The Old Fisherman

S

SFJoe

Joe Dougherty
OK, the old fisherman was another guy, but I had to share.

I saw a post on a BB tonight that brought a little tear of nostalgia to my eye. To wit:

Re: RUDY KURNIAWAN SPECTRUM / VANQUISH WINE AUCTION FRAUD THREAD (MERGED)
Post Number:#1816 by Maureen Downey » Fri Mar 16, 2012 1:11 pm
I know its my business - but I really think the auction houses and retailer/brokers that deal in fine & rare have to move to NAMED third party expert authenticators. You have to remove the incentive to 'overlook' and have outside oversight. And Naming the expert puts their reputation on the line as well. No more 'secret' experts like in this spectrum/vanquish debacle. Then the buyers can chose to trust the third parties based on their credentials or not - but the vendors will have fulfilled as much diligence as they possibly can.

The only way this will happen is if it is demanded by the consumers.
---
www.chaiconsulting.com
I AM IN THE BUSINESS OF PRIVATE WINE COLLECTION MANAGEMENT - INCLUDING AUTHENTICATION!

I don’t know Maureen at all, and I totally concede her sincerity, but she really needs to read up a bit on the position S&P, say, was in during the run up to the CDO crisis in 2005-2008.

Limited number of auction houses, many diffuse and unempowered buyers. Auction houses (read Goldman, Merrill, my old shop Lehman, etc.) shop among rating agencies to find the lenient ones. Rating agencies compensated by (conflicted) sellers, not by (many, diffuse) buyers. Rating agencies who are too tough on one (CDO issue, DRC auction) are not chosen for the next. Rating agencies utterly corrupted over time, or out of business. I’m sure she is totally honest and would opt for the latter, but that is the way this situation plays out.

In fact, it’s the way it still plays out.

Bon ap, all,

J, feeling like an old fisherman in a different pond.
 
Precisely. The incentives are just all wrong. I've heard some argue that muppets deserve to have their faces ripped off, but there are a lot of innocents caught up in the game.

It's not a coincidence that my firm is incorporated as a partnership, with one of our models being BBH. Boy are those guys careful with their credit lines.
 
originally posted by Yixin:

It's not a coincidence that my firm is incorporated as a partnership, with one of our models being BBH. Boy are those guys careful with their credit lines.
Click to expand...

I'm not a total believer in the partnership angle. Take a guy like John Corzine. He seems to have been totally ready to bet the farm even if it was his. Or Joe Gregory, who mortgaged his house to buy LEH in its final spiral.

Some of the Darwinian selection for those guys just found the real lunatics.

So be careful who your partners are!
 
Oh, the incentives are absolutely wrong but there's no obvious good fix:
- The House wants its money (a good motivator) but we're now saying that it is corrupt for them to pay for a Gen-U-Wine Certification.
- The Buyer wants his drink but he is usually a little guy who doesn't know where to find a real Certifier and who wants to trust The House, anyway.
- I can't think of a Third Party who is interested in seeing any particular wine transaction occur, so there's no pay coming from there.

Pretty stagnant.

Under the assumption that The House and The Buyer have both come to the marketplace with the intent to do commerce.

If, however, The House is only interested in money (and not at all with reputation, happy customers, a job well done, etc.) then we have reached the point where the following may start to apply:
- Buyers form a union and the dues pay for certifications.
- Certifiers sell insurance on bottles they oversee.
- Publishers of wine-related magazines/blogs make the "Hall of Shame" a permanent feature and pay buyers to come forward with evidence.
- More frequent involvement by government agencies, e.g., stings, undercover agents.
 
originally posted by SFJoe:
originally posted by Yixin:

It's not a coincidence that my firm is incorporated as a partnership, with one of our models being BBH. Boy are those guys careful with their credit lines.
Click to expand...

I'm not a total believer in the partnership angle. Take a guy like John Corzine. He seems to have been totally ready to bet the farm even if it was his. Or Joe Gregory, who mortgaged his house to buy LEH in its final spiral.

Some of the Darwinian selection for those guys just found the real lunatics.

So be careful who your partners are!
Click to expand...

No doubt, one has to be careful when choosing partners - it's not as if financial history isn't littered with the corpses of various partnerships. But that's precisely the point of a partnership - one picks partners very carefully, and there's a natural limit set on the number of partners.

I think the Hall of Shame is a great idea, but given potential libel issues no institutional player will touch it. And to bring it back to the partnership angle, the Hall of Shame has to pinpoint individuals rather than just institutions. The former are the ones who buy empty bottles, forge labels and ultimately sell the fakes.
 
re rating agencies I liked the idea floating around at the time which would require ratings but also require businesses seeking a rating for their debt to be assigned to a random rating agency. Seemed to fix the incentive problem neatly but it never went anywhere.
 
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