People are worried about unicorn index funds The popular stereotype of how SoftBank Group Corp. and its $100 billion Vision Fund work goes something like this. There are a handful of startups competing in some new sector. SoftBank swoops in and funds one of them with much, much more money than it wants. The infusion of SoftBank cash gives the favored company an immediate and insurmountable competitive advantage. It can expand internationally, everywhere, while its competitors grow slowly; it can out-compete everyone else by cutting prices to win customers. With limitless money to spend it can eliminate the competition and dominate the category. (This is sometimes called "blitzscaling.") Its rapid growth will come at the expense of huge near-term losses, but SoftBank doesn't care. It is playing the long game, and if you own the dominant player in a big global category surely you can find a way to make it profitable. One thing to say about this strategy is that, if this is your plan, it seems very important to pick one company per sector. Pump one company full of your money so it can cut prices, undercut the competition and gain a dominant market share, sure, great. Pump two companies full of your money and they will just keep undercutting each other down to zero, oops: Uber is under siege in Latin America amid a bruising price war where its ostensible rivals are Rappi and China's Didi Chuxing Technology Co. But here's the twist. All the combatants have as their biggest owner the same tech investor, Japan's SoftBank Group Corp., which has injected a total of $20 billion into the three. Startup investors typically don't back competing companies. SoftBank, which runs the world's largest venture-capital fund, has poured so much money into popular tech categories that it created a sort of circular firing squad in which SoftBank-backed companies use SoftBank cash to attack one another. … The SoftBank-funded fight is "just bad business," said Chris Sacca, founder of Lowercase Capital, an early investor in Uber. "When an investor infuses multiple direct competitors with money to spend in a race to the bottom, it's just a waste." Oh I mean, sure, absolutely, but in these situations it is instructive to remove a few layers of abstraction and just think about what is actually happening here. At one end, the sovereign wealth fund of Saudi Arabia plows gigantic piles of money into SoftBank's Vision Fund. At the other end, Mexico City's "legendary late-night snack spot El Moro" can have someone "deliver its churros and hot cocoa to takeout customers across the capital" well below cost, subsidized by the Vision Fund. The King of Saudi Arabia is sending hot chocolate to everyone in Mexico City. Here, have this nice hot chocolate, on the King of Saudi Arabia. Modern capitalism is always so much stranger than you expect. It is also useful, though, to ask: How else could this have gone? This seems irrational, yes, but how could things have been arranged differently to get a rational result? Well, SoftBank could have just picked one of these companies to invest in and tried to make it the dominant power everywhere. That seems pretty simple. Perhaps it wanted to diversify its geographic bets? None of these companies are originally Mexican; Uber started in the U.S., Didi in China and Rappi in Colombia. "Only fund one competitor in a global winner-take-all business" does seem like the simplest solution, but perhaps it is not obvious that taxis and restaurant delivery are in fact global winner-take-all businesses. Before Uber, to be fair, they definitely were not. There are other approaches. For instance, if Didi's managers had said "we think it makes good business sense to get into the Mexican market," and SoftBank's representatives had said "no you can't do that, Uber's already there and we own them too" (or if they'd said "okay fine, but you can't undercut Uber on price"), SoftBank could have saved a lot of money. But that seems like a very straightforward antitrust problem, the sort of thing that regulators dislike and ban and investigate and punish. Companies are not supposed to explicitly coordinate with each other to divide up markets and avoid price competition; doing the coordination through common shareholders doesn't make it any better. Or Didi could have just decided for itself not to move into the Mexican market, given the prospect of ruinous competition. Perhaps in weighing this decision it could even have quietly considered the fact that its big shareholder SoftBank had some competing economic interests. "If we move into Mexico it'll be expensive and risky and even if it works out perfectly it won't be that great for one of our big investors, so let's not," Didi's managers could reasonably have thought. My general sense is that startup founders, and corporate executives generally, do not often think like this; they put more of a priority on winning than they do on maximizing payoffs for their real shareholders' portfolios. But this is certainly a theory, and we talk about it a lot in the public markets. If instead of being startups partially owned by SoftBank, these were all public companies partially owned by index funds, they would all compete in the same markets—but also they might compete a little less aggressively? (BlackRock wouldn't be pouring in money so they could cut prices, anyway.) Or if instead of being three companies each partially owned by SoftBank, these were all divisions of one company—SoftBank Global Transit Inc. or whatever—then there would be no problem here. The divisions would carve up the globe and that would be that. SoftBank Transit Asia, SoftBank Transit U.S. & Canada, SoftBank Transit Latin America, no problem, of course SoftBank Transit Asia is not going to go launch in Mexico to compete with SoftBank Transit Latin America, those are not even words that make sense. (Actually many companies do have some overlap between their divisions, and make their divisions compete with each other, but mostly in a keep-everyone-on-their-toes managerial-strategy way, not in a ruinous-race-to-the-bottom way.) The "SoftBank representative" at each division would just be its "boss," and the boss would tell the division what to do in order to maximize the company's profit as a whole, and each division would do it, and there'd be no hint of controversy. We talk about this sometimes, the "firm exemption" in antitrust law: One company can divide markets up among its divisions, but three companies cannot divide markets up among themselves. (Often when we talk about it, it is in connection with the work of law professor Sanjukta Paul, who views antitrust law as an "allocator of coordination rights" that gives those rights generously to shareholder-owned companies and sparingly to, for instance, workers.) A giant multinational conglomerate that opened ride-sharing businesses in every country could rationalize their competition with each other, but giant multinational conglomerates are out of fashion these days, while venture capital funds backing young hungry entrepreneurs are in fashion. It is not all that different a model, in some respects, and SoftBank's strategy has some multinational-conglomerate elements, urging its portfolio companies in different sectors to do business with each other. (Also SoftBank itself, outside its venture investments, is kind of a multinational conglomerate.) But if you decentralize the decisions, if you allocate money to a bunch of local managers but don't control their companies, you might end up with less coordination than you want. Mergers though Or of course: Uber and DoorDash held talks to combine last year in a deal that would have accelerated the long-awaited consolidation of the lossmaking food delivery industry, according to people close to the discussions. The talks, held roughly six months ago, took place at the behest of Japan's SoftBank, a shareholder in both companies through its $100bn Vision Fund, these people added. While the merger discussions did not result in a deal, the two sides have not ruled out returning to negotiations or attempting to merge with a rival. DoorDash executives were cool towards the idea of a merger at the time, believing that their own food delivery service had stronger growth prospects than Uber's service, Uber Eats. DoorDash declined to comment. An Uber spokesman said: "We're in constant dialogue with all our shareholders, but to be clear: our M&A strategy is ours and ours alone." Nobody would have said that last sentence five years ago! It just would not have occurred to a normal company in normal times to say "our shareholders don't tell us who to merge with." Whether or not it was true—in fact there is a long history of public companies proudly ignoring shareholder desires on mergers, and a different long history of other public companies being forced into mergers by big activist shareholders—it just wasn't that controversial. Yeah, sure, listen to your shareholders, or don't; these are issues of corporate governance, not of antitrust law. But now there is a lot more attention paid to the idea that common shareholders of companies might push them to merge for anticompetitive reasons. U.S. regulators are asking public companies what influence their common shareholders had over merger decisions. I consistently find this question a little perplexing: If companies are merging for anticompetitive reasons ("we would like to stop competing and raise prices"), or if their merger is likely to have anticompetitive effects (less competition and higher prices), then those are reasons for antitrust regulators to act, whether or not they had common shareholders before the merger, and whether or not they talked to those shareholders. But I guess I can see the point here. The dynamic here really might be that Uber and DoorDash (and Didi and Rappi for that matter) are run by executives who believe that they are in a winner-take-all market, who believe that they can win, and who have huge (SoftBank-supplied) resources to try to win by undercutting each other on price. That is rational for Uber executives (if you win you get rich, and you think you can do it), rational for DoorDash executives (ditto), and irrational for SoftBank (you're paying for both of their efforts). In this dynamic the Uber executives won't want to merge (they'd rather win), the DoorDash executives won't want to merge (they'd rather win), the SoftBank representatives will want them to, and the antitrust authorities definitely won't want them to. Free hot chocolate for everyone is exactly the sort of consumer benefit that antitrust law is supposed to protect. Of course the dynamic might be different—if the DoorDash executives didn't think they had stronger growth prospects, for instance, they might want to sell while they could—and then a merger might be efficient and pro-consumer and favored by the antitrust authorities. But asking "do you want to do this merger or did SoftBank put you up to it" could be a reasonable way to find out. Given the rise of passive indexing, should the government subsidize active investors with tax credits? That is not a question I have ever thought about before, and it is not one that I will ever think about again, but here are law professors Adi Libson and Gideon Parchomovsky: To preserve the benefits of active funds, we explore the possibility of employing tax mechanisms to help defray the extra cost born by active funds. In particular, we argue for using tax credits to support active funds and enhance their market share. We also argue that, at a minimum, active funds should be subject to the same tax burden as passive ones, which should level the playing field in capital markets. We discuss two types of tax credits: effort-based tax credits and result-based tax credits. Effort-based tax credits would be granted whenever an active fund undertakes specified measures to improve corporate governance irrespective of their success. Result-based tax credits would be contingent on the attainment of certain outcomes. The two types are not mutually exclusive and can be combined for maximal effect. Effort-based tax credits would provide funds a tax credit for the expenses incurred by their monitoring activity, such as execution of proxy contests and the cost of analysts focusing on corporate governance issues, and how to vote the fund's shares. Result-based credit would provide a firm tax credits based on certain outcomes, such as passing a shareholder proposal, winning a proxy contest, gaining representation on a board, or increasing share values. A result-based credit would be calculated after controlling for non-governance factors such as market-wide or sector movement of share prices and firm-specific commercial events. Okay. People are worried about currency market liquidity Well they are: There's plenty out there to scare Wall Street, but ask traders what keeps them up at night and they may point to a familiar foe: lack of liquidity. JPMorgan Chase & Co. polled 650 professional traders and a third of them said diminished market depth was their biggest daily concern. It's at least the second year in a row a lack of liquidity has been the number one source of anxiety among the group, who primarily buy and sell currencies. I like to point out that when people worry about bond market liquidity they often have a set of worries—there are so many different bonds, they all trade by telephone rather than in convenient electronic formats, so many of them are locked up in mutual funds and exchange-traded funds that give an "illusion of liquidity," etc.—that are the opposite of the worries in currency (and equity) markets. Big companies might have dozens or hundreds of different, non-fungible bonds outstanding, but every country has more or less exactly one currency; currencies regularly trade electronically and instantly, and mostly no one bothers to put them into ETFs. But everyone, everywhere, always worries about liquidity; there are as many different and contradictory kinds of liquidity worry as there are markets. How many public-company CEOs have released electronic dance music tracks on SoundCloud? At least two! David "DJ D-Sol" Solomon at Goldman Sachs Group Inc. (here's his SoundCloud), and Elon "E 'D' M" Musk at Tesla Inc. Here's "Don't Doubt ur Vibe." Here's the Guardian review: Ironically, what Don't Doubt Ur Vibe really sounds like isn't a primetime dancefloor banger, but the kind of atmospheric, inoffensive music that might play in the background at the launch of a new car. Still, at least it comes with an unexpected bonus: if you leave Soundcloud running after the track ends, the app, for reasons that aren't entirely clear (algorithms? Mischievous intent?) immediately moves from the nascent oeuvre of Elon Musk to the work of a rapper called almndjoy, automatically playing his track Erectile Dysfunction .... Languishing unnoticed on Soundcloud for a year, it's seen a vast upsurge in plays since Musk's track made its debut, replete with a series of comments indicating that "Elon brought me here". Perhaps that will be Elon Musk's most lasting musical legacy: he's brought Erectile Dysfunction to the masses. We are early yet in the CEO EDM trend but I have high hopes for it. It could be the new golf. ("You know what, it's who I am, and nobody would tell me not to play golf," says D-Sol, and in five years some up-and-coming executive will give an interview in a business magazine where he's like "you know what, semiprofessional wrestling is who I am, and nobody would tell me not to make EDM remixes.") If you are considering a career in financial academia, now is the time to start thinking about writing a paper like "What Does the CEO's EDM Download Count Mean for a Company's Stock Price?" Column "A proposed new social network is hoping to entice millions of people to pay to get close to superstars of technology, business, and academia," says the MIT Technology Review. It is called "Column." It seems to be somehow Peter-Thiel-adjacent. There is a pretty wild pitch deck. Of most interest to me, I cannot lie, is the fact that my name[1] appears on their list of potential "Founding Columns," though, with Jeff Bezos and Bill Gates and Ronan Farrow and Malcolm Gladwell and Neal Stephenson and "Obama," I am in the "Need Intro" category. I guess, uh, email me? I don't know. My point is: Would you pay $100 a month to be in some sort of private social network with me? If, like, a thousand of you write back to say yes then perhaps we've got something here. When Lambo Nope nope nope nope nope nope nope nope nope nope: CurioInvest, an investment platform, and MERJ Exchange Ltd., a Seychelles-based digital asset exchange, are partnering to offer tokens backed by collectible cars. The companies say tokenizing the luxury assets as an investment could make them widely accessible to a bigger pool of people. "You can have a guy in Uganda who's able to invest in a rare car that's kept in a vault in Stuttgart, tokenized by a company in Liechtenstein and it all fits within this recognized regulatory environment," Jim Needham, head of digital strategy at MERJ, said by phone. "It's a perfect illustration of what this, as a tool, what blockchain technology and distributed ledger technology can do to democratize the capital markets." Nope nope nope nope nope nope nope! Nope! Though, if I were a rich guy who owned a lot of fancy cars, I would totally sell tokens backed by my cars. People would give me money, and I would give them tokens, and I would keep the cars. Smart contracts via crypto make this super doable. "Can I drive the car," they would say to me, and I would reply "no, you have the token, let that be enough," and then I'd roll up the windows and peel away in a cloud of exhaust and blockchain. Things happen Credit Suisse Power Struggle Erupts Before Board Meeting. Flash Crash Trader's 10-Year Spoofing Saga Gets Hollywood Ending. Amazon Value Tops $1 Trillion After Results Beat Expectations. German Banks Are Hoarding So Many Euros They Need More Vaults. Altria Takes $4.1 Billion Charge on Juul Investment. The Decline in Secured Debt. Avocado crime soars ahead of America's Super Bowl. "The kegs seemed very poorly maintained. It was always lukewarm and flat and possibly skunked. It was clearly meant to be more of a draw than a thing that is meant to be used." On-demand mobile toilet. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] Or possibly the name of nightlife impresario Matt Levine? ("Matt Levine is one of those guys—cool, hip, and seemingly born with a gift for creating and launching the next big thing," Bank of America says about, I must emphasize, not me.) Or one of my former Goldman Sachs Group Inc. or Bloomberg colleagues named Matt Levine? There are a lot of us. | 
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