Scott Woolley chose an awful title, but makes an interesting point about the government’s 2009 loan to Tesla:
Personal loans made in 2008 by Elon Musk, Tesla’s co-founder and CEO, provide a telling contrast. Musk received a much higher interest rate (10 percent) from Tesla and, more importantly, the option to convert his $38 million of debt into shares of Tesla stock. That’s exactly what he ended up doing, and the resulting shares are now worth a whopping $1.4 billion—a 3,500 percent return on his investment. By contrast, the Department of Energy earned only $12 million in interest on its $465 million loan—a 2.6 percent return.
The government had huge leeway to demand similar terms as part of its loan, given the yawning gap between its interest rate and the cost of Tesla’s next-best source of capital. The government was ponying up more capital than all of Tesla’s previous investors combined. At a bare minimum, the Department of Energy could have demanded a share of the company equal to the 11 percent Musk received for his $38 million loan the year before. Such an 11 percent share would be worth $1.4 billion to taxpayers today.
Of coures, the government is not an investment firm — BUT they did take large ownership stakes in some of the banks during the bailouts.
Also, the government had the option on up to 3 million Tesla shares as a part of the loan — BUT those options evaporated when Tesla paid back the loan early (which was part of the incentive to do so).
For Bitcoin itself, the biggest risk is not regulation but competition. Like any currency its value is dependent on the number of users. Being the first to build a network can be an advantage. But networks can also be supplanted as users suddenly switch to an even better competitor. As markets like eBay and Airbnb grow, for example, their user fees start to become a necessary payment, a bit like a tax. If those charges could be paid in a new form of digital money, the demand for that cash would be much more stable. Bitcoin might end up like MySpace, the now moribund precursor to Facebook.
This is something I’ve been thinking a lot about recently. Bitcoin is fascinating, but it also seems like a huge pain-in-the-ass that will have a hard time ever getting mainstream adoption. It’s a proof-of-concept. Next, someone needs to nail the concept.
Paul Ford for Businessweek:
Maybe Bitcoin’s devotees are right, and it’s the currency of the future. Or perhaps it’s a ridiculous joke—a speculative, hilarious enterprise taken to its most insane conclusion. Given that the founder is nowhere to be found, it feels like a hoax, a parody of the global economy. That the technology used to implement it has, so far, shown itself to be impeccable and completely functional, and that it’s actually being exchanged, just makes it a better joke. The truth is, it doesn’t much matter if it’s a joke or not. It works.
See also: Chris Dixon’s brief thoughts on the matter.
Jeff Sommer of The New York Times on the U.S. tech companies hoarding money abroad :
Whatever the reason, United States corporations have parked staggering sums abroad. Last year, analysts at JPMorgan Chase estimated that accumulated offshore profits for American companies amounted to $1.7 trillion. This month, Bloomberg News estimated that the mountain of cash had grown to more than $1.9 trillion.
An astonishing amount of money that you’d think the U.S. government would love a piece of, even if they have to give a mild break on the usual corporate tax rate. If Apple repatriated their horde, they would have something like $67 billion to work with after taxes.
The rise and fall and rise again of Bitcoin by Alec Liu for Motherboard. I’m not going to pretend that I understand Bitcoin in the slightest, but the overall notion that a new form of currency can arise seemingly out of nowhere and start to take hold is pretty amazing.
25 years after The Bonfire of the Vanities, Tom Wolfe returns to Wall Street for Newsweek. It’s a very different world than when he last explored it. The testosterone trader has been replaced by the quiet quant.
The last few days have seen a rumbling around the Internet about the U.S. Treasury minting a $1 trillion dollar coin in order to alleviating the debt ceiling/fiscal cliff/that thing you’re sick of having explained to you. It turns out that there’s a technicality in U.S. law that allows the Treasury to mint a platinum coin worth any denomination they decide. With Timothy Geithner on his way out, his last act could theoretically be to create one of these coins, put it in the country’s bank account, and then voila, we’re $1 trillion richer. The big fear is that it would cause hyperinflation and destroy the dollar. Well turns out that this is probably not be the case. Of course, that’s not to say that there couldn’t be other problems with creating this über coin:
- Biden will inevitably use it to buy a Charleston Chew in a vending machine. “That son of a bitch Boehner wouldn’t break me off a piece, so I had to, y’know?”
- Within hours, the Franklin Mint will release replicas commemorating the striking of the coin. Just four easy payments of 24.95!!
- One trillion $1 coins is a way better idea; you could swim in it Scrooge McDuck-style. Meanwhile, Monty Burns prefers bills.
- Your creepy uncle could easily steal it by “vanishing” it behind some kid’s ear.
Um, a trillion dollar coin? This is (possibly) a real thing, not just something in Scrooge McDuck’s vault?
So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.