Will the Feds wreck the Bulge Bracket?

This week’s buzz is all about “outrage at Wall Street bonuses.” Obama’s derision of them as “shameful” has given official sanction to the passions of the majority: most people polled respond that wealth should be distributed more equally, that the rich don’t pay enough taxes and that Wall Street bonuses are excessive. Of course, few of these individuals would refuse their own pay raise (no matter how badly their companies were performing) nor was there much outrage over similar government checks like the $127 billion stimulus.

These egalitarian intuitions are relatively harmless as long as government stays out of the economy. Some wealth is re-distributed, but at least the pie keeps growing. However, a grave problem emerges when government tries to apply these values to its control of private enterprises including the Wall Street banks which it partially owns and greatly influences today.

The problem is this: Wall Street bonuses are being paid because some parts of every bank remain profitable. For instance, financial institutions bankers and traders who valiantly shorted the same sub-prime securities that the majority now blame for this boondoogle. The bottom line is that if banks don’t pay these bonuses, they will lose this talent and become even less profitable. Consequentially, the Federal government will lose even more money next year. 

Today’s proposal from Senator Claire McCaskill to cap bailed-out-bank salaries at $400,000 (that of the President) is the logical consequence of a line of thinking: because banks took government money, they should be treated as if they are part of the government. However, this thought directly endangers the original “investment” logic of the bailout which stated that the government was putting money into private enterprise in a hands-off fashion in order to get it back later as stock owners. Left completely to their own devices, Wall Street managers would continue to seek profits which could eventually be returned to government owners. But today’s sentiment puts a whiff of expropriation risk in the air which threatens Wall Streets ability to seek profits. If this spreads, it just about ensures that the US government will lose all of its money invested in Wall Street because those firms will cease to exist. Productive employees will simply leave to join banks which are free of government oversight, and investment.

Is that easier said than done? For the most part, Wall Street firms are just people in offices. TheDeal.com tracks movements on the Street and it seems there’s increasingly a general trend of rainmakers, the most productive bankers, moving from bulge bracket to boutique firms. Some of this is flight from institutions which are fundamentally unhealthy, but I suspect that the motives will increasingly be fear of government oversight. A few recent moves from just the last 3 days illustrate the trend:

• John Barber, Citi private equity head leaving the firm. No destination yet.
• Gary Walters, Chase digital media head joining a boutique: Revolution Partners
•  Hal Kennedy, Credit Suisse restructuring director, joining a boutique: Jefferies.  
•  Peter Kapp, Citi financial institutions director, joining a boutique: Stifel, Nicolaus. 

While it’s impossible to know the motives, none of these individuals are leaving large banks for other large banks. They are all joining boutiques where they at least have the possibility of commanding those “shameful” pay packages.

Online retailers could use some Mint

I’m a raving fan of Mint.com, the online financial aggregator and think online department stores could learn a thing or two from it.

Why? Mint turns a boring, potentially cluttered service (remember Yodlee?) into something personal, simple and yet, fresh and interesting. In other words, it’s the opposite of most online retail department stores.

Like Mint, department stores aggregate things. In place of accounts from different providers, we find products from different brands but the typical department store customer similarly cares about just a tiny share of what’s potentially available. Good aggregators become successful by being inviting, relevant and making useful suggestions. Mint does this by enabling the customer to quickly add accounts and start receiving useful reports and suggestions. For instance, if you have a $2000 balance on a card with 22% APR, it’ll suggest a better deal for you and tell you exactly what you’ll save.

Online retailers should follow Mint’s lead! A look at Bloomingdales.com helps demonstrate why:

Bloomingdale’s flagship at 59th and Lex is “like no other store in the world” but that’s not because I enjoy spending time in the basement looking at women’s blouses or cosmetics. I walk through that stuff as quickly as I can, so why is it that it’s persistently staring me in the face whenever I try to shop online? When you try to take an entire department store online, you end up with clutter. Ever clean out your Inbox of old e-mails and spam? That’s kinda how it feels sorting through all the random stuff that comes at you in the typical online department store. 

What Bloomingdales can learn from Mint  is to think of personalization as a necessity if the company’s online “flagship” is going to in any way match up to the in-store experience. When I shop Bloomingdale’s online, I’d like to be able to quickly morph it into the cool boutique of my dreams. I’d suggest they start by letting users select and quickly add visual tiles of brands they care about: I’d grab a Boss, Diesel and maybe an RVCA card just to add some surprises. Then let me be greeted with what’s new in the brands I care about. Give me a recommendation or two –  one that doesn’t involve pages of Metropolitan View private label. Please respect my time,  I don’t want a Marc Jacobs bag and Odin is just a click away.