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How Porsche hacked the financial system and made a killing (2009)
- 0x12 15y agohttp://www.businessweek.com/globalbiz/content/jul2009/gb20090720_048461.htm http://www.businessweek.com/globalbiz/content/jul2009/gb2009... http://www.zigwheels.com/news-features/news/volkswagen-acquires-porsche-holding-salzburg/7627/1 http://www.zigwheels.com/news-features/news/volkswagen-acqui...
- nicpottier 15y agoThanks for linking those, makes you realize that those brilliant financial guys at Porsche maybe aren't ALWAYS brilliant. Pretty crazy swing there, remind me never to buy stock in either.
- 0x12 15y agoThe attempt of Porsche to take over VW has gone into history as one of the best examples of financial over-confidence. Porsche was doing really good and decided to bite of more than they could chew, nearly went bust as a result and ended up being bought by the party they originally sought to acquire. Wiedeking left with a 50 million golden parachute so I don't think he's complaining.
- nraynaud 15y agoI'm not sure it's about being brilliant, it's about betting the house. G. Sorros bet his house and won, Porsche bet their house and lost. It's all about trying, failing and trying something else if it fails.
- eftpotrm 15y agoIt's also worth noting, though, that the fall-out of this cost Porsche dearly: In its efforts to acquire a majority holding in Volkswagen AG, Porsche built up a large debt burden, aggravated by taxes due on very large paper profits from Volkswagen AG options. By July 2009, Porsche was faced with debts exceeding 10 billion euros. The supervisory board of Porsche finally agreed to a number of arrangements whereby the Qatar Investment Authority would inject a large amount of capital, and Porsche would be merged with Volkswagen Group. On 23 July 2009, Michael Macht was appointed CEO, to replace Wendelin Wiedeking, who is expected to receive a compensation package of 50 million euros. http://en.wikipedia.org/wiki/Porsche#Corporate_restructuring http://en.wikipedia.org/wiki/Porsche#Corporate_restructuring
- j_m_f 15y agoAlso, this is less of a clever hack of the financial system and more of an example of plain market manipulation.
- Estragon 15y agoEverybody loses! A paragon of free-market efficiency!
- Robin_Message 15y agoExcept the Qatari royal family. Remember, capitalism leads to freedom!
- VMG 15y agoNo, freedom is a requirement for capitalism.
- jarek 15y agoThat must be why the Qatari royal family is so good at it.
- Robin_Message 15y ago
- nasmorn 15y agoPretty ridiculous to kill yourself over losing a round of really expensive poker. Especially considering Merckle could probably command a higher monthly budget for the rest of his live than I can. And my life is pretty nice no death wishes here. He should have probably have the news sink in a little to gain some perspective on it.
- borism 15y agoprobably nothing to do with monetary damage itself and everything to do with reputation damage.
- 44Aman 15y agoI'd rather take a hit to my reputation than a hit in the face with a bullet.
- dimitar 15y agoSuicide and mental deceases that cause it aren't very rational. Plus he might have had many personal/personality problems and the whole loss thing was just something that was the last drop.
- steve-howard 15y agoI concur with this. I've had a lot of history of serious depression, and when people say "just don't commit suicide, duh" it shows a misunderstanding of the motives. There's always something going wrong in one's life, but I would say it's only the tip of the iceberg when someone commits suicide.
- MarkPNeyer 15y agopeople commit suicide in order to protect themselves from the pain they go through on a daily basis. that seems perfectly rational to me.
- tintin 15y ago
- anoother 15y agoJudging by the other comments here, it seems that shortly after this was written, the financials went horribly awry for Porsche... Anyone care to explain, preferably in a similarly understandable style as this article?
- kitsune_ 15y agoThere are tons of great DER SPIEGEL articles about this http://www.spiegel.de/international/business/0,1518,637542,00.html http://www.spiegel.de/international/business/0,1518,637542,0... http://www.spiegel.de/international/business/0,1518,637243,00.html http://www.spiegel.de/international/business/0,1518,637243,0... http://www.spiegel.de/international/business/0,1518,623423,00.html http://www.spiegel.de/international/business/0,1518,623423,0...
- pkteison 15y agoVery simple. Porsche financed their stock buying with loans, but then credit essentially disappeared for everybody in 2009 and so they couldn't keep it up. 0x12 posted some good links earlier. Same sort of reason why Ford did better than GM or Chrysler in America - Ford had secured lines of credit back in 2006 in either a fit of brilliance or luck, so when credit dried up in 2009 they could still borrow. The others couldn't get loans and had to take drastic action.
- steve8918 15y agoUmmmmmmm, this is a terrible article. They failed to point out that Porsche went heavily in debt in order to finance this "hack", and ended up getting bailed out and bought by VW. It's ridiculous to say that Porsche "hacked the financial system and made a killing" when they essentially bankrupted themselves by doing so.
- deleted 15y ago[deleted]
- sek 15y agoThe financial crisis killed this project for Porsche, but the background is very difficult. In financial terms this didn't matter. The funny thing in this whole Story was Ferdinand Piech, he has full control over VW as head of the board and was against this buyout. He also owned half of Porsche, so he was then owner of VW, but was also against it because Wideking would have gotten more power. Both companies are bound together since the war, this whole action was about power between some industrial families. They gained money in the bottom line, and some idiots with no insight made a bet against them. Before this action was the Share of Porsche Holding 32.2% and now it is 50.74%. Look at the market cap and say again this was a failure.
- LearnYouALisp 15y agoFor a moment there, I thought you said "Ferdinand Porsche"!
- blumentopf 15y agoHe's his grandson.
- biot 15y agoI think the title was somewhat of a dark humor double entendre: "made a killing" might also refer to Merckle's death.
- ankimal 15y ago
- faizanaziz 15y agoSo if the hedge fund managers lost money and Porsche lost money, so where did the money go? To play this game both borrowed money, so both parties paid interests... So i guess the banks made money... Fits in with this article http://money.cnn.com/2009/04/13/news/goldman.earnings.report.fortune/index.htm http://money.cnn.com/2009/04/13/news/goldman.earnings.report...
- tedjdziuba 15y agoProbably to Goldman Sachs.
- dustingetz 15y agoeveryone lost money in 2009 =(
- faizanaziz 15y agoMoney does not disappear... It just hides in some peoples pockets :)
- rdl 15y agoMoney absolutely disappears due to malinvestment. If you spend all your time building something no one wants, the world overall is poorer than if you build something amazing and people pay high prices for it.
- felipemnoa 15y agoMakes sense, build a house nobody buys and wealth is destroyed once you demolish the house or it falls into disrepair.
- rdl 15y agoRight -- all that money goes to pay people's salaries and materials, but the opportunity cost of building something useful is what is lost. That's the answer to the broken window fallacy, Keynesian ditch-filling (at least as a long-term solution; it is possible it makes sense to smooth out demand, but real public works projects are still better even then), etc.
- aqrashik 15y agoI'm curious, what happens if you can't return stock that you've borrowed in order to short it? either because of a situation like this or simply because you went bankrupt due to bad debts. Wouldn't this be a common scenario given the very nature of the risk?
- nknight 15y agoYou pay money. A lot of it. And/or declare bankruptcy. The "person" you borrowed the stock from may well lose out, but we're talking about huge institutional investors that lend stock thousands or millions of times a year, or even day, and the fees more than make up for the few losses they incur. This is not fundamentally different than any other loan.
- thematt 15y agoIf you're an individual retail investor, your broker won't let you leverage up that high and will likely require assets/cash as collateral against the margin account.
- chollida1 15y ago> I'm curious, what happens if you can't return stock that you've borrowed in order to short it? It's similar to what happens when you can't pay your mortgage. If you are shorting you'll have to put up some margin( cash or cash equivalents representing some percentage of the dollar amount you shorted.) if the short starts to move against you, you'll get a margin call and be required to put up more collateral. Eventually if you can't pay you go bankrupt and your counterparty get's what they can in bankruptcy court. Not surprisingly this is called counterparty risk and has become a big area of focus for risk managers recently.
- fleitz 15y agoThis was hilarious, I was working for a company that supplied software to hedge funds at the the time. I was laughing my ass off that the hedge fund guys got taken so badly by a bunch of car makers. Looks like German financial engineering is as highly regarded as German automotive engineering.
- rmc 15y agoI doubt they are merely "a bunch of car makers", I assume Porsche, with lots of money, hires lots of smart financial experts to do deals like this. You can throw money at a problem and be a money expert.
- T_S_ 15y agoNice example about how lack of information leads to volatility in markets. If you are looking for prescriptions to fix our financial markets, increasing transparency of trading would do wonders to eliminate speculation and refocus investors on value.
- ArchD 15y agoI'm not sure what precisely you mean by "transparency of trading". One of the common goals of trading is minimize the revelation of information about your intentions that other traders can exploit against you. Trading is like warfare--being transparent is not a strength. Additionally, you can't just make one law that tells people to "be transparent." The enacted laws have to be specific in order to be meaningful. Because they are specific, people will find ways around them and continue playing the game.
- T_S_ 15y agoTrading of securities is a regulated market. The rules about what information is available to the market are a combination of tradition and regulation. But they are man-made and arbitrary. I argue that the current fashions in regulation starve the markets of information and contribute to crises. I'll give you just one example. Large traders attempt to conceal their identity. This leads to a lot of gamesmanship, as you point out. If this information were released with every order placed then I would argue a lot of volume would dry up and volatility would decrease.
- gavanwoolery 15y agoAm I the only one who noticed this: "How Porsche hacked the financial system and MADE A KILLING" "Betting the wrong way, Adolf Merckle TOOK HIS LIFE." I'm all for dark humor, but isn't it a little sketchy to joke about suicide in your headline? (I'm guessing the headline was intentional, but who knows).
- waqf 15y agoYou're all for dark humor? Forgive me, but if you don't even like wordplay on a "dark" topic, what kind of dark humor is it that you find acceptable?
- gavanwoolery 15y agoI think the line for me would probably be between reality and fictional circumstances. In this circumstance, a real person actually took their life, which (at least to me) is not really a joking matter. On the other hand, if there were some joke about a fictional character involving suicide, I probably would not be (greatly) disturbed. I understand that not everybody would have this reaction, but I have known people who tried to commit suicide so it is a bit different for me I guess.
- knieveltech 15y agoYou definitely aren't the only one that noticed it, however, for the most part we're all adults here. I think we can handle it.
- andjones 15y agoFor those interested in this kind of story, and manipulation of markets in general, one of the best books I've read on the subject, published in 1923: Reminiscences of a Stock Operator http://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lefevre/dp/0471059706 http://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lef...
- atakan_gurkan 15y agoIt is also available on the Internet Archive: http://www.archive.org/details/ReminiscencesOfAStockOperator http://www.archive.org/details/ReminiscencesOfAStockOperator
- mathattack 15y agoI am very surprised this was legal. Aren't there disclosure requirements? Certainly in the US if you acquire a stake of more than 5 or 10% you have to declare it.
- dennisgorelik 15y agoFor hobbyist investor it's tempting to short some stocks which seem to be priced outrageously high. In the past I've heard the term "Short Squeeze", but did not really pay attention. This article demonstrates one of the risks of shorting.
- 0x12 15y agoSmall time investors advice for when you consider shorting stocks: don't.