Entries Tagged as 'Wall Street'

Wall Street Ties Won’t Sink Romney

December 21st, 2011 at 12:38 am 15 Comments

Some on the right are concerned that Obama would slam Romney as a denizen of Wall Street and that Romney’s wealth would prove a hindrance in the general election. While some worries about Romney’s business background are more the product of sympathy for other candidates than anything else, there is an element of real anxiety to them, and they are not completely baseless.

However, there are numerous reasons not to overestimate the potential effectiveness of White House attacks on Romney over Wall Street connections.

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Can My Generation Make More Zuckerbergs?

December 8th, 2011 at 12:28 pm 49 Comments

Galatea’ is a columnist writing about her experience looking for work after her recent downsizing. Previous entries in her series can be read here.

This weekend I ran into a friend from high school with unmitigated amounts of professional success. He was president of the student government, remedy studied at an elite liberal arts college, and now flew all over the world as part of a glamorous job working for an NGO.

“So what do you do?” Sam asked.

“Uhhhh I’m…between jobs…and uhh working on some, uh, projects….and uh so have you talked to anyone from high school?”

We ended up on the subject of what everyone else was doing. Somehow we began talking about the brightest kids we knew, the ones who ended up at Princeton and Harvard and Yale. And then Sam exploded.

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If I Do Say So Myself

David Frum October 14th, 2011 at 8:21 am 30 Comments

Googling one’s own name is sometimes called a “vanity search.” In my case, the practice calls for another name, since I can assure you the results are generally 10-1 ungratifying to vanity. Call it defensive Googling. But this morning it did yield a positive result, unearthing a line I’d written in 2008 that seems even more apt today. I’ll take the liberty of reposting it now:

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Obama’s Self-Destructive Optimism

August 8th, 2011 at 11:02 am 45 Comments

A simple theory of why Obama didn’t come out fighting in 2009: he expected an economic turnaround in four years.

My co-bloggers John Sides and Josh Tucker responded yesterday to a recent newspaper article in which psychologist Drew Westen argues that Barack Obama made a mistake by making conciliatory noises rather than aggressive Wall-Street-blaming in his inauguration speech and after.

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Is it 1937 Again?

David Frum August 4th, 2011 at 2:59 pm 106 Comments

Ezra Klein asks a good question:

Where will the recovery come from? The problem is that no one has an answer. And as one hopeful hypothesis after another is dashed, the markets are beginning to panic.

It won’t come from the United States. Our recovery has slowed, and updates to the Commerce Department’s growth figures have shown that the hole we’re in is significantly deeper than we realized. Thursday’s news only underscored that conclusion, as the early signs suggest that Friday’s job numbers report will be disappointing.

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More Dividends Please

David Frum July 22nd, 2011 at 10:09 am 13 Comments

Bloomberg View notes that US corporations hold $2 trillion in cash.

The site argues that corporate managers ought to be kicking the cash back out to shareholders.


“Total dividends paid in the first quarter of 2011 fell from a year earlier. The average dividend yield on Standard & Poor’s 500 Index companies is about 1.9 percent. That’s half the level of the 1980s and a fifth less than in the 1990s.”

Companies are using the money to buy back their shares, creating a spurious appearance of increasing corporate value by using shareholder money to make shares more scarce.

Better for them to kick the money out, and let shareholders buy the shares they want.

If the devil finds work for idle hands, CEOs find mischievous use for hoards of other people’s money.

Obama Gets Snubbed by Wall Street

David Frum June 17th, 2011 at 12:20 am 53 Comments

In the Clinton and Bush years, it often seemed that Wall Street and the super-rich were aligning themselves with the Democratic Party.

Not any more.

Obama and his top lieutenants are working hard to win back Wall Streeters to their side after a couple of years of tension in the wake of Dodd-Frank.

Apparently financiers are still bitter about the banker-bashing then went on during the Fin-Reg debate.

Another less obvious reason why there’s tension, according to what one Wall Streeter told Ben White, is that “Obama is nothing like former President Bill Clinton and simply doesn’t like rich people, who in turn don’t like him very much.” That source said “the money would ultimately be there but would flow much more evenly to the GOP nominee (assuming it’s not a tea party candidate) than it did in ’08.”

By the numbers, you may wonder what the rich have to complain about. Corporate profits are up, and the S&P 500 has surpassed 2008 levels. President Obama has signed a renewal of the Bush tax cuts.

You might also wonder: Are the rich – and especially the Wall Street rich – truly so thin-skinned? Millions of Americans have lost jobs, homes, and savings in a financial crisis and recession caused by the recklessness and incompetence of some of this country’s most eminent and best-compensated financiers. Isn’t the president elected by those Americans entitled to grumble a little about the disaster?

Yet the theme is powerful. Mitt Romney includes in his stump speech a question: “Any business folks here? Well, this president doesn’t like you very much.”

I’m not positioned to assess the president’s likes and dislikes, but off-hand I’d guess that he likes rich people who support him and dislikes rich people who don’t. Politicians tend to be self-centered that way.

Meanwhile, business leaders need to be a little more hard-headed – and a lot less thin-skinned. The flow of negative regulations from a re-elected Obama administration is reason enough for business leaders to invest their political contributions against the Democrats, regardless of the president’s real or imagined feelings.

HBO Takes on Wall Street

May 20th, 2011 at 5:56 pm 33 Comments

In the spring of 2008, just as the wheels were starting to come off of Wall Street, HBO presented a movie about how the Bush era began, with a star-studded film of the 2000 election Recount. This Monday, May 23rd at 9:00pm (ET/PT), we relive its unhappy ending, with an equally celebrity-packed adaptation of Andrew Ross Sorkin’s controversial bestseller, Too Big To Fail, directed by feature veteran Curtis Hanson.  William Hurt, Paul Giamatti, and Billy Crudup head an A-list as the power threesome of then-Treasury Secretary Hank Paulson, Federal Reserve chief Ben Bernanke, and Timothy Geithner, then chief of the New York Fed.

While not as operatic or entertaining as Oliver Stone’s Wall Street follow-up, Money Never Sleeps, the film more than passes the All the President’s Men litmus test of making nail-biting, suspenseful entertainment out of real events where we already more-or-less know “who dun it” and how it all mostly turned out.  Hurt plays Paulson with military soft-spoken precision, dictatorial in the office but racked with doubts when by himself or with his wife (Kathy Baker, top-drawer as usual).  Crudup is appropriately weaselly as Geithner, and Giamatti and his hound-dog eyes do a good impersonation of the shy academic suddenly trying to keep himself (and the economy) afloat in the deep end.

Yet aside from a cheap Law & Order “ripped from the headlines” ploy for publicity, though, is there any other reason why HBO is making this movie now, when we’re still trying to crawl out from under the blowback?  While the Great Recession, and the 2008 economic meltdown that precipitated it, as bad as it is, isn’t the moral equivalent of slavery, Vietnam, or the Holocaust, it is their equivalent in one particular way.  As was said of that trio of terrors, the meltdown is like “a monster that sits down in the middle of our history and refuses to go away.”  And like a monster sitting down in the living room of a Truman Capote or Eudora Welty novel, its tragic and comic dramatic value comes from watching everyone else’s determination to politely ignore it, to pretend that it just isn’t there.  The 2008 meltdown has become a mythological pool that reflects more of the image of each person looking at it than it reveals anything about itself.

Behind Curtain Number One, today we have the Republican party of Paul Ryan and John Boehner, now pushing austerity measures and survival-of-the-fittest “free market” solutions.  The same Paul Ryan and John Boehner who took to the floor of the Congress in fall 2008, openly crying and shuddering, literally begging for bailouts and make-ups and interventions, dispensing totally with what I remember one commenter on this forum calling ”free-market BS.”  The same Ryan and Boehner who had supported Dick Cheney and Karl Rove’s activist “big government conservatism” totally, and raised barely a peep about deficit spending until after Obama took office.  They may have reverted to Milton Friedman and Ayn Rand today, but back then, their philosophy more resembled that of Randal Graves from the definitive slacker movie Clerks: “I’m a firm believer in the ruling class — because I rule!”

Behind Curtain Number Two, we have the Democrats.  Was it Ronald Reagan or George W. Bush who deregulated financial instruments and media-monopoly laws, fully opened China and India, and started sacking US manufacturing in earnest?  Nope.  It was “new Democrat” Bill Clinton (who dismissed regulator Brooksley Born in 1999 as brutally as Cheney did Paul O’Neill, when she threatened to upset the Masters of the Universes’ apple carts.)  After the meltdown, President Obama blanket-reappointed virtually all of the Clinton and Dubya secret-handshakers who were ruling the roost before and during the crash — Geithner, Bernanke, and Larry Summers.  Democratic critics of Wall Street ”greed” and ”corruption” like Robert Reich and Russ Feingold were unceremoniously kicked to the curb.  And to frost the cake, when it came time for healthcare, “pro-business Democrats” like Ben Nelson, Blanche Lincoln, Max Baucus, and Joe Lieberman stood shoulder-to-shoulder with the Tea Party to defeat the liberal dream of a public option, switching it out for the much-hated individual mandate.

Yet today, less than two years later, the Democrats go banging on about how they “stand up for the little guy”, how they’re for “Main Street, not Wall Street”, how only they can protect us from the “greedy”, “racist”, “incompetent” Republicans.  Right.

But it’s Curtain Number Three that has the Big Deal of the Day.  As much disagreement as there might be between Barack Obama and Newt Gingrich, between Sarah Palin and Hillary Clinton, at least they all agree that the 2008 crash was a one-time meltdown, a tragic accident built of mistaken, not deliberate screwups.  Ask someone like Michael Moore, Barbara Ehrenreich, Noam Chomsky, Dennis Kucinich, or Bernie Sanders what it was all about, though, and they’ll tell you a different story.  To them, the meltdown was a deliberately planned and executed ”theft” of home-equity wealth from middle-class and minority homeowners to the ruling class, to bring the “shock doctrine” to America and put people in their place.

In this reality, the sweated-through suit jackets and teary eyes of Tim Geithner and Ben Bernanke were all an act, a put-on as campy and cheesy as “I did not have sex with Miss Lewinsky” and “Bring it on!”   They were actually lovin’ every minute of the meltdown, gleefully shoveling taxpayer money into Uncle Scrooge’s hoarding vault. Congresswoman Marcy Kaptur (D-OH) writes the narrative.  “It was all very carefully planned… to happen exactly when it did, and to involve the players that it did,” she schoolteacher-smirks in Capitalism: A Love Story.  “It was like an intelligence operation.”  When Michael Moore croons if the 2008 meltdown was an “economic coup d’etat”, as deliberate and on-purpose as anything Fidel Castro or Augusto Pinochet came up with, Congresswoman Kaptur replies, “Yes. That’s what it was!”

Perhaps the reason that so many commentators and elected leaders agree with Kaptur and Moore is how, after the bailouts and bonuses, instead of doing the “perp walk” to federal prison, many of the banking executives who survived the 2008 collapse are now enjoying record profits.  One gets the feeling that after the adventures of OJ, Robert Blake, Klaus von Bulow, Kenny-boy Lay, and country-club sentences for Michael Milken and Bernie Madoff, they knew that whether it was “on purpose” or an accident was beside the point.  One might say they were “too big to JAIL” — and they knew it.  (Can you imagine what a Gordon Gekko or JR Ewing would be thinking to themselves at the sight of some Representative Pothole trying to compare intellects with them?)   Tellingly, in this movie nobody plays Bush or Cheney (although Nancy Pelosi and a few other Congresspeople get the doppelganger treatment).  It’s as if at this level, even the Presidency is almost irrelevant – and all of the financial players have unmitigated contempt for the House and Senate — or more specifically, what they think are the unsophisticated rubes who populate them.

They say that the three things nobody is supposed to see from the inside are autopsies, processed meat, and politics.  What will keep September of 2008 living in infamy well after we’ve recovered from our current catastrophe is that it was when all the politics and platitudes died (temporarily), in the harsh sunshine of reality.  It was when we got a look at what happens to the doggies and kitties in the animal labs, instead of the miracle drugs and cosmetics at the pharmacy.  It was when we opened the wrong door at the hospital’s OB/GYN ward and saw an abortion, instead of the bunting babies in the nursery.  Forget “too big to fail.” The real problem is that it was too big to ignore.

Maybe Gore Vidal was right about our being “The United States of Amnesia.” We want to forget, to put it out of our minds, and our politicians are more than happy to try and help us to.  But we can’t – and we shouldn’t. So here’s to HBO for giving us all, of every party and persuasion, a plangent and much-needed (if liberty-taking) reminder of who, what, when, where, and why.  Of the day when politics-as-usual finally ended — and realpolitik ruled the world.

Obama’s Next Target: Corporate Tax Loopholes

May 11th, 2011 at 11:41 pm 16 Comments

The Obama administration is moving forward with corporate tax reform proposals and, sales although it’s too early to judge, viagra many of them look pretty good at first blush.

At minimum, the Obama administration’s fundamental idea—reducing America’s highest-in-the-G8 statutory marginal corporate tax rates—is a good one. High tax rates scare away investors and are particularly bad for unsophisticated enterprises that come up with a wildly innovative product or service. (Exactly the kind of businesses one wants to encourage.)   To reduce the tax rates without destroying overall revenue, however, the Obama administration is going to propose a variety of things it will call “loophole closures.”

In doing this, there are three major types of “loopholes” that the administration will propose eliminating and, for those who want a better, fairer, tax code that treats all like enterprises more-or-less the same, certain rules-of-thumb for dealing with each of them make sense. In particular, changes to broad tax code features, elimination of bona fide revenue expenditures, and tax increases on disfavored (mostly foreign) companies deserve different types of analysis.

First, broad tax code features that tend to reduce tax owed for enormous numbers of enterprises—things like expensing of capital equipment and credits against research and development costs—deserve evaluation on their own terms and should be matched as closely as possible with marginal rate cuts if they’re made less valuable. Some of these broad features may be helpful to the economy while others may simply distort the way revenue gets collected. Changing them offers the greatest hope of reducing marginal rates on most enterprises without destroying the government’s overall revenue collection ability but eliminating them, even in concert with a marginal rate cut, shouldn’t be seen as an excuse to “sneak by” a large tax increase.

Narrow revenue expenditures that benefit only a handful of firms—things like credits for ethanol producers, solar power companies, and certain types of farmers—have economic consequences a lot more like spending than tax cuts. Although they’re collectively not big enough to make a huge difference, they should have to meet pretty high standards of efficacy to avoid elimination in a broad tax reform. After all, they’re simply favors handed out via the tax code. Since they don’t impact the overwhelming majority of enterprises, even a lower-tax policy should accept eliminating them altogether without an offsetting cut somewhere else.

Finally, stealth tax increases disguised as “loophole closers for foreign firms” deserve enormous skepticism.  Trade protectionists, who have more than a few friends in the administration, want to use the tax code to impose all sorts of taxes on their offshore competitors. Almost without exception, these deserve rejection. (If offshore firms as a whole really pay too little tax—which doesn’t seem to be the case—the proper response would be to raise the federal excise tax on all transactions involving foreign-owned enterprise.)

The Obama administration, at minimum, is saying the right things about corporate tax policy. When the specifics of their plan come out, they’ll need careful analysis.

Markets Won’t Indulge GOP Debt Threats

April 29th, 2011 at 12:14 am 13 Comments

The GOP’s debt ceiling threat has been tried before and last time the markets were quick to shoot it down.

Way back in antediluvian times—about l995—a very successful investor and Soros Fund Management partner named Stanley Druckenmiller opined in the fall that perhaps it would be a good strategy for the Republicans in Congress to threaten to allow the United States to default on its debt in the absence of a true budget and entitlement reform package.

This opinion brought forth the wrath of Roger Altman, try once a very senior official at the United States Treasury in an op-ed piece in the New York Times.  In turn, remedy Druckenmiller and another successful Wall Street figure, Kenneth Langone, fired back: “market(s) will not be unhinged by a clear movement toward a balanced budget agreement, even if it is threatened by an interest payment delay.”

Well, now.  Three serious market participants.  A serious dispute over strategy and market reaction.  The very thing that billions are won and lost upon.

So, what happened?

On Jan. 25, l996, reporter John R. Wilke was writing, “Wall Street analyst, Stanley Druckenmiller, in change of position, says Republicans’ threat of default is ‘failed strategy….default threat would only rattle investors.’”

Wow.  What possibly could have changed someone’s mind this dramatically?

Reality did.

In between the original exchange between Druckenmiller, Langhone, and Altman, a couple of things occurred.

First, on Dec. 16 of 1995, the Dow Jones Industrial Average plunged 101.52 points, down 1.9 percent.  The benchmark 30-year US government bond dropped 1 17/32 points, its yield hitting 6.2 percent.

Second, on Jan. 10, 1996, according to the Washington Post: “Investors frantically dumped stocks and bonds today in reaction to threats of a long stalemate in Washington over efforts to eliminate the federal budget deficit.”

During that day, the Dow Jones industrial average dropped 97.19 points “twice triggering the New York Stock Exchange’s limits on computer-guided trading.”

For perspective, the DJIA was about 5,100 at the time.  An equivalent drop today when the Dow is at 12,763.31 would be about 250-300 points in one day.

So, the United States Congress has tried the old, “we won’t raise the debt ceiling without a big fiscal plan” threat before.  Its bluff was called, a couple of government shutdowns ensued, markets were rattled, and in November of 1996, President Clinton was re-elected.

Keep this history in mind when analysts and politicians assert that America’s equity, bond and currency markets will take a stalemate over the debt ceiling this year with aplomb.  Markets don’t react with aplomb.  They react with fear or greed.

My colleague, Jay Powell, was Undersecretary of Treasury for Finance under the Bush I Administration.  He has excellent Wall Street experience.  Read his analysis of the present situation, and the options open to the Treasury Department if Congress fiddles with the debt ceiling vote later this year.

One might also read entirely the letter from Matthew E. Zames, Chairman of the Treasury Borrowing Advisory Committee, to Treasury Secretary Tim Geithner on April 25.  Jay’s piece links to the Zames letter, which doesn’t beat around the bush a bit.

Optimists, usually a rare bird in the Washington, D.C., jungle, believe that at least the outlines and process reforms needed to really move toward debt stabilization can emerge from the coming comedy of Congressional wrangling over the debt ceiling increase vote.  Pessimists retort, “In a fight between debt in the future and Medicare and Social Security ‘cuts,’ debt has no chance to win.”

In the past, the pessimists have been right.  Odds are that they will be right this time.

But no one should think the world markets will react with calm to yet another American failure to get its unsustainable debt burden under control.

Remember we tried that “failed strategy” once before.