Trump Hopes To Use AT&T Time Warner Merger As 'Leverage' Over CNN

from the the-peanut-butter-and-jelly-of-bullshit dept

On the campaign trail, you might recall that Donald Trump threatened to block AT&T's $89 billion acquisition of Time Warner, insisting that the deal was "an example of the power structure" he was fighting, because it would deliver "too much concentration of power in the hands of too few." Granted he subsequently appointed an FCC chairman in Ajit Pai who's little more than a rubber stamp for companies like AT&T, and nominated an antitrust boss already on record stating he has no real problems with the merger, leading most analysts to believe the deal will be approved anyway.

There are of course a number of legitimate reasons to block the deal, including concerns that AT&T will make licensing access to necessary programming more difficult than ever for streaming video competitors. Or the fact that AT&T's using its dominance in wireless to give Time Warner content an unfair advantage over competitors via usage caps and overage fees (aka "zero rating"). It would be foolish to think a company with such a rich history of anti-competitive and anti-consumer behavior wouldn't use this greater size and leverage anti-competitively.

But these are complicated nuances it's not-terribly-likely the current President actually understands. Instead, his focus in recent months has been the fact that he doesn't like Time Warner-owned CNN's critical coverage of his administration, and, according to the New York Times, hopes to use the deal as "leverage" to force CNN to soften its critcism of the President as part of his broader assault on the media:

"White House advisers have discussed a potential point of leverage over their adversary, a senior administration official said: a pending merger between CNN’s parent company, Time Warner, and AT&T. Mr. Trump’s Justice Department will decide whether to approve the merger, and while analysts say there is little to stop the deal from moving forward, the president’s animus toward CNN remains a wild card."

Other news outlets noted that the Trump administration is also contemplating demanding the ouster of current CNN boss Jeff Zucker in exchange for approving the deal. The news was quick to result in letters to the DOJ from several Senators who claimed Trump was "interfering" in an approval process that should be left up to regulators and the DOJ to decide:

"Any political interference in antitrust enforcement is unacceptable," Minnesota Sen. Amy Klobuchar wrote in a letter to Attorney General Jeff Sessions. "Even more concerning, in this instance, is that it appears that some advisers to the President may believe that it is appropriate for the government to use its law enforcement authority to alter or censor the press. Such an action would violate the First Amendment."

If you're at all familiar with the ethical behavior over at AT&T (like the times it ripped off a program for the hearing impaired or made bills harder to understand to help criminals scam its own customers), it would certainly be in character for AT&T to agree to trample the editorial firewall between itself and CNN to get the deal done -- it just wouldn't be stupid enough to put any such agreement in writing. As the net neutrality fight makes clear, telecom giants aren't particularly concerned about the whole free speech thing (check out Verizon's first foray into tech content, for example).

AT&T's also a world-class expert at making utterly bogus claims when it comes to its latest megamergers, consistently claiming such deals will lower prices, expand broadband coverage and create oceans of new jobs (telecom megamerger history makes it abundantly clear the exact opposite almost always occurs). Given some similar expertise over at the Trump camp, there's an incredible opportunity for some amazing bullshit here; an opportunity Trump likely won't want to waste by continuing what's become an arguably unhealthy fixation on CNN.

The likely outcome is that we'll get to have our rotten cake and eat it too: a torrent of bogus job and broadband expansion promises the likes of which we've never seen before -- and a CNN left bridled by a meddling new corporate parent focused exclusively on currying favor in the Trump administration to anti-competitive benefit. Just think of the incredible potential for synergies...and bullshit.

Filed Under: acquisitions, bullying, donald trump, first amendment, free press, freedom of expression, leverage, mergers
Companies: at&t, cnn, time warner

French Stock Market Regulator Hits US Blogger With $10K Fine For Publishing Opinion On French Bank's Leverage Ratio

from the France-still-not-making-much-effort-to-shrug-off-the-'crazy'-tag dept

Everyone gather 'round as I regale you with a tale of stock exchange regulation and global finance bloggers!

Wait! Come back!

I'm sorry. Before your eyes glaze over again, let me entice you with a better opening sentence.

An American market blogger found himself on the receiving end of a 8,000 euro fine for quoting another blogger. In real money, that works out to an almost $11,000 fine. And all for quoting another blogger's best guess on a French bank's leverage ratio.

Mike "Mish" Shedlock is a US blogger who covers global markets and his story begins this way.

On August 15, 2011, I posted BNP Paribas leveraged 27:1; Société Générale Leveraged 50:1; Sorry State of Affairs of U.S. Banks; Global Financial System is Bankrupt

In that post I quoted Jean-Pierre Chevallier on his Business économiste monétariste béhavioriste blog, that BNP Paribas leveraged: 27!

I also cited Chevallier's Société Générale leveraged: 50!

Société Générale took exception to the numbers and came up with its own set of numbers. According to SG, its leverage was 9.3%.

Chevallier revamped his math after SG's initial noisemaking and Shedlock issued an addendum to his own post.

Société Générale disputes the numbers and new calculations using the banks' numbers are 28:1 or perhaps 23:1 not 50:1 as noted on Forex Crunch.

My position has not changed much. Something is seriously wrong at Société Générale. Banks do not plunge out of the blue on rumors. I do not know the precise leverage, but shares are acting as if Société Générale has severe capital constraints (which of course they will deny) and/or other major problems.

That only seemed to irritate SG more. It contacted the SEC and basically informed the American regulatory body that whatever numbers it's presented were to be taken as fact. The SEC passed this complaint on to Shedlock, adding (paraphrased by Shedlock) "French banks [are] notorious about filing frivolous complaints."

Shedlock received a few more letters (in French) which urged him to respond to the complaints (but only in French), which he duly ignored. Later, a French blogger compiling his own post on the issue (entitled: Gross Delirium: The AMF sanctions bloggers rather than financial corporations!) contacted Shedlock and offered his assistance. One of Shedlock's friends broke down the French bank's complaints into plain English.

The French authorities accuse Chevallier of 'knowingly disseminating false information' about SocGen and you to have disseminated it further on 'Chevallier's urging', although you should have known better and it was your duty to check if his numbers were right (that is the basis for fining him 10,000 and you 8,000 euros).

The French blogger's post pointed out that Chevallier didn't "falsify" anything. He merely used a standard calculation for leverage ratios, one that disregarded "risk weighting" of various assets. Shedlock himself found a Wall Street Journal article that put SG's leverage ratio at 23-24 times its equity, still considerably higher than SG's own figures.

None of this mattered to the French bank, which accused the bloggers' calculations of possibly "influencing" its share price. While the SEC may have passed on the complaint with an eyeroll, the AMF, which regulates the French stock market, took the accusations at face value and issued fines to both bloggers. Not that the AMF is going to have much luck collecting these fines. Chevallier is appealing the verdict and suing AFP (France's largest newspaper) for making "false and defamatory accusations." Shedlock, conversely, is doing nothing.

The Witch hunt is now over and I was fined nearly as much as Chevallier. It's absurd enough to fine someone for a quote, and even more so when the facts are accurate.

The AFM has no jurisdiction over me, so they won't collect. As a US citizen living in the US, I am not subject to the absurdities of French laws, or French witch hunts. All they get from me is a vow to never go to France.

Good idea, considering French law apparently provides regulatory bodies with the power to fine bloggers for publishing their opinions on French banks, even when these opinions are backed up by reasonable calculations. And Shedlock is almost certainly protected under the SPEECH Act, which protects Americans against foreign judgments that would violate the First Amendment here. There doesn't seem to be much "regulation" going on in this situation. (And any French legislation that touches on the internet is routinely terrible.) Conceivably, SG could leverage itself Lehman-style and financially beat into submission anyone who points out this fact by running and complaining to the nearest subservient "authority."

Filed Under: banking, blogging, france, free speech, jean-pierre chevallier, leverage, mike shedlock, mish, quotes, regulations
Companies: bnp paribas, societe generale

Did Not Understanding The Leverage Cycle Kill The Economy?

from the something-worth-exploring dept

David Warsh's latest economics column delves into the renewed interest being given to economist John Geanakoplos' paper explaining how the real issue that brought down the economy was a misunderstanding of "the leverage cycle." Basically, the argument is that everyone (mainly, the Fed) gets so focused on the interest rates, that they stop focusing on the leverage/collateral involved. It's sort of the central banker equivalent of when the mortgage broker tries to get you to ignore all the real terms in your mortgage and just gets you to focus on how much you'll be paying each month. The argument, then, is that the government could have done much more to prevent the crisis if it had simply paid more attention to the leverage situation, which had obviously grown totally out-of-hand. Basically, the argument says that in a competitive market for credit, leverage will always rise, as some parties take bigger and bigger risks, forcing others to do the same. But then everyone's way overleveraged, and when the music stops, basically everyone's left without a seat. It's an interesting theory -- one that sounds good, though on a first read I'm not entirely convinced. While the issue of how much leverage was out there is obviously a part of the problem, I'm not entirely sure that the government would realistically be able to totally control the issue. While it could put in place certain regulations, it seems like there would always be loopholes that allowed leverage to occur elsewhere. Either way, I'm going to do some more reading on the subject, but wanted to pass it along here to see what others thought of it in the meantime.

Filed Under: economy, financial crisis, leverage, leverage cycle

Twitter Finds Now It Has The Leverage On Mobile Operators

from the oh-so-now-you-want-to-be-my-friend dept

One issue that's constantly popping up these days is friction between distributors and content or service providers. Companies on either side of the equation often overvalue their contribution, whether it's movie studios thinking they have the leverage over Netflix, or ISPs thinking they've got the upper hand over the likes of Google when it comes to net neutrality because they "control" the pipe. The content or services are worthless without the distribution; without the content, the distribution is worthless. It's not the case where one side always has the power, and often over time, the balance of power shifts. Such is the case with the news that Vodafone UK has enabled Twitter SMS services for its customers. Twitter irritated some of its international users last year when it stopped sending them SMS updates because of the costs. It's a pretty typical story in mobile: if you have a service you want to offer to users via SMS, you've got to be prepared to pony up the cash to mobile operators to reach "their" customers. When Twitter was a nascent service used by web dorks and media types, somebody like Vodafone wouldn't care about it. But as the service has gone mainstream, suddenly it behooves Vodafone to strike a deal with Twitter, make the costs workable, and be able to offer the service to its customers. The mobile industry has long engaged in these stupid battles over who "owns" the customer. Typically, the operator's take has been that they own the pipe, so they own the customer. But maybe they're finally figuring out that without any compelling services to travel through it, the pipe's not such a big deal.

Filed Under: leverage, sms
Companies: twitter, vodafone

Movie Studios May Be About To Learn That Netflix Has The Leverage

from the over-and-over-and-over-again dept

You know how movies studios keep making the same movie over and over and over again with just slight changes? It seems that the entertainment industry simply has a problem recognizing that doing the same thing repeatedly won't lead to different outcomes. In particular, the entertainment companies continue to think that because they own the content, that they somehow have leverage against the new generation of distributors -- missing out on the fact that it was always the distribution side of things that gave them the leverage, rather than the content itself. That is, they're overvaluing the content and undervaluing the services that make that content useful. That's why the record labels were unable to realize that they handed Apple tremendous power over digital music sales. It's why the record labels still don't seem to realize that they need YouTube more than YouTube needs them.

Now it's the movie studios' turn.

Jeff Nolan points out that the movie studios are apparently pissed off at Netflix, saying that they're trying to renegotiate deals on tougher terms. As Nolan points out, those studios may discover they have a lot less leverage than they think. If a studio pulls its movies from Netflix, those studios may find that it hurts them a lot more than it hurts Netflix, which has increasingly built a dominant position in the movie distribution space. Yet, of course, because these firms overvalue the content, they don't seem to be able to see this coming, despite all the foreshadowing...

Filed Under: leverage, movie studios
Companies: netflix

Record Labels Learning They Have Little Leverage On YouTube

from the well,-look-at-that... dept

Over the weekend, the story made the rounds about Warner Music's dispute with Google over getting money from YouTube videos. As we discussed in our post on the topic, it seemed like Warner had very little leverage here: Google has no legal responsibility to pay anything, and removing the videos from YouTube seemed a lot more likely to harm Warner Music and its artists than Google. As noted by some folks, for many kids these days, YouTube is how they find and listen to music these days. Forcing your songs off YouTube would be like demanding their removal from the radio twenty years ago.

Yet, more details are coming out on this story, and it appears that both Warner Music and Google may recognize Warner Music's precarious position here. In fact, it appears that it wasn't Warner Music that demanded its music be taken down. Instead, reports are coming out saying that Warner instead went to Google with higher monetary demands, and it was Google's response to start pulling the music down, to demonstrate to Warner Music that YouTube is a lot more valuable to Warner Music than Warner Music is to YouTube (a lesson that Warner Music execs desperately need to learn).

Warner Music's response, apparently, has been to try to pretend it has some leverage, supposedly leaking a somewhat questionable story that it, and other major record labels, are preparing to launch a "Hulu for music." However, as Greg Sandoval notes in the News.com link in the paragraph above, this seems like little more than idle speculation by the labels. They had talked about this months ago, and have done nothing since. Instead, it was a bluff by the record labels in a weak attempt to convince Google that it needs to play ball or face competition. Google is likely to call the bluff -- because Google still recognizes what the record labels seem to have trouble recognizing. The power of YouTube isn't in having a site that plays videos, it's in the audience -- and you don't recreate that overnight.

Filed Under: copyright, leverage, videos
Companies: google, warner music group, youtube

Leverage, Derivatives And Dog Food: How Wall St. Screwed Up

from the and-what-comes-next dept

Following my post on the makings of the financial crisis, some folks noted that I didn't really discuss the issues of leverage and derivatives, and how they ended up screwing up Wall Street something fierce -- as, instead, I focused much more simply on the issue of "risk" and sort of swept those details under the rug. I'd been intending to tackle the subject this week, but it looks like Andy Kessler has already done the job for me, with an excellent description of how Wall Street went from helping people trade stocks into a bunch of cowboy hedge fund traders who didn't even realize what they were trading, but knew they were making tons of money -- so they kept borrowing to do more of it. They got suckered by their own dog food and ate until they became seriously overstuffed.

Still, those profits weren't enough. Their customers were making great money buying Wall Street's derivatives. But why should banks and pension funds and hedge funds have all the fun? What a perfect use for all that capital on their huge balance sheets and cheap financing from low interest rates. Wall Street, en masse, started buying all these high yielding derivatives for their own account. They ate their own dog food, if you will.

It was the easy trade. Borrow at 3 percent and make 6 percent or 8 percent or 10 percent. They liked it so much, they levered up. Meaning instead of just borrowing a dollar for every two dollars of assets they owned (which by the way, thanks to the 50-percent margin requirement, is the amount of leverage that you and I are allowed to buy stocks from these same firms), they borrowed 20 to 1, 30 to 1, and even 50 to 1, if they could get away with it. And man, it was a lucrative trade. So why not?

I'll tell you why not. Because all of a sudden, Wall Street is no longer a business of traders or stock brokers or investment bankers, it's a giant hedge fund. And they have no idea what they are doing. None. I ran a hedge fund for a lot of years and learned rather quickly that if a trade was too good, if everyone was doing the same trade, then I should absolutely turn around and run for the hills. But no one on Wall Street did. The spreadsheets flashed green. Risk was a four-letter word best not said in polite company. Wall Streeters became hedge fund cowboys and loved the spoils, until a tiny little downturn in housing sent everyone rushing to get out of the pool at the same time.

It's a good read. Kessler and I agree that a new sort of Wall Street will come out of this -- and that's for the best. Money will flow again, but there will be new opportunities for banks to get back to basics.

Filed Under: derivatives, hedge funds, leverage

VeriSign Resolute On Buybacks Despite Warning Signs

from the double-down dept

The evolving credit crunch has forced some tech companies to to suspend plans to buyback their stock due to an inability to raise the necessary cash. Either way, you'd think that in light of current conditions, companies would be hesitant to leverage up by expanding their debt levels and removing some shares from the market. But current conditions don't seem to be much of a deterrent to some firms. VeriSign has announced the successful sale of $1.1 billion worth of convertible bonds with the proceeds earmarked for share repurchases. Although the move carries risk, Wall Street analysts tend to love this kind of move. One analyst lauded the announcement, claiming that VeriSign will now have a more "mature capital structure". The thinking is that VeriSign is a large company with slowing growth and so the quickest way to maximize returns is to take on debt and bet on itself. If the company executes well, then the move will look brilliant. But it leaves the company little to no margin for error should things not go exactly as planned.

Filed Under: buybacks, credit crunch, leverage
Companies: verisign