Randomly Noted

The U.S. Treasury Secretary got his tense wrong.

“It is very important to keep politics out of monetary policy,” said Treasury Secretary Timothy Geithner on Friday, in a Bloomberg television interview.

Really, he should have said it would have been nice to have kept politics out of monetary policy. They are in, big time. Politics and the Federal Reserve may have traditionallly enjoyed an arms’-length relationship, but they were never completely separate. Now they are in a bear hug.

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Mary Schapiro could have been triumphal in her talk today to the U.S. Chamber of Commerce.

The chairman of the Securities and Exchange Commission walked into the den of perhaps the agency’s leading adversary with a massive new regulatory law in her back pocket that greatly enhances the SEC’s powers.

That law demands the SEC undertake studies and rulemaking to get the job done.

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Now that a bipartisan commission has been named to find way to reduce the massive U.S. federal budget deficit sometime in medium term, it will be interesting if any of the usual untouchable spending areas will now be considered touchable.

It all likely depends on how much lawmakers really consider the budget deficit a crisis in the making. Few would advocate deep spending cuts now, with the fragile economy still in need of external support, but many think sometime reasonably soon the deficit issue has to be tackled.

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It’s revealing how the presumed universal good of bolstering investor confidence can be claimed by both sides of an important issue such as short selling U.S. stocks.

Here are the quotes.

After duly noting the positives brought to the table by oft-despised short sellers (market liquidity and pricing efficiency), Securities and Exchange Commission Chairman Mary L. Schapiro today said, “We also are concerned that excessive downward price pressure on individual securitues, accompanied by the fear of unconstrained short selling, can destabilize our markets and undermine investor confidence in our markets.”

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A mini-flap has arisen around President Barack Obama and the word ‘begrudge’ as it applies to the compensation of top bankers.

Perhaps of more interest in an interview the President recently conducted with Bloomberg BusinessWeek is Obama’s continued support for shareholder ‘say on pay’ provisions, which this blogger has categorized as diversionary and unneeded.

First the flap. Various news reports, including from Bloomberg, led with Obama saying he doesn’t “begrudge” the bonuses awarded the well-known leaders of  top Wall Street firms Goldman Sachs Group Inc. and JPMorgan Chase & Co.

That prompted the White House Blog to post an item with its own lede: “We wanted to clear up some confusion about where the President stands on bonuses and excessive executive compensation.”

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The U.S. Supreme Court decision Thursday that did away with long-standing restrictions on corporate spending on political advertising likely will usher in a host of governance issues for boards of directors and public company shareholders.

The questions for boards, management and concerned shareholders raised by the decision, which would allow corporation-funded advertising for or against specific candidates, are manifold.

The key one is whose decision will it be to make such direct contributions through ad spending:  management or the board of directors? This is a different type of decision than current company sponsored political fund-raising through political action committees, which presumably call for voluntary contributions from employees, shareholders and affiliates.

Here are a few other questions. Who within a corporation will decide how much company money goes to such direct for or against advertising in political campaigns? Who decides which candidates to support? Should such spending be limited to candidates and issues that are directly tied to a company’s lines of business? Or should companies spend money to support candidates broadly seen as more pro-business than others?

What will shareholders think about all this? Will they want money that might otherwise hit the corporate bottom line or get paid out in dividends go instead to campaign ads? Will shareholders want a ‘say on politics’ in the same way the ‘say on pay’ campaign argues for some shareholder input into top executive compensation?

Will we see the formation of more politically oriented investment or mutual funds? Some now won’t invest in gun or cigarette companies. How about a fund that won’t invest in companies that spend their money supporting Republican candidates and others that won’t invest in companies that support Democratic political candidates?  

It seems boards should have some say about the level and direction of political ad spending. It is a strategic as well as tactical decision and as such shouldn’t be left just to management.

It seems boards already had some additional politics coming their way in 2010 if the Securities and Exchange Commission goes ahead and passes proxy access to allow big shareholders to nominate some directors whose candidacies would be carried on company distributed voting materials. That could lead to some directors joining boards with specific social and political agendas.

But the Supreme Court decision potentially greatly increases boards’ exposure to politics and politically fraught decision making.

Did you read Dorothy Rabinowitz’s WSJ opinion piece on Massachusetts District Attorney Martha Coakley, the Democratic Senatorial candidate who’s up for election on Tuesday? You should, because it will make you wonder why President Obama is bothering to stump for Coakley in a last-ditch effort to save the seat for his party. Oops! That’s why he’s doing it. The Dems are in trouble as the 2010 midterm elections loom, and the party’s leader is doing what’s necessary to protect each and every Congressional vote. As I wrote yesterday in another context, desperate times call for desperate measures. But do they? If I were the president’s advisers, I’d be telling him to take a deep breath and craft a noble plan to salvage a presidency that still has a lot of potential to re-tie the fraying bonds which Peggy Noonan writes about today. All this said, I and perhaps you, too, took a bit of satisfaction from Obama’s attack on big banks this week, even as one felt slightly seamy for doing so. Rich bankers are such a cheap and easy target these days that it almost seems beneath the President of the United States to go after them when the problems afflicting our economy – including the financial services industry – are so much bigger and complex than what amounts to a payroll issue. The fundamental fin services issue before policy makers, regulators and us, the voters, is: what should a bank look like? Should it be a multi-tasking, uncontrollable behemoth like Citigroup or a slim, streamlined boutique like Lazard or the cliched Main Street deposit-taking bank? Is there a particular industrial structure, regulatory regime and compensation system that will protect us from the dangers of the just-ended decade – easy credit and easy mortgages put through the derivative department’s Cuisinart and peddled to the gullible? Aren’t we, who squandered our savings on McMansions only to get anti-foreclosure assistance,  as blameworthy as the be-suited M.B.A.s we’re flogging so publicly?

Walk up 7th Avenue and as you approach 41st street you see the most stunning billboard of the U.S. President in front of the Great Wall of China. It’s breathtaking. In this morning’s semi-darkness, I had to stop and look at it. As Peggy Noonan recently wrote, there’s a deep reservoir of hope that the new (he’s only one year in) President succeeds – even as one feels rather irritated by some of his domestic policy stumbles. Nearby this billboard diptych (there are two large Obama-Great Wall panels) is a crass Calvin Klein billboard featuring greased and scantily clad bodies – classic soft-porn marketing. The contrast between the two images is stark, and if Weatherproof wanted to sell its jackets, it found the formula – whereas Calvin Klein won’t get my hard-earned money. The Weatherproof ad has generated some controversy – the company apparently didn’t have the president’s consent to flog their garments. That’s for the lawyers to sort out. What I want to discuss is this: The Dodd and Dorgan Senatorial resignations have spurred a flurry of speculation about the Democrats’ autumn 2010 chances. I think their plight is overstated. As a decidedly centrist voter, and thereby an “average” one, I reckon, I view the political landscape this way: American voters know what the Democrats stand for; Obama’s agenda is transparent; we have seen the administration’s policy ambitions move inexorably toward the center – whether it pertains to Iran or healthcare reform. What I don’t know is what the Republican Party stands for. There’s is no clear party leader and no evident agenda, and the splinter-group agendas are either incoherent or fringe-y. The Democrats may lose some ground come November 2010, but it won’t be dire. And between now and then the U.S. economy will continue recovering; a fairly palatable healthcare bill will get passed; and only if the Grand Old Party acquires some discipline will it make noteworthy Congressional and Gubernatorial gains.

Lots of negatives are heard about the fiscal stimulus plan approved by the U.S. Congress to help stir the nation out of deep recession. Ineffective, slow, poorly structured are some of terms used.

Now a noted economist and former Federal Reserve official comes out squarely behind stimulus, the role it’s already played and the one it will play buttressing the U.S. economy.

Alan S. Blinder is a professor at Princeton University. He used to be vice chairman of the Fed. In today’s Washington Post, he penned an “op-ed” piece. In it he writes: “Critics claim that the stimulus program is running way behind schedule. Is it? Well no.” Blinder argues the $787 billion spending plan was never meant to be a quick fix or a cure all.

He adds: “What six months ago lookewd like an economy plunging into an abyss is now an economy on the mend. And the stimulus deserves some of the credit.” Worth reading.

The share prices of Goldman Sachs and Morgan Stanley,  Dow Jones Newswires notes, have nearly doubled since Jan. 1.

Major stock indexes all gained more than 7% in July.

Financial regulation reform, at least for now, has run into rough waters on Capitol Hill.

The New York Times front page reports on the characteristics of the Wall Street creature called the guaranteed bonus.

It all leads one to wonder if last fall’s proclamations about the end of Wall Street as we know it were just that, proclamations. Equities trading and Wall Street writ large (meaning the global securities industry) have shown tremendous resilience. Indeed, it is not completely far fetched to say that part of the stocks rally is perhaps based on the fact people are just psychologically tired of the bear market and the still-weak economy. They are seizing on most anything to drive a different attitude.

Looked at objectively, for instance, the economy still LOST a quarter million jobs last month. Lost, not gained. Still, Friday’s employment report was a rallying cry.

There are more pitfalls ahead. Stocks may return somewhat to earth considering corporate earnings are still mainly based on cost cutting, not revenue gains, and that likely will be the case for a while.

Still, there’s a reasonable case to be made that if the bottom has indeed been reached in the U.S. economy and equity markets, then structural and regulatory changes for the globe’s securities industry may be less pronounced than previously expected.