politics

  • 07 Sep 2007 at 11:29 AM
  • politics

The Washington, DC Hustle
How To Think About Yesterday’s Capitol Hill Hearings

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Politicians shakedown hedge funds.gifYesterday both the House and the Senate held hearings on carried interest taxes. (If you missed some of the excitement, check out Dan Primack’s live blog of almost the entire event. He gave up after seven hours and we can’t say we blame him.) The Senate debate focused on how the proposed tax increases on carried interest would impact pension funds that invest in private equity firms. The House hearings were all over the place.
But to focus on the content of the hearings is largely to miss the point. It’s like focusing on fundamentals in a market that is all about momentum. Washington, DC is not a place where things get decided on their merits. It’s a place where they are decided on something that hides in plain sight: politics.
This morning we turned to Tim Carney, a columnist for the Washington Examiner and the brother of DealBreaker editor John Carney, for an explanation of the politics of the tax proposals. His starting place is the head of the Senate Democrats fund raising unit, Charles Schumer. When we spoke to Schumer early this summer, we were surprised to learn that the usually tax-friendly Democratic Senator was undecided on the proposals. Several weeks later he came out against the tax.
“What happened here?” Tim Carney asks. “If you believe The New York Times’ narrative, Schumer sided with his tax-hating Wall Street donor base over his party and his progressive principles, while Obama, Clinton and the bills’ sponsors fought for the little guy, which meant taxing the big guys. The real drama is less black and white, but even more distasteful.”

Back in January, Schumer called leading private equity and hedge fund partners to a dinner in Manhattan, where he told them how the game was played. These partnerships were famously profitable, but unlike other big industries in the U.S., they weren’t playing in Washington. In lobbying and campaign contributions, they seriously lagged behind the energy industry or traditional brokerages.
Schumer’s message that night, as distilled from The New York Times account of it, was: “That’s a pretty nice industry you guys got going. It would be a shame if something happened to it.”

In short, a major factor behind the drive to change the tax treatment of carried interest is completely unrelated to arguments about fairness, efficiency, revenues or economics. It’s about fund-raising for politicians and lobbyists. It’s political rent-extraction.
But, you know, keep arguing the merits if that’s what jazzes you up. Just know that this isn’t what drives the debate in our nation’s capital.
Schumer, Democrats show hedge funds the D.C. ropes [Washington Examiner]

    • 24 Aug 2007 at 4:08 PM
    • politics

    Castro Is Dead Again!
    Miami Ablaze With Rumors Of Communist Cuban Dictator’s Death

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    castroisnotdeadyet.jpgWord is just filtering up to us that Miami is ablaze in rumors that Fidel Castro has died. Unfortunately, it appears that this may simply be wishful thinking on the part of many members of Miami’s Cuban exile community.
    The Cuban health minister has denied the rumor that Castro is dead. And it’s not really clear why he would lie about this. Castro’s sick, and possibly incapacitated. But it’s unlikely that he’s dead.
    So don’t start booking those tickets to free Havana yet.
    Cuba Foreign Minister Says Castro Health Rumors Untrue [NBC South Florida]

      • 19 Jun 2007 at 11:32 AM
      • politics

      Mitt Romney And Porn

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      hotelroommarriottpornography.jpgDoes Mitt Romney have a porn problem? The founder of Bain Capital is running for the Republican presidential nomination as a conservative candidate. But some party conservatives question his reliability on issues such as abortion, stem-cell research and even gun control. And now porn.
      The trouble, it seems, starts in a Marriott hotel room. Between 1993 and 2002, Romney sat on the board of Marriott. Last year he reported a campaign donation of $80,000, which was arranged by J.W. Marriot. But for some this money might be tainted by its association with pornography.
      According to Chris Kelly at the Huffington Post, Marriott has made “millions of dollars off in-room porn. Millions and millions. And millions.” He writes that some conservatives are “grumbling” that Romney’s affiliation with the hotel chain compromises him as a “values” candidate. Films available to guests at the Marriott include titles such as “Women in Uniform Specials” and “Three Women & a Resort.” (Actually, Kelly gives a list of a dozen or so titles that we’re not printing here for fear we’ll get caught out by anti-raunch web-filters.)
      But is this a real issue? A quick search of the web and phone calls to a few conservative activists could not turn up any prominent conservatives or organizations—or “right wing anti-porn wackos” as Kelly calls them—who are eager to shoot down Romney’s candidacy over Marriot’s porn revenues. We’re sure that if pressed on the issue, some conservatives probably would say that they were bothered by this somewhat tenuous connection between Romney and pornography. But this “grumbling” that Kelly points out doesn’t seem to have gone through the trouble of actually happening yet. It seems to be more of a case of wishful thinking on the part of some liberal opponents of Romney’s candidacy.
      Disqualifying candidates because they worked for or served on the boards of companies with substantial revenues from pornography would exile a large portion of corporate America and Wall Street from public life. AT&T, Time Warner, General Motors, EchoStar, Liberty Media, Marriott International, Hilton and the News Corporation all make money from pornography, according to a New York Times article from October of 2000.
      Mitt Romney’s Porn Problem [Huffington Post]

        • 17 May 2007 at 9:15 AM
        • politics

        John Edwards & His Fortress Pay Day

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        edwards makes money from fortress.jpgJohn Edwards has disclosed what he was paid for part time work at Fortress last year. In a filing with the Federal Election Commission required by election laws, Edwards said he was paid $479,512 by the hedge fund. He also disposed of several million dollars worth of assets in order to invest in funds managed by Fortress. Those investments are now said to be worth $11.2 million to $24.7 million.
        But it wasn’t all take, take, take for John Edwards. He also claims to have donated $350,000 to charity. If you are wondering how someone who was paid $479,512 gave away that much in charity, it’s because you aren’t paying attention. He’s not exactly giving away three-quarters of his income. Edwards’ work for Fortress was part time. He had other sources of income, including book royalties. Most the money he donated came from the royalties.
        The New York Times story has this entertaining quote from a spokesman for Mr. Edwards: “The bottom line is, if you look at where John Edwards comes from and his record, it’s clear what makes him tick: helping those who haven’t been as blessed as he has been. John Edwards is running for president to give every American the opportunities that he’s had.”
        That’s right. If John Edwards gets elected president, we’ll all have the opportunity to pull down half a million a year from a hedge fund, and our work there won’t involve messy things such as getting and making money. We’ll just spend out time studying ways to help the poor—when we’re not getting $400 haircuts.
        Wealth Is a Common Factor Among 2008 Hopefuls [New York Times]

          • 07 May 2007 at 12:40 PM
          • Europe

          French ‘Free Market’ President Elect Is No Friend Of Hedge Funds or Private Equity

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          sarkozyhatehedgefunds.jpgTo understand French politics, it helps to forget most of what you know about American politics and everything you know about economics. In the United States, a “conservative” candidate described as supporting “free-market economics” might be expected to oppose regulations on hedge funds and private equity firms. Indeed, even the spendthrift Republican administration of George Bush and the pro-regulatory Democrats on Capitol Hill are careful to note the economic benefits of hedge funds and leveraged buyouts. But in France, where leftists are expected to riot as a result of the decisive victory Nicolas Sarkozy in the run-off for the French presidency, even the “right-wing” candidate hates hedge funds and leveraged buyouts.
          “We can’t tolerate hedge funds buying a company with debt, firing a quarter of the staff and then enriching themselves by selling it in pieces. We didn’t create the euro to have capitalism without ethics or morals,” Sarkozy said recently, according to the Telegraph. The American magazine quoted Sarkozy blasting “these aggressive [hedge] funds … that buy up a company, sell it off in pieces, sack 25 percent of the staff in the meantime, collect 25 percent profit and create zero wealth.”
          Some have tried to write this off as merely a rhetorical necessity, a bit of play-acting in a European political theater that has become increasingly hostile to hedge funds and private equity. But Sarkozy is promising to go beyond rhetoric and has proposed a tax on “predators” making “speculative” investments.
          “Hedge funds should remember that strong verbal denunciations by European politicians are usually followed by significant government intervention. Foretold is forewarned,” Jurgen Reinhoudt recently wrote in the American.
          France is home to 92 hedge funds, according to the Telegraph. Many funds fled the country in the 1990s, despite the election of pro-market reformer Jacques Chirac and his appointment of Alain Madelin, who was possibly the most free-market oriented politician in France at the time. Stringent restrictions on their activities drove fund managers abroad, largely to London.
          But the European Union is far stronger now than it was, and European politicians may find that closing off the option of exiting for other European countries has carved out room for even more regulation of the financial industry. And if Sarkozy represents the most far-flung reaches of free-market thinking in European political circles, it probably won’t be long before those now spectral regulations take substantial form.
          Sarkozy turns on ‘predator’ hedge funds [Telegraph]
          The European Assault on Hedge Funds [The American]

            • 30 Apr 2007 at 8:55 AM
            • Banks

            Politics & Banks: Mack Endorses Hillary

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            johnmackisalone.jpgHow times have changed. It wasn’t so long ago that the SEC stood accused of letting Morgan Stanley chief executive John Mack’s reportedly close connection to the Bush Administration block an investigation into insider trading. Now Mack has endorsed Hillary Clinton.
            Business Week reports:

            One of Wall Street’s big-time Republican fund-raisers, Morgan Stanley (MS) CEO John Mack, has told BusinessWeek that he and his wife, Christy, are endorsing Democratic Presidential candidate Hillary Clinton, whom they supported for re-election as senator.
            Mack previously reached Ranger status in Republican campaign finance circles by raising at least $200,000 for President George W. Bush’s reelection in 2004. (Former Goldman Sachs (GS) CEO Hank Paulson, now U.S. Treasury Secretary, raised a Pioneer-worthy $100,000.) Mack, who says he’ll stay a registered Republican, was also considered a possible candidate for various Bush Administration posts over the years.
            It’s too early to tell who the other major bank chiefs will back. But Mack’s switch could tip the balance of power toward the Democrats. According to nonpartisan contribution tracker PoliticalMoneyLine, three of the other top six bank CEOs (Goldman’s Lloyd Blankfein, Lehman’s (LEH) Richard Fuld Jr., and JPMorgan Chase’s (JPM) Jamie Dimon) have favored Democrats in their political giving patterns over the past few years. Bear Stearns (BSC) CEO Jimmy Cayne is strongly Republican. Citigroup’s (C) Charles Prince and Merrill Lynch (MER) CEO Stan O’Neal have bipartisan donation habits.


            John Mack Backs Clinton             [Business Week]

              Help Wanted: DealBreaker Summer Interns Gone Wild!

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              summerinternships.jpgThe resumes are already starting to pour in but it’s not too late. DealBreaker is still looking for summer interns and we might just be looking for you!
              Our internships fall into two categories, editorial and graphics. For editorial interns we’d like someone interested in spending their summer writing, reporting, research and performing mild administrative tasks—things like making frozen margaritas for Bess and keeping Keith Hahn away from Carney’s whiskey. Ideal candidates will have an interest in finance, some writing experience, a mischievous sense of humor and a history of causing trouble.
              We’re also looking to improve our graphics this summer through the use of slave labor with the help of a graphics intern. The ideal candidate will have a well-developed aesthetic sense, a desire to make pretty pictures on the internet and some experience using photoshop. We’re going to be providing original video and podcatsing content in the near future, so experience in podcasting, film-making or online video is a major plus. It will probably make your summer much more pleasant if you have some interest in finance as well.
              DealBreaker internships are great resume building opportunities. This is a nice way of saying they are unpaid—although you can expect to receive cocktails and food on occasion. If you are a student, we will work with you to get credit for the position. Also you should keep in mind that DealBreaker internships are not dead-end jobs. Bess Levin started as an intern, and is now a full-time contributing editor.*
              And now she’s also our internship coordinator, too! Send your resumes to bess (at) dealbreaker (dot) com. Include “Editorial Intern” or “Graphics Intern” in the subject line as appropriate.
              *Past performance is not necessarily indicative of future results. This “help wanted” item contains forward looking statements that rely on certain assumptions, projections and flat-out baloney that the management of DealBreaker believes to be reasonable or at least knows how to spell.