trigger annoying capital-gains issues on your Facebook tax return. Am I joking? Sure yes of course, but consider that that tax lawyer is not wrong. Libra is absurd in the current state of the world, with its national governments and currencies and tax regimes. Perhaps that means that Facebook is kidding, or hasn't thought things through, or is not really planning for Libra to be a meaningful medium of exchange. Or perhaps it means Facebook is deadly serious and has thought things through carefully and has concluded that governments and currencies and tax regimes are problems that can be solved. Hmm: Facebook said that taxation was one issue that needed to be addressed with regulators and said it was up to users to ensure they complied with local laws. Huawei and HSBC If a Chinese company in China does business with Iran, and if it uses an Anglo-Chinese bank to finance that business, is that a violation of U.S. law? Oh absolutely, yes. That's not legal advice, but it is a thing that U.S. prosecutors are very interested in: The global banking system uses dollars, and those dollars tend to flow through the U.S., and those flows give the U.S. a jurisdictional hook. And so big foreign banks have paid 10-digit fines for helping foreign companies violate U.S. sanctions, even though what they were doing was legal in all of their home countries. The global hegemony of the dollar, and criminal laws restricting the use of those dollars, are used as tools of U.S. foreign policy, and foreign banks have no choice but to help the U.S. implement that policy. Still it's sometimes hard on those banks: HSBC has launched a lobbying effort to convince the Chinese government that it is not responsible for the arrest of Huawei's finance director, as the bank tries to distance itself from the diplomatic row over China's top telecoms equipment maker. … Ms Meng is out on bail in Canada, where her lawyers are trying to stop her extradition to the US to face charges of bank and wire fraud in an indictment that also alleges that Huawei conducted business in Iran in contravention of US sanctions. HSBC provided information that helped US prosecutors build the case against Ms Meng and Huawei in a move that has infuriated executives at the telecoms group, according to people familiar with the matter. John Flint, HSBC's chief executive, and other senior representatives of the bank have told Chinese officials that it had little choice but to co-operate with the investigation after the US Department of Justice requested information on its relationship with Huawei in 2017, according to three people briefed on several of the discussions. … One person advising HSBC described the situation as "incredibly sensitive" for the bank, which generates nearly 75 per cent of its profits in Hong Kong, the autonomous Chinese territory, and mainland China. It's a U.K. bank that does most of its business in China, helping a Chinese company do business in Iran, but that's still enough of a hook for the U.S. The problem for HSBC is that China can implement foreign policy through bank supervision too. If every country uses its banking system as a tool of foreign policy, and if those foreign policies are antagonistic, then the banks will have to choose sides. Oh Bitcoin This sounds about right: Craig Wright, the Australian scientist who claims he created Bitcoin, said at a federal court hearing in West Palm Beach, Florida, that he can't comply with an order to produce a list of all his early Bitcoin addresses, and may not even be ever able to access the coins. … At times choking back tears, Wright told the judge that he is Nakamoto, the pseudonym used by the digital token's creator in 2009, and that Dave Kleiman, whose estate is suing him, was tasked with covering up Wright's tracks, so people wouldn't find out he was Satoshi. Wright said he decided to stop working on Bitcoin in 2010, the result of concern that the token was increasingly being used to trade drugs and child pornography. "I brought in Dave because he was a friend and he knew who I was and he was a forensic expert, and I wanted to wipe everything I had to do with Bitcoin from the public record," he said. I don't follow things closely enough to have a view on whether Craig Wright is or is not Satoshi Nakamoto, the pseudonymous inventor of Bitcoin, but I will say that there could be no purer or more perfect cryptocurrency fact than Satoshi Nakamoto losing $10 billion of Bitcoins because he forgot his private key. "Bitcoin: A Peer-to-Peer System for Losing All Your Cash," the white paper could have been called. "A purely peer-to-peer version of electronic cash would allow individuals to accumulate vast wealth online and then sheepishly confess that they'd lost their passwords and couldn't access their money." I love it so much. Good news If you are struggling to pay off your student loans, congratulations, the solution to all of your problems is so close. Just a couple of hundred million miles away: NASA is eyeing up a nearby asteroid that contains enough gold to make everyone on Earth a billionaire. Psyche 16 is nestled between the orbits of Mars and Jupiter and is made of solid metal. As well as gold, the mysterious object is loaded with heaps of platinum, iron and nickel. In total, it's estimated that Psyche's various metals are worth a gargantuan $10,000 quadrillion. That means if we carried it back to Earth, it would destroy commodity prices and cause the world's economy – worth $75.5 trillion – to collapse. We've known about Psyche 16 for a while, but its potential to cause havoc on Earth was recently touched upon by a veteran miner. Scott Moore, who heads up EuroSun Mining, said the sheer amount of gold in the asteroid threatens to throw the gold industry into chaos. I … well … um … okay? I actually think that if a bunch of economically important materials got a lot cheaper, that would be good for the world's economy! True, there is some history of huge exogenous discoveries of precious metals causing monetary disruption, but the important thing to realize is that that was back when precious metals were money. Now bringing back a gajillion tons of gold from outer space would not increase the money supply, because the money supply is not linked to gold. It would just decrease the price of gold. It would be super disruptive to gold miners, sure! The rest of us would be fine. I suppose this is an argument against returning to the gold standard, but honestly it is kind of a silly one, relying as it does on getting gold from asteroids. There is a lot of gold right here on Earth that has not been dug up! Because it is pretty deep underground or whatever. The relevant supply of gold is the stuff that can be extracted economically, not just the stuff that exists. The same thing is even more true hundreds of millions of miles away in outer space. You cannot just send a big dump truck to Psyche 16, shovel some loose gold nuggets into it, and drive it back to your house. I don't know why I am bothering to type any of this really. Now if they find an asteroid that is made out of Bitcoin, that will be economically significant. Things happen Deutsche Bank Plans to Cut as Many as 20,000 Jobs in Revamp. Swiss Stocks Trade Smoothly on Day One Without EU Recognition. Elizabeth Holmes Blames Journalist for Theranos Troubles. BlackRock Can't Invalidate Saba Capital's Board Nominees. Walmart Turns to VR to Pick Middle Managers. Warren Buffett Donates $3.6 Billion of Stock to Five Foundations. Walmart Heir Jim Walton Gives Away $1.2 Billion of His Fortune. At Purdue Pharma, Business Slumps as Opioid Lawsuits Mount. All of uBiome's top execs are out at the embattled poop-testing startup that's at the center of an FBI investigation. How Should Space Settlers Keep Track of Time? Recently Promoted Spanish Soccer Club Renamed As Flat Earth FC. Mets apologize to player they accidentally declared dead. Orchestra plays one concerto while soloist is expecting another. Old Town Road crypto remix. 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