Lend freely and at a penalty rate except sometimes.

Here's a weird story about how banks are being told that they "can no longer assume continuing access to the Federal Reserve’s discount lending window as an element of their living wills." People are pretty incredulous:

Hundreds of banks took advantage of the discount lending window on multiple occasions during the 2008 credit crunch. ... “How are you supposed to write these living wills if the assumptions regulators are making are false and inaccurate?” asked one US commentator. “They are disconnected from what would happen in the real world.”

The thing is that the living wills are obvious showpieces ("We've solved too big to fail!") that nobody takes all that seriously as a description of likely future events. But! Before this, you could have read the living wills process as a precursor of government policy: If regulators said "don't assume we'll do X," you might have said, well, okay, in a crisis the regulators may not do X.

But if the regulators say "don't assume that the Fed discount window will be open," then that means either:

  1. The Fed will close the discount window in a financial crisis (what?), or
  2. The regulators are just kidding about all of the assumptions in the living wills and you shouldn't take any of them as predictions about policy.

So now you know.

Study up for your stress tests.

Elsewhere, banks are apparently running their stress tests using third-party risk models that neither they nor the Fed understand, which has irritated the Fed. Quite rightly:

Pittsburgh's PNC Bank has enough information on about 25% of its third-party models, says Andrew Jaske, part of the bank's model risk management team. Around 50% of the models have gaps, while the remaining 25% have "very poor" levels of accompanying documentation.

Again: This seems like the real point of the stress tests. Not "how much money will you lose if some bad stuff happens?" (who knows what bad stuff will happen), but rather, "do you even understand how your bank works?" And the answer is meh, kind of, sometimes, in a rough sense. If the stress tests cause large regional banks to read the manuals (or: get the manuals) for their risk management software, then that seems like progress.

Don't invest in fake fracking companies.

Here are pump-and-dump charges against Chimera Energy, which "issued around three dozen press releases in a two-month period about its supposed licensing and development of technology to extract shale oil without the perceived environmental impact of hydraulic fracturing known as fracking." There are at least two important lessons here. One is that building your vocabulary can help you with your investing decisions. Did you know that the word "chimera" means "something that exists only in the imagination and is not possible in reality"? Knowing that, would you like to invest in Chimera Energy? Probably not, right? (Stay away from white elephants too!)

The other lesson is, the trendier a penny stock's business, the higher the likelihood that it's a scam. (Clean fracking! Social media! Etc.) Elsewhere, Google had a "toothbrush test," and I have an actual toothbrush that I will cheerfully sell to Google for $10 million. And Twitter has decided to become Facebook because the world is horrible.

Family Dollar General!

Dollar General just offered $78.50 a share in cash for Family Dollar Stores, topping Dollar Tree's $74.50 cash and stock bid. It is I suppose a little weird that Dollar General didn't do this two months ago when Family Dollar approached it and asked for a bid. Now, if it wins the bidding war, it will owe Dollar Tree a $305 million break-up fee. Dollar General's supposed reason for not bidding earlier was that it "would be reluctant to participate in the negotiation of a transaction with Family Dollar if Mr. Icahn were to have a role in or control over the process," and I guess now it's made its point? Like, Icahn can't be too annoying now, because Dollar General has already put it out there that it's not interested if it hears the slightest peep out of him.

Insider trading duties.

We've talked a bit before about what sorts of relationships of confidence can give rise to criminal insider trading (golf buddies, prostitution). So you might be interested in a recent Third Circuit case giving the Securities and Exchange Commission broad latitude to decide this for itself. In this case: Yep, if someone tells you inside information at Alcoholics Anonymous, you can't trade on it. Elsewhere in insider trading news, Mark Cuban doesn't like the no-action letter process.

Things happen.

This will show Warren Buffett! Gabriel Plotkin named his new hedge fund Melvin Capital after his grandfather. Well it wasn't audited "in the technical sense." Remember everyone is always committing a felony; you're probably committing one right now. "So many high-end people own dogs." Watch out for bears. The theory of the universal basic income. "[T]he story of a business reporter who is unwittingly drawn into a fraud scheme in the oil markets and has to return to his passion for investigative reporting to absolve himself of guilt, to save his career and possibly his life." Those hilarious ancient Romans, and here are some excerpts from a 16th century textbook.

To contact the writer of this article: Matt Levine at mlevine51@bloomberg.net.

To contact the editor responsible for this article: Tobin Harshaw at tharshaw@bloomberg.net.