You call her up and ask her for more money a margin call but she, sensibly, doesnt answer the phone. But there are risks. For starters, Binance executives quickly found themselves staring into a financial black hole -- a gap between liabilities and assets at FTX thats probably in the billions, and possibly more than $6 billion, according to a person familiar with the matter. So whereas the basic model of Coinbase is they buy Bitcoin for you and put it in an envelope, the basic model of FTX has to be they lend you money to buy crypto and then make use of your crypto to get the money. In financial terms, they have to rehypothecate your collateral; you cant expect them to just keep it in an envelope if theyre lending you the money to buy it. Today's episode title: "Trivia, Smarts & a Drumline". So Levine was back the next day to write about it. Deep-dive into topics like startups and autonomous vehicles with our top reporters and other executives. [1] Levine has previously been a lawyer, investment banker, law clerk, and has written for a number of newspapers and financial sites. Technology's news site of record. Bloomberg's web site requires a subscription but you can also get the Money Stuff articles as an occasional email.It arrives at most once per day. Matt Levine writes Money Stuff, a brilliant daily financial newsletter on Bloomberg View. Some of Mr. Levines readers write to him and attempt to mimic his style, as if he were J.D. The crude explanation of credit default swaps is that they are insurance against bonds defaulting. If it's a $100 bond, you should get $100 back, no matter what. You have no Bitcoins to give to the customers to whom you owe Bitcoins, no dollars to give to the customers to whom you owe dollars. He began his post-collegiate career as a Latin teacher, then worked as a lawyer at Wachtell, Lipton, Rosen & Katz before advancing to Goldman. Oil is voluminous and oozy and poisonous and flammable and smelly, Mr. Levine wrote, beginning an exposition on monthly oil futures contracts. A group of fans once made themselves T-shirts bearing the text of one of his tweets about cryptocurrencies. Also gambling on redemption and customer shrugs. No actual bank works that way. This is Matt Levine at Goldman, and also Matt Levine at Goldman.. Each of them is overcollateralized you only lend Customer A half the value of her Bitcoin, and you only lend Customer B half the value of his dollars so you feel pretty safe. I joke that people want a lock of his hair.. So the more people who sign up for Robinhoods service, and the more they trade, and the more volatile the stocks that they trade are, the more money Robinhood makes. Today's challengers: Alex, Tracy, Matt. Never use a token you created as collateral suggests, to me, that FTX accepted its FTT token as collateral, probably from Alameda, probably in exchange for borrowing assets that it owes to customers. Above the Laws sister blog Dealbreaker, focusing on Wall Street gossip was hiring. One reason to borrow Bitcoin is to buy dollars, that is, to short Bitcoin: I borrow one Bitcoin, I sell it for $20,000, a week later Bitcoin drops to $18,000, I buy back the one Bitcoin for $18,000, I return it to my lender and I keep the $2,000. The lower bound is that they take it and lend it to the Federal Reserve, which is called narrow banking and basically as good as keeping it in envelopes, but which is, I want to be careful to say that I am not an expert on Coinbases business models and do not want to, like, endorse it. Hes the least offensive person in finance, said Gary Shteyngart, the author of Super Sad True Love Story. When Mr. Shteyngart was working on his latest book, Lake Success, a darkly comic novel about a hedge funder spiraling out of control, he asked Mr. Levine to review a draft for accuracy. Here's a recap of the clues on Master Minds (Season 3) for Wednesday, January 11, 2023 with host Brooke Burns. Are all those debts coming due? Coindesk reported on Alamedas FTT exposure, and then Changpeng CZ Zhao, the founder of Binance Holdings Ltd., the largest crypto exchange, raised eyebrows by tweeting that Binance would sell its FTT holdings due to recent revelations. People worried that this would tank the price of FTT and put pressure on FTX, so they started withdrawing money from FTX. When FTX.com, one of the largest crypto exchanges, was instantaneously vaporized yesterday, Coinbase put out a statement, the gist of which was dont worry, we are not going to be instantaneously vaporized. The part that I want to focus on is this paragraph: There cant be a run on the bank at Coinbase. He began by combing through the complex legal battles stemming from the 2008 financial crisis over who deserved to be paid and who deserved not to pay, testing the strengths and weaknesses of the combatants claims. The other is that FTX is closely associated with a hedge fund called Alameda Research. Now, he's accelerating his move from player to team owner. There is even an RSS. Today's challengers: Caroline, Matt, Indra. He looks at whats going on in the markets, scrolls through emails from readers and plugs into the chatter of early-to-work traders. As Matt describes it in his bio, he writes about the financial industry on the internet, an Today's episode title: "Trivia, Smarts & The Melodica". It took Mr. Levine exactly one week to find his voice. But selling billions of dollars of Tesla stock to fund a weird quest to buy Twitter would I mean, be a distraction at least. The essential tech news of the moment. As a subscriber, you have 10 gift articles to give each month. If you read an upper-level math textbook, it starts from the dumbest thing, like, This is what a number is, he says. Bloomberg: Balance of Power focuses on the politics and policies being shaped by the agenda of President Biden's administration. Matt Levine. In general it should not be possible to bankrupt an investment bank by shorting its stock. On top of that, US regulators are circling FTX, investigating whether the firm properly handled customer funds, as well as its relationship with other parts of Bankman-Frieds crypto empire, Bloomberg News reported Wednesday. Most classically, they borrow short to lend long, taking checking deposits that can be withdrawn at any time, and using them to make long-term mortgages. The approximately 150,000 people who subscribe to Money Stuff, a free newsletter written by Matt Levine, a columnist at Bloomberg, found an email in their inboxes with the subject line Theres Nowhere to Put the Oil.. Within hours, he was forced to reconsider. Yet we seem more relaxed than ever when the great and good have done it. Copyright 2002-2023 BeSpacific LLC. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit. If everyone knows that you are in this situation that you have a lot of Bitcoin collateral and Bitcoin prices are falling people will expect you to have to liquidate your Bitcoin collateral, so they will expect Bitcoin prices to fall, so they will sell Bitcoin, which will cause Bitcoin prices to fall, which will cause your long-Bitcoin customers to default, which will cause you to liquidate Bitcoin at lower and lower prices, etc., until you are bankrupt. So you say, sure, fine, Ill take your $10,000 and put $20,000 of Bitcoin in your account. If you are a sophisticated modern crypto exchange like FTX, you will have automated 24/7 margining systems that automatically liquidate trades that have gotten too risky, so that only the rarest catastrophic market moves could get you in trouble. After graduating from Harvard in 2000, with a major in classics, Mr. Levine taught Latin at a high school in a Boston suburb. ChatGPT Sounds Exactly Like Us. Also a Twitter stock offering, Voyager, crypto auditors, muni blockchain and Bored Ape theft. I wasnt aware that novels were allowed to be like this, and also that footnotes were allowed to be funny, he said. Now lets add one more crypto element. Many banks and financial institutions use customer funds for commercial purposes including lending and trading, meaning that they often hold only a fraction of their customer assets at any given time. [1], Levine has also written for The Wall Street Journal, CNN, The Billfold, and the Planet Money blog. It seems somewhat unlikely. That was the height of the GameStop Corp. meme-stock mania: The whole worlds attention was focused on the soaring price of GameStop stock, which was leading a lot of people to sign up for Robinhood and trade GameStop, and GameStop was very volatile and so Robinhood got paid a lot for trading it. But sometimes market moves are catastrophic, and in particular, sometimes securities broker-dealers and crypto exchanges will have run on the bank risks. We have no gating for client loan recalls or withdrawals. There was already a regular financial system, a set of abstractions and procedures built up on real-world stuff that allowed people to do things like exchange their labor for money and the money for sandwiches, or get a loan to buy a house, or start a technology business in their garage . 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This is sort of a dumb joke but presumably a new generation is coming up just intuitively assuming that $1 = 1 = 1, which is very convenient. 00:00. Roughly 5,000 words later on a long-winded day, he files Money Stuff to his editor, and its sent to subscribers around noon. Commodity futures need to be standardized and tied to a physical delivery point, which in this case was overwhelmed, wrote one publication. Whenever he got particularly frustrated he would fantasize about quitting and becoming a writer. One classmate, the journalist Elie Mystal, had a lot to say about Mr. Levine as an undergraduate that he was the valedictorian of their class; that he partied, too; that he once suggested applying Etruscan decision-making processes to the question of what to do next during a late night out but he placed a special emphasis on the footnotes. Money and stuff. When he was in high school, he read a book by the novelist and essayist Nicholson Baker called The Mezzanine, about a man who leaves a fancy Midtown Manhattan office building during his lunch hour on an errand to buy new shoelaces. 103 Production . You have 100 Customer As who are long Bitcoin on margin: They each have 1 Bitcoin in their accounts and owe you $10,000. Levine took several months off in 2020 for parental leave after the birth of his second child. Having closed the deal for Twitter and spent a few days wreaking havoc, Musk has gotten bored and moved on to some other expensive hobby, which we will hear about in due time. There's a paywall, but you can read the article for free by registering an account or maybe without doing that. Happy Thanksgiving! But FTX doesnt have their money; it has FTT, and a loan to Alameda. tt , , , ' , J with the who s who of the sailing scene? Here is a link. Levine's analysis in his column have been widely covered by other newspapers. Do you think that there is a big financial firm in the US that got through the entire pandemic without any employees doing any business over WhatsApp or text messages from their personal phone? Its single biggest asset: $3.66 billion of unlocked FTT. The third-largest entry on the assets side of the accounting ledger? We will never repurpose your funds: We do not lend or take any action with your assets, unless you specifically instruct us to. Stock Sniper Might Have Pumped and Dumped. Research updates provided daily since 2002, with an emphasis on primary sources. But it is also a crypto token, which means that a customer can come to you and post $100 worth of FTT as collateral and borrow $50 worth of Bitcoin, or dollars, or whatever, against that collateral, just as they would with any other token. As of June 30, the companys assets amounted to $14.6 billion. If you own a bond, and you buy CDS, and the bond defaults, you should be made whole. 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