Andrew Ross Sorkin’s Elegy for the Business Class
Andrew Ross Sorkin has a disquisition on why Wall Street executives, who have seemingly gotten everything they wanted over the past two years since wrecking the economy, have turned on the President. The short answer can be found in every examination of which party has protected big business for the last century and a half. The slightly longer answer:
Less than two years ago, Democrats received 70 percent of the donations from Wall Street; since June, when the financial regulation bill was nearing passage, Republicans were receiving 68 percent of the donations, according to an analysis by the Center for Responsive Politics, a nonpartisan research group.
But what is surprising is that some of the president’s biggest supporters have so publicly derided his policies, even at the risk of hurting their ability to influence the party in the future. Issues like the carry-interest tax on private equity or the Volcker Rule have become personal.
Why so personal? The prevailing view is that bankers, hedge fund mangers and traders supported the Obama candidacy because he appealed to their egos.
Mr. Obama was viewed as a member of the elite, an Ivy League graduate (Columbia, class of ’83, the same as Mr. Loeb), president of The Harvard Law Review — he was supposed to be just like them. President Obama was the “intelligent” choice, the same way they felt about themselves. They say that they knew he would seek higher taxes and tighter regulation; that was O.K. What they say they did not realize was that they were going to be painted as villains.
According to Sorkin, this really comes down to feelings, nothing more than feelings. The men who own the world are so thin-skinned when you tell them, correctly, that they broke it. That would be the “intelligent” response to the clear evidence on the subject. The rest of it can be explained by the obvious statement we see in every election, that when given the choice between Republican and Republican-lite, people will opt for the real thing every time.
Yves Smith has an alternative explanation:
The key omission from this story is the name Rahm Emanuel. Rahm, a former partner at Wasserstein Perella, was particularly effective at fundraising from private equity funds and hedge funds.
So re-read this key phrase: ” They say that they knew he would seek higher taxes and tighter regulation; that was O.K.” But what the article buries in plain sight is the fact that the plans to tax hedge and PE funds carried interest at ordinary income tax rates, rather than a preferential capital gains tax rates, has the 2 and 20 crowd seeing red […] It’s one thing to raise taxes generally, the big boys can stomach that. But it’s quite another to raise taxes in a way that targets them. (And note, by the way, that this measure failed, but the industry was still deeply offended at this show of disloyalty).
Sorkin also recycles this charge that failure to “be nice” to Wall Street (read: remove them of all their tax liabilities) will spur disinvestment:
“We have given a great deal of thought about the impact that public policy has on individual companies, industries and the economy generally,” (hedge fund manager Daniel Loeb) said. Third Point has sold its investments in big banks as a result of “regulatory headwinds”; got rid of its stake in Wellpoint, which Mr. Loeb described as “a statistically cheap stock owned by several hedge funds, but which we saw as being overly exposed to unpredictable government regulation”; and taken a short position against for-profit education companies as a result of “the government’s increased willingness to use its regulatory muscle.”
Mr. Loeb’s views, irrespective of their validity, point to a bigger problem for the economy: If business leaders have a such a distrust of government, they won’t invest in the country. And perception is becoming reality.
Actually, I’m going to go ahead and call bullshit on “irrespective of their validity.” If business leaders are talking about disinvesting but actually investing in the country, the actions matter more than the talk. In fact, businesses lowered investment during the corporate-friendly Bush Administration, and raised investment significantly during the time of FDR. The level of business investment depends almost entirely on the profitability of investment. This idea that business leaders will blow up the economy if they don’t get zero-taxation rates is transparent nonsense.
I’ll close with Yves again:
And it’s also remarkable that Sorkin can treat the self-serving and misleading canard, “We’re mad that Obama is treating us like bad guys” seriously. For anyone at the TBTF firms, it’s patent rubbish. The firms got overt and back door bailouts so they could shore up their equity capital, and what do they do? Pay a big chunk of government-provided largesse out to themselves in record 2009 bonuses. It’s one of the most blatant acts of looting on record, and the industry deserves every bit of scorn the authorities can muster dumped on its head.