Is What’s Good for Ross Perot Always What’s Good for the Country? : Economy: The populist- billionaire says he wants to focus the debate on cutting the deficit. But that also helps his holdings in the bond market.
Ross Perot has made a staggering amount of money--probably more than $250 million--as a giant dividend from his campaign for Presi dent and his politicking since the election. How? By pushing for poli cies that benefit his multibillion-dollar portfolio, and by successfully steering the Clinton Administration away from moves that would have cost him dearly.
Perot’s wealth has recently been estimated at anywhere from $2.4 billion to $3.5 billion. The most commonly cited figure is $3.2 billion. In May, 1992, as a presidential candidate, Perot filed a financial disclosure report with the Federal Election Commission. What surprised some, beyond the sheer size of Perot’sassets, was its makeup: The prophet of U.S. industrial revival was betting heavily it would never happen.
According to Citizens for Tax Justice’s Robert S. McIntyre, only about 8% of Perot’s holdings were held in U.S. common stocks. More than three-quarters were invested in bonds, mostly tax-free municipals issued by local governments--everywhere from Compton to Dade County, Fla. It is worth recalling where most of this money came from: Close to a billion in cash from the sale of Perot’s computer-processing company, Electronic Data Systems, to General Motors in 1984; and another $700 million in “greenmail” that GM paid Perot two years later to get him off its corporate board.
In the wake of Perot’s FEC filing, surprised commentators for the Wall Street Journal and the New York Times questioned his top-heavy emphasis on bonds, especially tax-exempts. But as Howard Stein, chairman of Dreyfus Corp., said at the time, “If you had a couple of billion dollars, you’d do the same thing--a lot of tax-free income, rest and relax.”
Two worries, however, keep giant bondholders from relaxing completely: economic growth and budget deficits. Both create a demand for credit--the first because a growing economy leads more private borrowers to seek capital to invest in businesses, and the second because deficit financing requires the federal government to increase its borrowing, too.
Either way, more borrowing sends interest rates up. To attract lenders, bond sellers are forced to raise the return on new bonds. At the same time, the market value of existing bonds fails to equalize the rate of return. This is exactly the outcome big bondholders fear.
Clinton’s commitment during the presidential campaign to a big economic-stimulus program must have scared Perot. By creating a new, well-defined swing-vote constituency for a Herbert Hoover-style deficit-reduction program, Perot’s faux-populist campaign helped turned the Clinton Administration away from its early economic growth agenda. With Perot battering away on the outside, and Wall Street figures like economic counselor Robert E. Rubin and Deputy Treasury Secretary Roger C. Altman applying pressure from the inside, the $20-billion stimulus package originally proposed by Clinton kept shrinking until it had been transformed into a $500-billion deficit-reduction program.
The bond markets, as Clinton kept telling us, were ecstatic with the change in direction. As yields dropped, bond prices reached all-time highs. Municipal bonds have grown in value at an annual rate of 13%. Perot holds about $2 billion worth. If you take the appreciation in their value since November, when bonds began to rally, he’s made 12%--or $240 million alone. Add the gains from Perot’s approximately $360 million in taxable bonds--about 11% of his $3.2 billion portfolio. The Lehman Brothers Treasury Index has gone up more than 20% since the election, so that would add another $70 million to Perot’s pot. His approximately quarter-billion dollars’ worth of stocks would have appreciated about 14%--tack on another $40 million.
This leaves the 11% of his portfolio invested in real estate. Real estate is down--let’s say he’s lost exactly what he has gained from his investments in everything but municipal bonds. Perot would still be about a $250 million ahead.
Could Perot’s perpetual campaign have anything to do with the bond market’s yearlong celebration? “Oh, hell yes,” says John Collins, research analyst at the Washington-based Investment Company Institute, the mutual fund industry’s main trade group. “When Ross buys TV time, he’s talking up the bond market.”
If Clinton had been a conventional Democrat, if he’d stuck with his original stimulus program, or more dramatically, the plan he outlined in “Putting People First,” his campaign manifesto, for $41.9 billion in new spending--interest rates would have probably risen. Certainly, financial writers wouldn’t be talking about “euphoria” and “buying panics” in the bond market, or worrying about investors’ “herd mentality” as they gobble up hundreds of billions in new bond offerings. Instead of being a couple of hundred million ahead, Perot could have lost as much.
Still, given the magnitude of the deficit, many will be inclined to ask, “What’s so bad about a little self-serving hypocrisy, if the cause--reducing the deficit--is truly just? Doesn’t the need to service the $4-trillion debt keep interest rates high and choke off economic recovery?”
The deficit is a worrisome problem, but it’s not clear that cutting the budget and raising taxes, during what may turn out to be the deepest downturn since the Great Depression, represents a wise solution. It would take an annual growth rate of 4% through the rest of Clinton’s term to make up for the 3.5 million jobs lost since the recession started. Deficit reduction ensures this will never happen. Nobel Prize-winning economist Paul A. Samuelson likens the whole exercise to starving the patient to death to get rid of his tapeworm.
When the economy turns down sharply, the very rich, the banks and the corporations all have similar interests. Banks don’t lend. Corporations don’t invest in new factories. The rich don’t want to risk their capital investments. Instead of lending, banks take depositors’ money and put it in government bonds. Instead of hiring, corporations use low interest rates to refinance their debt. Instead of taking risks, the very rich buy bonds, and in Dreyfus Chairman Stein’s words, “rest and relax.” Budget cutting and shifting taxes onto the proles masquerade as a recovery plan. A true recovery is what people like Perot fear most.
