New York Magazine has a cover story today titled “Obama is from Mars, Wall Street is from Venus,” about the toxic relationship between Washington and Wall Street. There’s not too much in it that’s new, except for one head-scratching quote from a PE investor who seems to think that it’s only bankers who don’t get the politics of financial reform:
“’They’re not accustomed to being engaged in politics this way,’ says a private-equity investor [about bankers]. ‘Their skin isn’t toughened. They actually take [the attacks by Obama] personally. This is a profession with a lot of smart people, but who aren’t necessarily terribly introspective. They think they actually deserve to make all this money. So any attack on their livelihood is, ahem, unpleasant.’”
This is accurate of bankers. But, speaking of introspection, how is it possible for any private equity investor to think his industry is doing any better than those big babies on Wall Street? We’ve met previous few PE or VC investors who aren’t personally outraged by the Administration’s proposal to increased carried-interest taxes.
In fact, if the assault on carried interest has shown anything, it’s that private equity has no reason to be smug about its understanding of Washington or its political connections. Private equity instead chose a counterproductive absence from the public sphere, which reads to politicians less like elegant aloofness and more like furtive skulking.
So, while bankers have publicly been seething for over a year, pounding podiums and making snotty public comments, private equity investors have gone the, er, private route. Was that the wise way to attack the problem? Probably not, it turns out.
What we have here is an instructive lesson in how to fight Washington: Should you issue go-for-broke public objections like banks, or maintain formal court-of-Louis-XIV reverence like PE?
Let’s look at the results. Bankers clearly have been more effective in attaining their goals than have the PE investors. By complaining, objecting, whining, cajoling and hiring batteries of lobbyists, Wall Street in the end got Washington to go mostly its way. A New York Times article today summed up the result with the headline, “Wall Street Expresses Some Relief at Reform Bills.” Banks can keep on making plenty of money even with all the reform bill’s restrictions.
Meanwhile, private equity’s polite objections have only gotten the industry thoroughly gored. There was only one major issue under discussion – that of carried-interest taxes – and on that, PE’s interests were thoroughly trounced.
VC Bill Burnham bluntly explains why in a thorough, well-argued post on his blog today. His advice to the PE and VC industries is to imitate Hollywood’s tax treatments, which appear to be blessed by the U.S. government. It’s no coincidence that Hollywood, always effective in keeping its money for itself, also has long maintained public ties to Washington.
In short, when it comes to having a voice in Washington reform, quiet doesn’t work in getting pragmatic changes to the law. Private equity investors may look down on bankers for making public spectacles of themselves through opposition, but that seems to be the way to win the Washington game.