The Republican presidential candidate, Mitt Romney, will visit New York City May 22 for a large fundraiser featuring many members of the financial industry, and on the face of it, it couldn't be worse timing.
New York Times columnist Paul Krugman doesn't have the invitation to the fundraiser, but he's already anticipated the line of attack, weighing in with an article about JPMorgan Chase's $2 billion in trading losses that includes the line, "Did I mention that Wall Street is giving vast sums to Mitt Romney, who has promised to repeal recent financial reforms?"
But the interesting thing about the May 22 fundraiser is that the many of the event chairs and names on the host committee work in the financial industry, but not for the big banks. The event chairs include Paul Singer of the Elliott Associates hedge fund, Wilbur Ross of WL Ross & Co., and Daniel Loeb of the Third Point hedge fund.
Co-chairs include Sander Gerber of Hudson Bay Capital Management and Robert Agostinelli of the Rhone Group. Dan Senor of Rosemont Capital is a vice chair. Ken Abramowitz of NGN Capital, a health-care venture capital firm, is on the host committee, as are Rodger Krouse and Marc Leder of Sun Capital Partners.
And while I can't speak for all of those individuals or even for any single one of them, I can say as a general proposition that one of less noticed but genuinely significant dynamics in the financial industry is the way that a lot of these smaller firms and their operators resent and oppose the big banks.
Sure, some of these folks, like any defenders of capitalism, will rally around Goldman Sachs, JPMorgan Chase, and Citigroup when President Obama demonizes the entire financial industry as "fat cat bankers on Wall Street," or when he tries to impose a vast and arbitrary regulatory structure.
But on another, quite substantial level, there is no love lost between the hedge fund, private equity, and venture capital crowd and the big Wall Street banks. Let us count the reasons why:
- Many of the hedge fund and private equity guys used to work at the big banks and left to strike out on their own for a reason.
- The smaller firms compete with the big banks for the job of managing capital for rich individuals and institutions.
- When the banks raise capital or handle trades for the smaller firms, they charge fees that the smaller firms wish were lower.
- The banks have access to cheap capital via the Federal Reserve and the Federal Deposit Insurance Corporation that the smaller firms don't get.
- The smaller firms sometimes don't like the trading terms set by the banks on things like posting collateral.
- The bank executives don't like the way the non-bank guys pay the capital gains tax rate on their carried interest, while the bank executives pay a higher income tax rate on their compensation.
Meanwhile, if you look at the campaign finance records of people like Lloyd Blankfein of Goldman Sachs or JPMorgan Chase CEO Jamie Dimon, their political contributions have primarily flowed to Democrats. The Federal Election Commission doesn't show a donation to Mr. Romney from either one of them.
Governor Romney, as a former Bain Capital guy, understands these dynamics.
Mr. Romney has already said, in one presidential debate, "I don't want to save any Wall Street banks." If President Obama tries to make political advantage out of JPMorgan Chase's $2 billion trading losses, don't be surprised to see the Romney campaign respond that it was President Obama inviting Mr. Dimon in for a state dinner, a holiday reception, and a private Oval Office meeting, while Mr. Romney is the one winning the support of a new breed of more nimble, non-bank financial industry start-ups for whom government relations is not a core competency.