Levine on Wall Street: Revolving Doors and Payday Loans

Also: Vault rankings, insider trading on SEC comment letters, Freddie Mac liquidity discounts, Family Dollar, Deeb Salem, calculators, and Modern Craft Banking.

Toward a theory of the revolving door.

Associate Attorney General Tony West, who led the Justice Department's efforts to get billions of dollars in settlements from banks, is leaving office. So this is inevitable:

The departure, effective Sept. 15, opens a lucrative window of opportunity for Mr. West, the No. 3 Justice Department official and a consummate Washington insider. A friend to Attorney General Eric Holder and President Obama, Mr. West did not announce where he will go but will likely field pitches from a number of law firms and corporations.

I mentioned the other day that people widely perceived as being tough on financial institutions tend to go work for the sorts of institutions they were tough on, while people widely perceived as being easy on those institutions tend not to. Being a tough regulator makes you very valuable to the companies you regulated; being a lax regulator does not. But Tony West is a little more divisive: Lots of people think he was too tough on the banks ("the legal system has become an extortion racket"), but lots of other people think he was too easy on them (no individual prosecutions, just big fines). So what does the theory predict for him?

Actually I think it works rather nicely. Tony West was "tough on banks," in the sense that he made life very expensive for banks. But he was "soft on bankers," in that he didn't prosecute individual bankers. The theory would predict that someone who makes life complicated and expensive for banks will be valuable to banks once he leaves office: If you're a bank, you want an ex-regulator who was perceived as tough to be on your side, guiding you through the system and negotiating with his former colleagues and figuring out how to save you money. On the other hand, a regulator who regularly imprisoned bankers would be of less use to banks, and of more use to individual bankers. He'd go work doing white-collar defense of individual bankers, trying to convince his former colleagues not to send them to jail.

A bank will spend more on lawyers to avoid a multi-billion-dollar fine than an individual banker will (be able to) spend on lawyers to avoid prison. On a strict theory-of-the-revolving-door basis, then, prosecutors have incentives to favor big bank fines over individual prosecutions. So there you are.

The Vault rankings are out.

The best place to work in banking, according to a "weighted formula" applied to a survey of bankers about prestige, quality of life, pay, etc., is Blackstone, followed by Goldman, Morgan Stanley, JPMorgan, and then a bunch of boutiques. Credit Suisse is 10th, Citi 16th, Bank of America 22nd. Stifel and Tudor Pickering tied for 50th. Moelis is 12th, up from 23rd last year, and will Eric Cantor move it up even further? One Blackstone employee wrote on the survey that the firm "is positioned to significantly outperform its competitors due to its executive team and diversification strategy," so you can see how it came in first; imagine a Bank of America analyst coming up with that stew of buzzwords on short notice. Well done everyone. Also nice is that quality of life ratings are ticking up, as protected-weekend policies seem to actually be working.

Where does your payday loan really come from?

Harvard? Maybe? Here's a Bloomberg News story about how Harvard invested in a private equity fund called Vector Capital, which invested in a Caribbean "management-consulting and analytics company" called Cane Bay Partners, which in turn owned "a network of payday-lending websites, using corporations set up in Belize and the Virgin Islands that obscured their involvement and circumvented U.S. usury laws." "Late-night television ads featuring former talk-show host Montel Williams supplied customers" to the payday lenders, and here are some facts about Cane Bay's executives:

Johnson wears flip-flops and khaki shorts in the office, while Chewning, who handles day-to-day operations, likes to watch Fox News in the kitchen, often complaining about President Barack Obama, according to the ex-employees. The two, both 41, are still active in the Kappa Sigma fraternity .... Island life has been good to Johnson. Photos on his Facebook page show him fishing in tournaments, partying on his boats and chugging Fireball whisky from the bottle.

What could possibly etc.

Here's a new way to insider trade.

The nice novelty is that the Securities and Exchange Commission is basically your accomplice. Here's the deal: "If the SEC has questions or concerns" about a company's financial statements or other filings, "they are detailed in a comment letter to which companies have 10 days to respond, and correspondence goes back and forth until all of the comments have been resolved." "Researchers found that top executives frequently take advantage of a period before the letters are made public (no sooner than 20 business days from resolution) to unload large amounts of their company shares." On the other hand, while there is abnormal selling, it's less clear that there are abnormal returns to selling; stock prices don't actually seem to go down much right after comment letters are released. And if you're an executive and you're cooking the books you don't need the SEC to tell you that, though I guess if the SEC does tell you that then it's time to get out.

"How Taxpayers Subsidize Freddie Mac."

You might be like "umm by guaranteeing all its liabilities?" but, while the headline is underdetermined, that is not the answer. It's that Freddie Mac securities are less liquid than Fannie Mae ones, because Freddie is a bit smaller, so Freddie "gives lenders a discount on the fees it charges to guarantee the mortgages," which reduce its profits by $400 to $600 million a year. If you just made Fannie and Freddie securities fungible that would go away, I guess without reducing Fannie's fees?

Carl Icahn sold his Family Dollar stake.

Dollar Tree agreed to pay $74.50 for Family Dollar, Dollar General then bid $78.50, and then Dollar General raised to $80 without an intervening Dollar Tree bid, so it does sort of feel to me like things aren't going much higher than $80. But what do I know; the market has been above $79 for the last two and a half weeks, and above $80 for this whole week so far. "Carl Icahn has sold his entire stake in Family Dollar Stores Inc., making a profit of about $200 million on the investment," and I'm with him. It doesn't seem like there's that much more upside, and the downside risks of the stock -- Family Dollar either closes its $74.50 deal with Tree, or takes a General deal that falls apart for antitrust reasons -- are probably made worse by Carl Icahn being in it.

Deeb Salem's mother remains disappointed.

Remember Deeb Salem, the former Goldman Sachs mortgage trader who "told his mother, who was staying with him because her house had burned down on Christmas, that he expected at least $13 million for 2010," and then sued when his bonus was only $8.25 million? Somehow that did not go well for him.

Things happen.

Ken Griffin's divorce is acrimonious. "Och-Ziff attracts billions despite tepid performance, legal concerns." A new dark pool for bonds. The Epicurean Dealmaker on Eric Cantor. Matt Klein on the BIS on financial globalization. Martin Wolf against the new orthodoxy. What is Modern Craft Banking? (Via.) The 10-year-old TI-84 graphing calculator is still popular and still $90 to $150, but remember that the 33-year-old HP 12C non-graphing calculator is still popular and still $53. "The last tech disruption was the use of the spreadsheet in the 1970s/80s, it is difficult to see what new technology will affect an advisor’s job as much as that." Back up your data. It's really hot on subway platforms. "I, a person from New York, went to the Bay Area in search of a" good pumpkin or sun-dried tomato bagel for some reason. Don't leave New York.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

    To contact the author on this story:
    Matthew S Levine at mlevine51@bloomberg.net

    To contact the editor on this story:
    Toby Harshaw at tharshaw@bloomberg.net

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