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Run in circles

4 February 2016 By Rob Cox

Hillary Clinton’s schedule, the rhetoric from Bernie Sanders and the entanglements of Ted Cruz will be especially instructive for one person: Michael Bloomberg.

Three times this week, Clinton repudiated her ties to the financial-industrial complex. She put off a visit to mega-fund manager BlackRock and a fundraiser hosted by a Bain Capital affiliate in Boston. The former U.S. secretary of state, senator from New York and first lady also backed away awkwardly from town-hall questions about paid speeches she made to Goldman Sachs.

Clinton is struggling to fend off accusations by her chief rival for the Democratic nomination for the presidency, Vermont Senator Bernie Sanders, that she is a slave to the billionaires and Wall Street titans who brought the world to the brink of apocalypse only to emerge with more of its spoils.

Cruz, the Texas senator who won this week’s Iowa Republican caucuses, has dealt with his wife’s employment at Goldman by biting the hand that fed, saying when he kicked off his campaign that the firm engages in crony capitalism and had “gotten bigger” thanks to banking reform. He then found himself on the defensive when it emerged that he had borrowed money from the bank to help fund an earlier Senate campaign.

Bloomberg’s message would have to be entirely different.

The three-time mayor of New York City nevertheless sees opportunity in these political dynamics. Monday’s results in Iowa’s election kickoff should give him more confidence. Clinton only eked out a victory against Sanders in the closest ballot in the state’s caucus history. If Sanders wins New Hampshire’s primary next week and picks up steam, Bloomberg may kick off an independent White House run as early as March.

His biggest hurdle may not be Cruz or Donald Trump, until recently the Republican front-runner. Rather, it is the mogul’s financial-industry roots, which run far deeper than those of any other candidate. Unlike Clinton or Cruz, there is no running away from Wall Street for Bloomberg. After all, he presided over the place as mayor for 12 years and owes his billionaire status to it.

It’s not simply that Bloomberg started his career at Salomon Brothers back when it was the king of proprietary trading, a practice since banned at big banks by the Dodd-Frank Act. The source of Bloomberg’s vast fortune is the electronic terminal bearing his name. There are about 325,000 of them leasing for some $25,000 apiece annually – which would translate into $8.1 billion in annual revenue – to hedge funds and financial institutions like Goldman, as well as at bailed-out banks including Royal Bank of Scotland and Citigroup.

Assume Bloomberg LP converts a third of its sales into EBITDA, or about 20 percent more than does rival Thomson Reuters, the parent company of Breakingviews. On a multiple of 15, Bloomberg LP would be worth some $40 billion, with the founder’s 88 percent stake coming to a cool $35 billion. He also has other investments and assets.

Whatever the actual figure, it would make Bloomberg the wealthiest man ever to run for president. His ability to eschew political action committees might make him attractive to voters, who despise the influence donors try to exert over candidates. If Americans are willing to elect a plutocrat, it’s hard to imagine a better candidate than Bloomberg, whose moderate political positions distinguish him from Sanders, a socialist, and Cruz, a champion of Tea Party conservatism.

Trump, the other tycoon in the race with a self-declared net worth of $10 billion, already has had an unexpectedly good run. Unlike Bloomberg, whose mother was the accountant at a Boston dairy, Trump was born into wealth. His fortune owes as much to a 30-year decline in bond yields, which has flattered the value of the real-estate assets his father initially accumulated, as it does his self-touted deal artistry. While that same three-decade mega-cycle benefited Bloomberg, he can more convincingly call himself self-made. And unlike Trump’s companies, Bloomberg’s hasn’t stiffed creditors.

It also means Bloomberg cannot denigrate his customers. Nor can he argue he just sells the informational equivalent of picks and shovels. Doing so would jeopardize the company he built. It would also come across as unprincipled and inauthentic given his record of defending the institutions of Wall Street.

In March 2012, for instance, he dropped into Goldman’s headquarters as a show of support following an op-ed written by a departing employee that called the firm’s culture “toxic and destructive.” At the time, Bloomberg said it was “my job to stand up and support companies that are here in this city that bring us a tax base and that employ our people.”

Months earlier, Bloomberg, then contending with Occupy Wall Street protests in a Manhattan park, argued that banks were not to blame for the subprime mortgage collapse that precipitated the financial crisis of 2008. Rather, it was “Congress who forced everybody to go and give mortgages to people who were on the cusp.”

Bloomberg is not entirely wrong on the point. The reasons for the crisis were many, shared and nuanced. So were Bloomberg’s for defending Goldman and Chief Executive Lloyd Blankfein four years ago. In a race where ties to Wall Street are viewed especially negatively by the supporters of both parties, that leaves Bloomberg in a most difficult spot.

Should he run, his only choice is to own fully his lifelong bonds with Wall Street, and maybe even deliver a full-throated defense of them. Good luck with that.

 

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