Here’s a way to make a billion dollars:
Corporate money is forever finding new ways to influence government. But Mr. Ackman’s campaign to take this fight “to the end of the earth,” using every weapon in the arsenal that Washington offers in an attempt to bring ruin to one company, is a novel one, fusing the financial markets with the political system. […]
Mr. Ackman is not new to playing chess on a billionaire’s scale. The brash 47-year-old, a graduate of Harvard Business School, built his $12 billion, New York City-based hedge fund, Pershing Square Capital Management, on enormous, risky bets on companies like Jim Beam and Canadian Pacific Rail that earned billions for him and his clients. He has had some big losses too, including an estimated $473 million last August on an investment in J. C. Penney, the struggling retailer.
Regulators frequently get entreaties from financiers urging action for their own financial gain, like the hedge fund executives who in 2010 tried to secretly push Obama administration officials to investigate for-profit colleges, again citing fraudulent industry practices, after betting that their stocks would decline.
But Mr. Ackman’s efforts illustrate how Washington is increasingly becoming a battleground of Wall Street’s financial titans, whose interest in influencing public policy is driven primarily by a desire for profit — part of an expanding practice in the nation’s capital, with corporations, law firms and lobbying practices establishing political intelligence units to gather news they can trade on.
Vikram Bath focuses on the question of whether or not such actions are even wrong (or whether we can presume them to be), but I’m more interested in the NYT focus of money in politics.
Critics of money in politics often make it sound like it’s about “buying elections.” It has a ring of truth insofar as money is a necessary (though not sufficient) component of winning elections, but because the money is necessary and not sufficient that only takes you so far. I don’t worry about people buying elections because ultimately the electorate votes for what it wants and the history of losing candidates with winning war chests is very long.
No, what I worry about is money buying the office holders after they win. Ackman is lobbying. Herbalife is lobbying. Unlike an election, where my input is solicited (on however minor a scale), the Herbalife situation is one that I would know next to nothing about if not for this article. But it matters in the seven to ten digits to the involved players. At least this case involves a billionaire going up against somebody with some money to fight back, but that’s not always the case.
I’d argue that the problem is actually more insidious than that, though. Ultimately, when it’s the wealthy that have congress’s ear, even if everybody is acting entirely on good faith, the perspective of all involved is going to be skewed towards those talking to him. Even advocacy for the less fortunate is more likely than not going to be from someone looking down at them with concern from on high.
Perhaps most concerningly, this is a problem (or a series of problems) for which there are very few solutions. In this case, the money isn’t just going to the coffers of politicians but also activist groups themselves. And at the end of the day, you can’t stop a millionaire from speaking his mind.
I don’t typically sweat the wealth of the wealthy too much. I don’t view the money they have as being money that would be better spent if it were in someone else’s pockets (though, obviously, they gotta pay their taxes, too). But their are an awful lot of zero-sums expression of their wealth that do leave me concerned. Political influence is definitely one of them.
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what I worry about is money buying the office holders after they win
I agree this is a bigger worry. And I think this is part of why companies donate to both sides of a given election.
But as I asked, should Sanchez have ignored the accusations simply because a rich guy with something to gain was the one making them? To me, the answer is clearly “no”.
I also wonder to what extent campaign finance reform would actually affect these sorts of things. Let’s say that all campaigns from now on had to be publicly funded. I still suspect Ackman would have a much better chance of getting Sanchez on the phone than either of us would.
The concern is that the money will affect the determination of whether Herbalife is, in fact, doing anything wrong.
I agree that campaign finance reform can’t do much about it.
To articulate the concern in a bit more detail, you are worried that Bill Ackman of Pershing Capital will be able to get the FTC to fabricate evidence showing Herbalife’s guilt. This is an FTC whose executive works for Barak Obama. The same Barak Obama who received at least $1 million in support of his reelection from George Soros–a large, motivated shareholder of Herbalife.
Given that information, I’d ask why aren’t you equally if not more concerned that the FTC will ignore wrongdoing at the company? Or perform a half-hearted search for any wrongdoing? Why is it that only Ackman’s $13 billion Pershing Capital is capable of corrupting the process but Soros’s $30+ billion fund and Carl Icahn’s $25+ billion fund are assumed benign?
I don’t think that the latter is assumed benign, or should be. The issues involved here, people using their influence to help their company, is a problem or a potential one on both sides of the equation.
The main difference I see here, if there is one, is that Ackman seems more actively trying to influence people (or use his influence). But that’s perhaps a function of the article as much as anything. If Soros and Icahn are also lobbying on this issue rather than just invested, that’s just as problematic.
If I get you right then, you’re OK with the articulation of viewpoints by investors as long as they are not specifically made to politicians?
It’s the combination of articulating the viewpoint, donating lots of money, and profiting from the results.
This isn’t something that can be regulated, as I say in the post, but it strikes me in the same way that it’s problematic if a senator is himself pushing a bill to kill a company he is short-selling, or pushing for a bailout for a company he is heavily vested in. Except there may be more we can do about that one.
You know who else is articulating viewpoints, donating lots of money, and profiting from the results? Herbalife.
Someone on the thread there mentioned that Herbalife grossly outspent Ackman, and that seems to be the case.
http://www.reuters.com/article/2014/03/09/us-herbalife-idUSBREA280OH20140309
This sort of thing is criticized each time short-sellers do it, but if it’s to promote a stock, it gets a free pass outside of a few stray debates on campaign finance reform, Occupy protests, and perhaps a few Cato articles.
I actually mention Herbalife’s lobbying in the post. It is subject to the same problems and concerns.
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