How Loyalty Rules Bobby Axelrod’s Billions *UPDATED*

Regardless of the context it is set in, a good TV show is ultimately about human relations. It is the complex characters with exciting and compelling relationships in their personal and professional life that MAKE it great. And we can’t have enough of them in Billions.

I live and work in a world, academia, that cannot be farther away from the world of Axe Capital. Thus, I am fascinated by this world that is ALL NEW to me, and, in particular, by how Axe runs his business. Here’s my take on what it takes to be king with many thanks to Lady Trader who kindly read the post and gave me the thumbs up earlier.

Bobby “Axe” Axelrod is running a 15 billion dollar worth hedge fund. He is, in Chuck’s words, “an icon of the wealth of our age.” Thanks to his power and influence on the markets, Axe is the king that he is. Revered. Respected. Envied. However, as Pete Decker points out it is a zero-sum game and “these guys are like kings. There is always someone coming to assassinate them.” So… how do you run a business in a setting where there is always someone, say it is the US attorney, the SEC or another hedgie, trying to mess with you? Yes, exactly like a king, you have your close circle, you have your fixers. But one keyword stands out in Axe’s tight network: Loyalty. 

Damian Lewis tells Hollywood Reporter at TCA 2015 that Axe “lives by a code of honor, a set of street rules, if you like, a little bit more. A kid from a blue-collar community where loyalty is fiercely protected and people are dispatched ruthlessly if they don’t adhere to that code.”

True. We have seen this time and again in Billions in different contexts: Axe values loyalty. He rewards loyalty. He tests loyalty. He never forgets disloyalty. He does not buy your bullshit. He drops you the moment you lose his trust. But it’s a two-way street that he sometimes needs to gain loyalty as well.

Axe values and rewards loyalty. He gives his blessing along with some seed money to portfolio managers that have been loyal to him over the years to set up their own shop. The only thing he expects in return is, well, loyalty. He wants transparency on all their ideas which Pete Decker describes as “more of a colonoscopy.” Axe moving faster and bigger on the good ideas make them mostly useless but everything falls into place when tips start to come in: “give and take” at its very best. Decker calls Axe “a nation state.” I prefer to call him “the sun” and the spin-off hedge-funds as his “satellites.” Axe seems to have set up his own solar system.

In Episode 3 Yum Time, we see Axe tripling up his portfolio manager Donnie’s stack. And we wonder where this comes from.  Last time we check, Donnie is not the brightest guy in the PM meeting. He cannot see the matrix. Why does Axe reward him? “For loyalty” says Wags. Donnie has always been a loyal soldier. Now… I understand about rewarding loyalty and giving incentives to your employees to push themselves further… But I also know Axe does not hang on to losers…  And after seeing his hesitation about starting with 200,000 shares of Rubinex, we know it’s a long-shot for Donnie to be Axe Capital’s Brian Doyle.

Then The Punch happens! Ok I was not expecting Donnie to be Brian Doyle but I was not expecting him to be a mole, either… which makes me think HARD… Could this all be part of Axe’s plan? If I can see Donnie will not be a super star, Axe is more than able to see that, too! Axe values and rewards loyalty, but he also does not hang on to losers. Knowing the US attorney’s office is on his tail, could it be that Axe is strategically using Donnie as a bait so he can move on with his own business as the US attorney is working on Donnie?

Then comes Boasts and Rails and changes everything! Now we know “loyal soldier” Donnie Caan is, in fact, loyal, and he’s been playing US attorney’s office in total cooperation with Axe. Believe it or not, Donnie is Axe Capital’s Brian Doyle! And a revelation early in the episode is a big A-HA moment: We see Donnie frantically hiding his prescription drugs during the FBI raid at his house. Donnie IS sick. We find out about the story in Episode 10 Quality of Life. Axe, knowing Chuck is on his tail, gives Donnie 200K shares of Rubinex and lets him get the feds’ attention while the rest of Axe Capital goes with usual business under the radar. Donnie saves Axe a bit of time to add further insulation to his business and will not live long enough to give Axe to the feds: A guy that has always been a mid-level player is now becoming Brian Doyle —  a Yankees player, a reserve for years, who plays a wonderful game at the 1978 World Series — playing one single epic game.

I know. This seems like a pretty cold-hearted play: Axe is basically using a sick man, a man that has been loyal to him for years, to save his ass. You may call Axe a predator. Using his sick friend to save his own ass. But you may also call him a rational man. Offering his sick friend an option — 40 million dollars pre-tax — to leave the world in peace. Axe is not tricking Donnie. What he is doing is just to keep his own quality of life and provide an equally good quality of life for Donnie’s family when he is gone. You may call Donnie a victim. But you may also call Donnie a rational man. He knows he is dying and he is making a deal with his boss to have a “game changer” in his hands for his family… Remember how Walter White starts his “blue” business in Breaking Bad? People may do things that they are not proud of just to make sure their families are okay after they are gone. It is rational. And it is painfully human. Donnie wants his family to be taken care of. And Axe is giving him that. I would call this a win – win situation. Hope I do not sound like an insensitive asshole. I am just a game theorist that believes in rational choice.

Axe does not buy your bullshit. Axe fires Victor on the spot when he responds with a cocky “how are we supposed to make money?” to new compliance rules at Axe Capital. So you could be loyal for a long time and make tons of money for Axe but it still takes one mistake for him to drop you: “I trusted you with my name and my capital and you fuck me. You put us all at risk with your deceitful and illegal moves.” To be honest, I believe it is not the shady deals Victor has made (I am, in fact, sure he is telling the truth when he says he has not done anything others have not) but it is his attitude (“You answer me one: How much do you make?”) that puts everyone at risk which leaves Axe with no option other than making an example of him in front of everyone.

Axe does not buy your loyalty bullshit, either. When Mafee comes to his office pretending he has got this offer and turned it down but he is here to let him know because he is “trying to be loyal” Axe slaps him: “You don’t try to be loyal. You just are. Or you’re not.”

Axe can make your bullshit personal. The story Wendy shares with Victor is huge. Warren Jaffin, a sharp analyst, complains about his bonus and is fired. He gets another job at a big bank but he makes The mistake of badmouthing Axe in his job interview. The moment the word travels to Axe is THE END of Warren Jaffin. Axe makes sure Jaffin does not get that job or any job for that matter in any prime brokerage, bank or fund. He declares whoever hires Warren Jaffie is his enemy. What is Warren Jaffin doing today? “He’s got a blog.” I don’t think Victor is making the “secret sauce” public.

Axe can make your bullshit extremely personal. Remember the rats? Carly, Channing and Hlasa who jump the ship the moment Axe’s 9/11 dirty laundry is out? Well, Axe is determined to “hobble” them! He has Dollar Bill feed them good information at the outset followed by false information that make them lose a bit too much money. HOBBLED! The rats find Axe in their office as they mourn their losses.

Axe’s offer is brutally simple and simply brutal: 250 million seed money. Revenue sharing agreement. On-going rate is about 25% so what about 40%? 😀 Non-compete and non-solitation agreements to be signed. Total transparency. Trade files sent to Axe every night. They can never manage more than 999 million dollars. No buy-out to eliminate revenue sharing agreement and no lock-up on his money. He can pull the plug anytime. The deal will go off the table once he counts to five. He is at 1 and they have a deal. The three rats are now three slaves for life.

Axe tests loyalty. Axe’s relationship with Wendy certainly deserves more than one stand-alone post, but the way he tests her loyalty more than once tells me he really wants to trust her. Wendy’s value to the firm and to Axe is absolute. Her “bold statement” of “I have built this company as much as you did” is, in fact, a “true statement” and Axe knows this. He cannot drop her like he drops Victor. There are many Victors. There is only one Wendy.

The first test comes with the life boat drill at Axe Capital. Wendy shows the finger to the “SEC guy” who needs to see her files without knowing it is a drill and passes with flying colors. But when she finds out about what’s going on, Wendy knows exactly what Axe has done. He makes a list of bullshit excuses. “Last chance.” “Ok. I left you out on purpose.” Axe now knows if he cuts her off one more time, she will be gone. Can Axe take that risk? I don’t think so and that is why the second test, which takes place in quite an interesting setting, is so critical!

Wendy, after convincing Chuck about a settlement, wants to meet Axe who is currently getting paranoid about Wendy: Why was she not in the office when Bill was arrested? Why did she draw 250K from the fund? Why is she still sticking around? And he invites her to a meeting in a spa pool, naked, so that no one can listen other than the two of them. This is Axe trying to figure out Wendy’s type (loyal or not loyal) from her actions:.We have yet another textbook signaling game in our hands here. If Wendy does not come to meet him in her birthday suit, she is not to be trusted; if she does, she genuinely wants to help him. Because meeting Axe under HIS conditions is not cheap talk but it is a costly action on Wendy’s part. And Wendy does not have an option but making this deal happen between Axe and Chuck if she wants to move on with her life. She is completely sick and tired of the on-going pissing contest. She knows Axe does not trust her completely at this moment and she, in fact, understands him. So she is ready to take THIS costly action to prove her loyalty and gain back Axe’s trust. And it is a costly action not just because Wendy is getting into a spa pool naked with her boss but if any of us can think of a possible photo/video opportunity in the pool, Wendy can, too! She takes the risk. She passes with flying colors.

And Axe fails her BIG TIME. Axe opens his mind and his heart to her completely when he needs to be “fixed.” BUT when he finds out that the tiny little Danzig story he shares with Wendy in their session finds its way to the US attorney’s office for an investigation, Axe does not give Wendy the benefit of the doubt but just nods to Hall who asks if he should prepare the materials for her. And my heart sinks. The potential creep I see in The Deal is now surfacing. Hall has the photos.

And, hey, it’s much more than that. They also track Wendy’s online traffic on their servers and from her laptop and find out about her unusual interests. If Axe is going down, he is taking Wendy and Chuck with him. And him, with that asshole-y look on his face, calling Wendy “a master of subconscious, or is it mistress?” is pretty low. I don’t think it is the pictures (Wendy, as Axe points out, could also think about the possibility of pictures. She takes a costly action, by agreeing to meet at the baths, to prove her loyalty to Axe) or being busted about her interests in BDSM that hurt Wendy. IT IS the fact that Axe can, in fact, believe she is selling him out.

I think what Axe has done to Wendy is beyond disgusting and I do not intend to make a case for him but I try to figure it out: I love that conversation Axe and Donnie have in The Punch about how we are all animals in the end. So true. And, I believe, when the stakes are really high, we, the human beings, are capable of doing what we cannot normally imagine doing. To save someone we love. Or to save our own asses. We can make a huge sacrifice or we can sacrifice someone in a way that we could not imagine otherwise. These pictures are Axe’s last resort. He may well choose the short cut and use them earlier to settle this once and for all… but he does not. He tries everything else to save his ass but now he is looking at a real jail time. Having said that… what about not giving Wendy any benefit of doubt? If we look at the constant testing of loyalties over the season, Wendy passes with flying colors and Axe fails. Is this really the guy who has opened his heart and his mind to her a few days ago? No, he’s not. Stress levels are high and autopilot is on.

My hunch is Axe will regret what he did to Wendy BIG TIME in a short while and will want her back. And we know our guy is used to getting what he wants. But, after all, Wendy is not a Philly steak or a a private jet. I am giggling as I think about what a DELIGHT it would be to watch Axe plotting to win Wendy back which could in fact bring some tensions to Axelrod household!

Dollar Bill is also taking a VERY COSTLY action in US attorney’s office to protect Axe. I see the trust between Bill and Axe in the nod between them as Terri puts the cuffs on Bill at Axe Capital. However, the extent of it is still a surprise. The moment Chuck and Bryan make their big discovery about Bill’s “second family” and try to use it against Bill to make him sing about Axe Capital, he just keeps calm and sends his wife the email he prepared a day before about his double life. It is a huge blow to Chuck and Bryan that Bill is blowing up his family for Bobby Axelrod.

Orrin Bach understands: “Axe’s guys… They are in it for life. Bill Stearn could not walk down the street if he sold out his friends… Guys, who talk in their world, may avoid a few years in a cell but they are dead forever.”

We see more about the understanding between Axe and Bill in a basket of muffins Lara takes to Sandy, Bill’s wife. Hidden under the muffins is money to cover mortgage, property tax, insurance, and school tuition. Bill knows Axe will take care of his family in case he goes to jail. I wonder if this close bond has something to do with where both Axe and Bill are coming from: Nothing.

Dollar Bill is a guy with blue collar roots hailing form Philadelphia. His dad was a shoe salesman and his mom still did laundry by hand that he bought her a washing machine with his first seven digit check (I totally agree with Mafee that the gift should have been a house with a maid!)  Ben Kim is the son of Korean immigrants who moved to Queens when Ben was 9 years old. His parents ran a deli in Kew Gardens and Ben worked there every afternoon and every weekend before he departed for Stanford. We also know that Axe’s former co-worker Pete Decker is also coming from a modest background with a teacher dad and a sales clerk mom. And, we know Wendy tells Victor, that he made a real life for himself — “a long way from Queens.” Hmmm… Is this a pattern?

I wonder if there is anyone at Axe Capital that was born and raised in privilege. Maybe Wags who cannot deal with “folksy” guys? Or maybe Wendy whose past is still a mystery to us? I just wonder if Axe Capital hires based on background: Top school? Check. Blue collar background? Check. Or is it just that brilliant blue collar kids choose this lifestyle over others and some even choose the man who shares their background — Axe may be their hero — to other hedge funds? It’s interesting that trust fund baby Kate chooses public office over private law firm. So does blue blood Chuck Rhoades.

Axe may believe guys and gals sharing his background would understand his honor code better and would take bigger risks to get the job done since they have so much to lose. Exactly like him. We know Dollar Bill is bribing Super Auto to see their inventory so that he’s “not uncertain” about that stock dipping. Or he’s making friends with Pepsum researcher to get insider information about the new drug that makes cows shit better. We know Victor bribes a company CFO for information which Wendy does not let him share (with us) outside a session…

Loyalty rides high in the world of hedgies. These guys know it’s a “crush the other guy business.” However, as Damian points out at the New Yorker Festival, they believe they are the underdog, always, because they do set themselves against the house — against Wall Street that sets the odds: “These guys are resolutely not part of Wall Street, and they are very keen to stress that.” They are more like “snipers on the edge” that they sit, snipe, pick off companies and short stock. That is why, even though they are competitors, they need to stay tight at some level to work things out. Think about the deal Axe and Ken Malverle make just shortly after Axe calling Ken a “poacher” as Ken is trying to talk Garth Sykes into moving his pension fund money to Vista Verde. Axe needs a top shareholder of Cross Co so he can borrow shares to meet the margin call from his prime broker and fight back against Chuck Sr who is short squeezing him. Yes, Malverle asks for 25% from Axe to lend him the shares knowing that he’ll get what he wants because Axe REALLY needs them, but he DOES business with him.

But, at the same time, there is occasional hiccup like Axe throwing fellow hedgie Steven Birch under the bus to get the US attorney’s office to get off his tail for a while so he has some extra time in his hands to add some extra insulation to protect his company. But, cut him some slack, Birch pretended he was his best friend and short-squeezed him on the HMOs last year 🙂 I really wonder if Axe would still throw Birch under the bus should he not have short-squeezed him earlier.

Axe needs to gain his investors’ loyalty. It’s fascinating to see a hedge-fund is not only about managing money but it’s also about gaining the loyalty of investors — who seem to be on a wide spectrum — that trust their money with you. You build personal relationships.

Both Garth Sykes of Flagship Teachers’ Pension Fund and Raul Gomez of NYC Police Pension Fund have 1.5 billion invested with Axe Capital. This is where the similarity between Sykes and Gomez ends though. Their relations with Axe cannot be more different.

Garth Sykes either does not get Axe or does not trust his expertise, probably both. He questions every move and needs a lot of hand holding at every step of the way. He has weak loyalty and is ready to flip to Ken Malverle of Vista Verde who is working with a more conservative strategy for his investors — he’s only 2% up where as Axe is 32% . Lady Trader’s baseball analogy is apt. Ken, a nice singles hitter with a high batting average, may work better than Axe, a home run hitter with a lower batting average, for a pension fund. But I think this is more about Garth than his pensioners even though he is referring to them all the time. Garth is a guy that aspires to fly high but he has acrophobia! He wants big returns with small risks which is impossible. His neediness ultimately brings Axe to the end of his rope: “If you wanna stay, stay. If you wanna pull, tell me in the morning. But either way get off my dick.” And Garth stays…. well, he is the first one to jump ship when Dollar Bill gets arrested and move his money to Vista Verde where Ken will keep things “nice and comfy” for him.

Raul Gomez is absolutely on the same page with Axe. You easily see the mutual respect between the two men which you miss with Axe and Garth. It turns out Gomez saw what Axe had the moment he met him years ago despite the fact that Axe was a “cocky prick with terrible table manners.” He keeps his money at Axe Capital because he trusts and respects Axe’s expertise: “These companies are living organisms to you. And I knew if I gave you my money that you would not sleep until you put it all in right places. You would do whatever you had to and would not care how it looked. That’s who I needed to look after my cops. Who I still do.” This is a relationship based on loyalty and trust. Having said that when Gomez hears about “the punch” he makes the trip from Manhattan to Westport to tell Axe he needs to settle his trouble as soon as possible. Withdrawing money from Axe Capital is the last thing Gomez wants to do, but he WILL do it if there is any misdemeanor. And he stays when Axe proves the punch is justified. Gomez does what he needs to do once June’s Chapter 10 is made public; however, he still talks to Axe with respect, he does not judge him, and he sincerely hopes there can be a time in the future they can again work together. And he is the one that lets him know right away about US attorney’s office looking into one of Axe’s guys regarding some automatic weapon charges and paid off cops. Gomez is a friend.