You can't buy the kind of free publicity extended by Andrew Ross Sorkin in today's New York Times. Sorkin quotes extensively from Daniel Loeb's political rant in, "Why Wall St. Is Deserting Obama," a 1,200-word piece devoid of critical analysis.
Why is Wall Street deserting Obama? According to Loeb, a hedge fund manager heavily invested in mortgage securities, it's because the S.E.C. pursued fraud charges against Goldman Sachs. And because health care reform will eat into the profits of a private insurer like Wellpoint. And because Congress seeks to raise the tax rates paid by private equity managers on on certain income. Loeb argues that these actions represent a direct assault on free market capitalism and the U.S. Constitution. He writes:
[I]t is apparent to us that the turning point in both investor and consumer confidence came on April 16th, with the filing of the government's suit against Goldman Sachs over its mortgage CDO activities. This politically-laced lawsuit was a tipping point for shaky investor confidence against an increasingly worrisome landscape of new laws and proposed regulations that are perceived by many market participants to promote "redistribution" rather than growth, and are contrary to free market ideals.
As every student of American history knows, this country's core founding principles included non-punitive taxation, Constitutionally-guaranteed protections against persecution of the minority, and an inexorable right of self-determination. Washington has taken actions over the past months like the Goldman suit that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others.
Oh really? The S.E.C. suit alleged that Goldman committed fraud under securities laws that have been enforced for more than 75 years. A single case against fraud is not a broad national policy that favors economic redistribution over growth. Nor is it an affront against Constitutional principles. What the case did do was draw attention to the secrecy surrounding the toxic mortgage assets known as CDOs. Almost all CDOs remain subject to nondisclosure agreements, so, almost three years after the collapse of AIG, it is easier to access military secrets in Afghanistan than it is to access the performance reports on virtually any CDO. This continued level of secrecy works to the benefit of Wall Street insiders like Loeb, whose fund has about 15 to 20% of its assets tied up in mortgage investments.
Loeb kept ramping up the histrionics:
Arguably unconstitutional Bills of Attainder, such as the special "Enterprise Tax" proposed to be levied on hedge fund managers and other managers of private partnerships who wish to sell their management companies (ostensibly in order to extend unemployment benefits beyond the current 99 weeks) send a vivid message that this Administration is operating from a playbook quite different from the one we are used to as American business people; a thought that chills all participants in these free markets.
Loeb insults the intelligence of the reader. He argues that a change in the tax rate imposed on on hedge fund managers and other managers of private partnerships who wish to
sell their management companies, somehow constitutes a Bill of Attainder. A Bill of Attainder is an ex-post facto change in the law designed to inflict punishment on a single person or a small identifiable group. The courts have never deemed ordinary tax rates to be any kind of "punishment," nor have they ever deemed a group as large as the private equity and hedge fund community to be covered by that particular Constitutional provision. In 2001 the Federal Circuit Court noted that, "the Supreme Court has acknowledged Congress' constitutional authority to enact retroactive tax laws."
Loeb, "sounded as if he were preparing to join Glenn Beck in Washington over the weekend," wrote Sorkin, who found no reason to question any of Loeb's arguments or motives. It certainly never occurred to him that Wall Street might be engaged in a deceitful PR campaign intended to thwart any change away from the status quo.
September 3, 2010 Correction/Clarification: The original version of this post suggested that Loeb referenced taxes pertaining to all carried interest income on hedge funds, instead of a more specific reference noted above.