Connecticut Yankees fear dysfunction’s force

From: POLITICO's Morning Money - Thursday Oct 05,2023 12:01 pm
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By Sam Sutton

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Ray Dalio speaks in a chair at the Greenwich Economic Forum.

Bridgewater Associates founder Ray Dalio speaks at the Greenwich Economic Forum on Tuesday. | Greenwich Economic Forum

GREENWICH, Conn. — Wall Street is used to a little chaos in Washington. But the crowd at the two-day Greenwich Economic Forum this week responded to then-Speaker Kevin McCarthy’s ouster, mounting polarization and a (likely) rematch of the explosive 2020 presidential election like a bed of bad oysters.

After years of warnings from ratings agencies and analysts, Wall Street’s best and brightest are beginning to weigh the long-term effects of a political ecosystem in which deep partisanship works to the detriment of basic government functions. Three days after Congress temporarily averted a government shutdown, McCarthy’s sudden exit at the hands of a small group of Republicans is shaking the financial sector’s faith in lawmakers’ ability to manage their fiscal obligations.

With the economy facing headwinds, the recent turmoil in D.C. is like “dancing on a stage that’s set to collapse,” Christine Todd, the CIO of Arch Capital Group, said in an interview. “I’m just wondering when the bond vigilantes come out and say this is dangerous.”

Analysts like Morgan Stanley CIO Mike Wilson posit that the recent spike in 10-year Treasury note yields reflects concerns about Washington’s fiscal discipline. Borrowing costs are poised to keep climbing, which will pinch businesses and consumers. Outside the lobby of the Greenwich Delamar Harbor on Wednesday, former Commerce Secretary and private equity chieftain Wilbur Ross told your host that the thought of paying current rates on a 30-year mortgage “would make my hair stand up” if he still had any.

And that doesn’t even take into account how culture wars have widened the divide. The “irreconcilable differences” between red and blue communities on everything from gender to inequality have put the country “at risk of a civil war of sorts,” Bridgewater Associates founder Ray Dalio told the Greenwich crowd.

Which brings us to the 2024 election: “There happens to be a man who was president of the United States who had the insurrection of Jan. 6, has had four indictments, 91 counts against him, and his polling is high in the Republican Party,” Carlyle Group co-founder David Rubenstein told a roomful of investors at the Forum.

“Can Biden for certain win Georgia again? Virginia? Pennsylvania? Michigan? Wisconsin? Minnesota? Nevada? Arizona? That’s not 100 percent certain. So, I would say — it’s hard to believe — but I do think Trump has a pretty good chance of getting reelected,” the Carter administration alum added. “It’s a sad commentary on our country that we don’t have a lot of younger faces that are rising up.”

As for a Rubenstein ’24 campaign? The 74 year-old ruled it out: “I’m too young.”

Well then. At least they serve good chicken ballotine at the Delamar.

While Rubenstein, Dalio and others made a point to emphasize the economy’s underlying strengths — robust household finances and a solid labor market — the political and fiscal challenges that culminated with the right wing’s revolt against McCarthy might finally serve as a wakeup call to an industry that had become inured to repeated battles in the Beltway.

“It was a shock how quickly it happened,” Ted Yarbrough, a former top executive at Citi who’s now the chief investment officer at the alternative investments firm Yieldstreet, told MM. The ensuing rise in yields “was a message to the market that you have to pay attention to what’s happening in Washington.”

Some Democratic policymakers are hoping that Wall Street uses whatever levers it has to highlight potential damage to the economy.

Hours before Rep. Matt Gaetz (R-Florida) executed his plan to give McCarthy the boot, Connecticut Gov. Ned Lamont told the executives at the conference that they should “put a little pressure” on House members to deliver on a plan to fund the government before the mid-November deadline.

Still, as he told MM after his remarks, “I don’t know how much impact you can have on Congressman Gaetz.”

IT’S THURSDAY — Seriously, it was a good chicken ballotine. Send tips, gossip and suggestions to Sam at and Zach at


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Driving the Day

The FDIC’s Advisory Committee on Community Banking meets at 9 a.m. … FTC Chair Lina Khan and Assistant Attorney General for Antitrust Jonathan Kanter speak at a Brookings Institution event on antitrust reforms at 10 a.m. … Senate Budget holds a hearing on the costs of a government shutdown at 10 a.m. … Richmond Fed President Tom Barkin speaks at the University of North Carolina Wilmington 2023 Economic Outlook Conference at 11:30 a.m. .. San Francisco Fed President Mary Daly speaks at the Economic Club of New York at noon … Fed Vice Chair for Supervision Michael Barr will speak at a Cleveland Fed vent on cyber risk at 12:15 p.m. … The CFTC holds a meeting of the Global Markets Advisory Committee at 1 p.m. … The FTC and Justice Department hold a workshop on draft merger guidelines at 1:30 p.m. … The SEC has a closed door meeting at 2 p.m.

Truth and Consequences — McCarthy’s political demise “did not spark much joy in the White House,” write POLITICO’s Adam Cancryn, Jennifer Haberkorn, Lara Seligman and Sam Stein. “The White House now has just 44 days to avert a November government shutdown and secure critical aid for Ukraine — and no earthly idea who will lead the House GOP.”

— POLITICO’s Veronika Melkozerovaa: “After a year and a half of war, Ukraine’s leaders now have a new reason to worry: Mounting political chaos in America is threatening to derail their supply of money and weapons.”

— Democratic Sen. Richard Blumenthal of Connecticut made the case for Ukrainian aid in a virtual appearance at Greenwich, arguing that those efforts can’t stop once the conflict ends: “We’re going to have the need for a kind of ‘mini-Marshall Plan’ where we have investment in Ukraine,” including loan guarantees for companies to invest, he said.

The state of the race — POLITICO’s Olivia Beavers, Sarah Ferris and Anthony Adragna: “Reps. Steve Scalise (R-La.) and Jim Jordan (R-Ohio) are already launching bids for speaker, which leaves at least one senior House Republican [Rep. Tom Emmer of Minnesota] eager to fill Scalise’s role as the No. 2 House Republican.”

The acting speaker — Eleanor Mueller and Anthony Adragna report that Acting Speaker Patrick McHenry (R-N.C.) spent the first day in his new role trailing his new security detail in and out of McCarthy’s old offices as GOP policymakers navigate a path forward.

“The reality is that Patrick McHenry could be in a scenario where he’s in this position for an extended period,” Rep. Garret Graves (R-La.) told reporters Tuesday. “We need to be very thoughtful about the role, the responsibilities and the authority that he can exercise” so “we can move forward on appropriations bills and other things right now.”

“This is untested,” he added later. “There is not a manual. There’s not a book; this has never been done before.”

For now, at least, McHenry will hold on to his job as chair of the House Financial Services Committee: “He certainly hasn’t stepped down,” committee member Rep. Dan Meuser (R-Pa.) told Eleanor.

Student loans — Michael Stratford reports that President Joe Biden signed off on another tranche of student debt relief totaling $9 billion for more than 125,000 borrowers, just as tens of millions of Americans are poised to resume payment on their loans this month.

Wall Street

A new front on overdraft — The Brookings Institution’s Aaron Klein writes for POLITICO Magazine on how “California credit unions are taking millions from their most vulnerable customers and spending it on perks and bonuses for executives that resemble those of big banks more than nonprofits.”

Private credit — With regulators like FDIC Chair Martin Gruenberg clanging alarms about how nonbanks could pose systemic risks, Ares Management’s Head of Credit Kipp deVeer doesn’t see it.

“We’re always going to have an advantage, versus the banks, of being less regulated. So if the government dials up regulation on the banks, are they likely to look more into what we’re doing? There’s nothing new. We meet with the regulators all the time,” he said at Greenwich. “There’s not a lot of risk to the system in my mind.”

— Our Caitlin Oprysko: “The Managed Funds Association is putting five figures behind a new ad campaign aiming to highlight the virtues of private credit funds.”

About those soft landing calls — The WSJ’s Nick Timiraos: “A sudden surge in long-term interest rates to 16-year highs is threatening hopes for an economic soft landing, all the more because the exact triggers for the move are unclear.”

SBF trial takes shape — Bloomberg’s Ava Benny-Morrison, Yueqi Yang, and Bob Van Voris: “Prosecutors said Bankman-Fried told [former Alameda Research CEO Caroline Ellison] and his closest friends the truth about taking customer funds, even as he ‘lied to the world’ about the safety of his crypto platform. Defense lawyers, meanwhile, said Bankman-Fried relied on Ellison to run Alameda and when he asked her to hedge Alameda amid market uncertainty last year, she didn’t do it.”


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Regulatory Corner

Moving? In this market? — The SEC is doubling down on the Union Station area for now, Declan Harty reports. Last week, the agency extended leases for up to five years at two of the three buildings it has long occupied next to Washington’s transport hub, an agency spokesperson confirmed. The SEC has been planning to relocate to the NoMa neighborhood. But the status of that deal is now in question, Bisnow has reported. The General Services Administration, which is overseeing the deal, does not comment on “negotiations concerning active contracts,” a spokesperson said.

Familiar face at the SEC Stephanie Allen has taken over as director of media relations and speechwriting at the SEC. Allen, the former executive director of the Ludwig Institute for Shared Economic Prosperity, succeeds Aisha Johnson, who left the SEC last week. Allen was SEC Chair Gary Gensler’s speechwriter at the CFTC. — Declan Harty


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