A hedge fund manager's latest letter to investors has caused something of a stir among financial pundits, drawing comments from Paul Krugman, Andrew Ross Sorkin and others.
The letter, which was penned by Third Point chief Daniel Loeb and first unearthed by Bess Levin at Dealbreaker, contains a host of grandiose, introductory quotes from the likes of Ronald Reagan, Thomas Jefferson and President Obama.
Loeb's main point of contention, however, seems to be with the president. Loeb, who Sorkin notes is a Democrat and was one of Obama's biggest supporters during the 2008 election, contends that the Obama 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."
Here's more from Loeb:
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. For example, a well-intentioned government program gone awry is the new CARD Act that restricts banks from repricing interest rates on borrowers who fail to meet their revolving credit obligations. The effect of this legal prohibition has been to force the banks to raise the interest rate paid by all borrowers, to compensate for losses they are now being forced to take on delinquent borrowers. The effect is a redistribution of wealth from people who pay their debts on time to those who do not.
Sorkin seized on Loeb's comments in his latest column this morning, offering the letter as evidence of Obama's increasingly strained relationship with Wall Street and its big-pocketed donors. (Which prompted Krugman to note that the financiers were acting like "spoiled kids" and that the the most stringent parts of the financial reform bill were killed.)
Loeb, however, didn't entirely let Wall Street off the hook for the financial collapse:
Many people see the collapse of the sub-prime markets, along with the failure and subsequent rescue of many banks, as failures of capitalism rather than a result of a vile stew of inept management, unaccountable boards of directors, and overmatched regulators not just asleep, but comatose, at the proverbial switch. When we hear the chorus of former executives and regulators exclaim that the crisis was "impossible to see coming", while at the same time walking away with millions or going on to greater levels of responsibility in government, it is both puzzling and demoralizing. It is easy to see why so many people have concluded that the entire system is rigged.
At The Baseline Scenario, James Kwak was quick to point out holes in Loeb's implication that capitalism merely needs better participants, not tougher regulation. Here's Kwak:
"...putting the blame on certain categories of people does not somehow absolve 'capitalism.' Our capitalist system-which until recently we considered the best, most pure version in the world-allowed incompetent people to become executives (and to run hedge funds), allowed incompetent people to become directors and to avoid any responsibility for their actions, and allowed companies to swamp regulators with battalions of high-priced lawyers and lobbyists.
This is a basic category error. Capitalism is an economic system; managers, directors, and regulators are people. They are not mutually exclusive. If you want to say that capitalism necessarily means universally good managers, responsible directors, and effective regulators, then that's an argument you have to make (and good luck making it)."
Read the full letter at Dealbreaker.