A hedge fund manager’s “investor letter” – really more of a staged, theatrical tantrum – has been getting a lot of attention lately. Daniel S. Loeb’s diatribe demonstrates that banker greed is still out of control, and that it’s as short-sighted and destructive as ever. The fact that Loeb is a registered Democrat and former Obama supporter doesn’t matter as much as some people think. It’s the same old story: Politics is just a means to an end, and the end in this case is self-enrichment.
If Loeb’s pose as Hedge Fund Revolutionary seems like a ridiculous form of populism, remember: The Tea Party began with an angry outburst on the Chicago Board of Trade, from traders who were outraged that homeowners might be given a fraction of the aid bankers received. Loeb’s letter is mostly a marketing ploy, but if he can become the Robespierre of the Hedge Fund Revolution I’m sure that would be fine with him too.
After all, that would be good for business.
Observers who find seeming shifts of loyalty like Loeb’s difficult to understand – or who, like Andrew Ross Sorkin, mistakenly consider them a matter of hurt feelings – underestimate the economic incentives behind this behavior. Loeb’s turgid and overblown prose (can’t he afford a ghostwriter?) serves two very clear business objectives: to impress current and prospective clients, and to push for a political climate that will better serve his personal interests. If that means talking like a Tea Partier, then bring on the three-cornered hat.
Sure, there’s a hold-my-breath-until-I-turn-blue quality to Loeb’s letter, as there has been with other such “poor little rich kid” tirades. Barack Obama famously told bankers that public rage against them was so great that “I’m the only thing standing between you and the pitchforks.” And he did protect them – possibly at the expense of his Presidency. His Administration rescued the banking industry, asking (and receiving) almost nothing in return. How do they repay him now? Rescued from pitchforks, they now whine at every possible pinprick.
And speaking of pricks (pinpricks, I mean) … the real problem isn’t childish petulance, although that’s a common personality trait with these guys. Loeb and his compatriots are rational actors, doing what they believe is in their own self-interest. They’re writing big checks to Republicans and touting the discredited “no regulations” ideology that shattered the economy two years ago. That may benefit them in the short run, but it’s bad for a lot of other people. It will lead to more economic crises and more environmental disasters. That will hurt small investors, along with the small business owners who’ll find themselves even less able to obtain credit than they are now.
Not that people like Loeb care. Reports indicate Loeb’s been earning $100 million a year, which means he’s amassed the longed-for level of savings that aspiring Wall Streeters longingly refer to as “f**k you money.” If his deregulatory fervor leads to more economic devastation, as is highly likely, that will be someone else’s problem.
Loeb’s diatribe came in the form of a letter to his investor clients, a group that he clearly holds in contempt. It was called a “Second Quarter Investor Letter,” but a better title might have been “Hey Suckers!” He’s looking to impress them, but he’s not being honest with them. He’s not telling them what the consequences of his no-regulation agenda will be. He seems to be operating on Robespierre’s advice: “The secret of freedom lies in educating people, whereas the secret of tyranny is in keeping them ignorant.” Loeb’s certainly not educating his clients.
Sorkin got it right when he said that Loeb sounds “as if he were preparing to join Glenn Beck in Washington over the weekend.” Loeb quotes Thomas Jefferson (out of context) saying things like “the minority possess their equal rights, which equal law must protect, and to violate (them) would be oppression.” Right. We all know how oppressed hedge fund managers are. In a move that’s guaranteed to infuriate all but the most pampered of Americans, he also quotes Jefferson saying “A wise and frugal government … shall not take from the mouth of labor the bread it has earned.” (I guess hedge fundies are “labor” now, and Loeb’s their Samuel Gompers.)
Loeb also “quotes” Ronald Reagan, but neither he nor Sorkin seem to be aware that the words he repeats – e.g., “It’s very easy to disguise a medical program as a humanitarian project” – were merely spoken by Reagan as a hired actor. They’re from an LP record he made for “Operation Coffeecup,” an AMA-funded attempt to stop Medicare. (It’s an interesting story; I think it was the first ‘viral marketing’ campaign.) So is Democrat and erstwhile Obama backer Loeb really saying “government hands off my Medicare”? No. It’s more likely that he’s merely feeding the anti-regulatory frenzy by piggybacking on anti-health reform sentiment, while at the same time depriving his investors of some reasonably robust health insurance holdings to illustrate his point.
“We have also sold other regulated industries and eliminated our position in Wellpoint,” he writes, ” … which we saw as being overly exposed to unpredictable government regulation.” Give Loeb points for chutzpah: He’s standing up for a company that’s repeatedly expelled enrollees because they got sick, and which keeps hitting its clients with massive premium increases. If he keeps talking like that the villagers won’t stop at pitchforks. They’ll burn down the whole castle.
But it’s all part of the strategy. By contributing to Republicans, with their discredited and destructive economics of nihilism, and by fueling the anti-regulatory rhetoric, Loeb stands to make more money than he would if government is allowed to take its regulatory responsibilities seriously. That’s why he’s now saying Michele Bachmann-y things like “the country’s core founding principles included nonpunitive taxation, constitutionally guaranteed protections against persecution of the minority and an inexorable right of self-determination.”
And, about that “taxation” … Yves Smith points to the most blindingly obvious of Loeb’s motivations. The Administration’s considering making hedge fund managers pay the same tax rate on their earnings as people who work for a living. Pay the same percentage in taxes as a cop or a nurse? That’s bound to tick a guy off. But I also think that Loeb’s complaints, like the similar views that Fareed Zakaria so credulously ascribed to CEOs, have other clear policy objectives.
Loeb describes the government’s suit against Goldman Sachs as if the Soviets were seizing the kulaks’ farms all over again. The suit, he says, “seems designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others.” (Gee, and most of us think Goldman and some other bankers have been getting off pretty easy.) Loeb also describes the CARD Act, which restricts some bank rapacity toward credit card holders, as “a well-intentioned government program gone awry.” Let’s see: The prime rate’s 3.25%, average credit card interest rates are 16.79%, and Loeb says that banning the most egregious card issuer tricks is a “redistribution of wealth” to benefit “delinquent borrowers.” If America’s credit card companies can’t make a profit with those margins, they deserve to go out of business.
Loeb throws in some obligatory rebukes of business executives, too, concluding “it is easy to see why so many people have concluded that the entire system is rigged.” It is rigged, of course – by a campaign finance system that ensures access and influence for Loeb and his cronies. But where most see the manipulative, ginned-up complaints of a self-entitled phony, Loeb hopes others will see him and his cohort as a “persecuted minority.”
The irony is that these business people are most annoyed with Obama when Obama’s at his most businesslike. Every CEO I’ve ever worked with has had two primary drives: to act in his company’s best interests, and to protect and maximize his own position (not always in that order.) Obama’s enacting the level of regulation that he considers best for his “organization,” the US government. If he didn’t use at least a little anti-banker rhetoric he’d lose his influence, and maybe even his job. Any one of the CEOs and investors complaining about the President would do exactly the same thing in his position. They’d be crazy not to.
The popular notion that Loeb, Jamie Dimon, or any of the other business leaders who backed Obama were his “friends” is overblown. They may well have liked him personally, but they gave him big campaign contributions because they knew he was going to win and they wanted a seat at the table. Now they want to protect themselves by crippling his ability to enact further reforms. But the policies they’re pushing are enormously destructive, and the Republicans they’re supporting this time around are talking destructive gibberish instead of rational economic policy.
As a deregulation romance novel, Loeb’s letter is a bodice-ripper. It’s the latest salvo in an ongoing war against real financial reform and regulations that protect the American people. But it’s not a “breakup note” between Obama and his banker BFFs, as Sorkin seems to suggest. These bankers are simply acting in their own financial self-interest. As the original Robespierre said, “The law of self-preservation, with every being whether physical or moral, is the first law of nature.”
Loeb’s behavior isn’t surprising. On the contrary: It’s only natural.