Monday, January 6, 2020

"it often seems to be as hard and stressful and uncertain [to do white collar crime] as making money the right way"

Matt Levine writing about a white collar crime case:

The CFTC does not report how much money HSBC made on this, but my rough math is that they were able to push the spot price from 15.75 basis points to 15.25, and the forward adjustment from about negative 0.1 basis points to negative 0.3: Instead of paying 15.65 basis points, HSBC paid 14.95, saving it about 0.7 basis points per year for five years on $2 billion, or about $700,000 total. Not bad for 25 minutes of work, but it was an intense 25 minutes.

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Imagine a counterfactual in which, instead of badgering a broker to illicitly lower rates on the screen to make this swap profitable, HSBC had gone to the client and said “actually our pricing didn’t account for all of the terms of the swap and we’d like you to consider revising it to give us an extra 0.7 basis points.” How would that have gone? Terribly, obviously! It would have been painful, awkward, stressful; there might have been yelling and cursing and recriminations. But that happened anyway! The work of sneaking the pricing adjustment past the client was not obviously less terrible than the work of proposing it openly would have been. There is a paradoxical efficient-markets flavor to a lot of market manipulation: If the manipulation was easy, everyone would do it, but in fact it often seems to be as hard and stressful and uncertain as making money the right way.