Paul Ryan's views on Wall Street may surprise you

Mon, Aug 20, 2012, 01:00

BUSINESS OPINION:HE COULD be mistaken for a Wall Street banker. Or perhaps a hedge fund manager. Paul Ryan, with his clean-cut looks seemingly from Brooks Brothers and his wonky obsession with spreadsheets, could be the archetype of a Wall Streeter.

Mitt Romney’s running mate even trades stocks in his spare time. He’s a fan of the nation’s blue-chips: among the stocks he owns are Apple, Exxon Mobil, General Electric, IBM, Procter Gamble, Wells Fargo, Google, McDonald’s, Nike and Berkshire Hathaway.

Ryan is a disciple of Ayn Rand and Milton Friedman, two figures long associated with free markets.

And he’s got the support of some powerful backers in finance: His top donors include employees of Wells Fargo, UBS, Goldman Sachs and Bank of America. For his 2012 congressional race he raised about $179,000 from securities professionals (not a large sum but certainly the single largest sector that donated money to his campaign).

One of his biggest contributors is Paul Singer’s hedge fund Elliott Management. And Dan Senor, recently an investment adviser to Elliott Management, has just been named as Romney’s new adviser.

But what does Ryan think about Wall Street? His views may surprise you.

Ryan, who voted in 1999 to repeal parts of the Glass-Stegall Act thereby allowing commercial and investment banks to merge, now appears to be in the same change-of-heart camp as Sandy Weill, the former chief executive of Citigroup, who recently declared that the banks should be broken up.

“We should make sure you can’t get too big where you’re going to become too big to fail and trigger a bailout,” Ryan said during a meeting with constituents in May in Wisconsin. “If you’re a bank and you want to operate like some non-bank entity like a hedge fund then don’t be a bank. Don’t let banks use their customers’ money to do anything other than traditional banking.”

With a view like that Ryan faces a challenge winning the support of the likes of Jamie Dimon, the chairman of JPMorgan Chase and a vocal supporter of the big bank model.

Ryan is also an ardent critic of the Dodd-Frank Act, the post-crisis Wall Street legislation. Yet, oddly enough, the provision he dislikes the most is the one that has the greatest support of the industry: a tool known as “resolution authority”, which gives the government the authority to dismantle a failing bank without wreaking havoc on the rest of the system.

It was a provision that was supported by former Republican treasury secretary Henry M Paulson jr. “We would have loved to have something like this for Lehman Brothers.”

The provision was also supported almost universally by Wall Street as a way to end the “too big to fail” problem.

Ryan’s 2013 budget proposal sought to remove the resolution authority provision, saying “while the authors of the Dodd-Frank Act went to great lengths to denounce bailouts, this law only sustains them”.

It is worth noting that Ryan voted in favour of the bank bailout in 2008, known as Tarp or Troubled Asset Relief Program. Ahead of the vote he encouraged his colleagues in the house to vote in favour of it to avoid “this Wall Street problem infecting Main Street”.

“This bill offends my principles, but I’m going to vote for this bill in order to preserve my principles, in order to preserve this free enterprise system,” he said. We’re in this moment, and if we fail to do the right thing, heaven help us.”

While we’re on the subject of Tarp, it’s worth addressing the media attention last week about some trades that Ryan appeared to make on September 18th, 2008, hours before Paulson and Ben Bernanke met congressional leadership to propose Tarp.

According to the Center for Responsive Politics, he sold shares in Citigroup, JPMorgan Chase and Wachovia, each worth about $1,000 to $15,000. The record shows he also bought shares of Goldman Sachs.

Those would have been pretty smart trades at the time and some pundits raised questions of insider trading. However, a close look at the filings and information from the Romney campaign indicates that the speculation was wrong. The stocks were controlled by a trust, and, furthermore, the shares were part of an index fund that made the trades automatically.

Recently both Republicans and Democrats voted overwhelmingly to pass the Stop Trading on Congressional Knowledge, or Stock, Act, which bans insider trading by members of Congress.

Ryan also bucked the conventional Wall Street wisdom on how to deal with the debt ceiling. Many investment managers are wringing their hands about the uncertainty that the debate over the “fiscal cliff” is creating for markets. Last year, three months before the debt ceiling debate reached a climatic crescendo, Ryan said he was prepared to let the government default on its debt for at least several days if it would force Democrats to accept deeper cuts. – (Copyright New York Times service 2012)

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