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--- Begin Message ----Caveat Lector- In Mr. Bush's Neighborhood, a Peculiar IntersectionBy LANDON THOMAS Jr. August 22, 2004, The New York Times http://www.nytimes.com/2004/08/22/business/yourmoney/22mack.html?th THE relationship between President Bush and Wall Street has always been a tangled one, layered with paradox and outright contradiction. On the stump, the president can come across as a prairie populist, describing investment-banking practices as "fancy footwork" and calling the stock market boom of the 1990's feckless, "pie in the sky" investing. Yet, as the grandson and nephew of patrician East Coast bankers - on his mother's side as well as his father's - President Bush has raised millions of dollars from Wall Street to finance his brief career as an oil wildcatter and his two presidential campaigns. And his fiscal policies, which include sweeping cuts in dividend and capital gains taxes, could be the most pro-Wall Street since Ronald Reagan began cutting taxes in 1981. Still, for the most part, President Bush has kept bankers at arm's length in his administration. In fact, he is the first Republican president since Dwight D. Eisenhower to not appoint a Treasury secretary from Wall Street, though there is speculation that this may change if he is re-elected. If President Bush seems conflicted about Wall Street, the feeling may be mutual. Although the Republican National Convention, to be held next week in New York, has been financed in part by large sums of Wall Street money, the debate over the president's policies is full-throated, drawing in some of the financial industry's biggest names. The president's supporters argue that his tax-cutting policies have stabilized uncertain markets, freeing capital for new investments and setting the stage for the next bull market. They see him as a man of rectitude and conviction, a fellow businessman imbued with boardroom gravitas who understands the value of a corporate America largely unfettered by taxes and regulation. More important, they view him as a wartime president, deserving of their support. "I liked his response to terrorism," said John J. Mack, the former co-chief executive of the Credit Suisse Group and a prominent fund-raiser who has met with Mr. Bush several times. "He is not a flip-flopper, and it is clear that he will make the tough decisions." Conversely, the president's detractors on Wall Street argue that his tax cuts are elitist and have resulted in ballooning deficits that could lead to the next stock market crash. They see his attempt to distance himself from the Street as part of his persona and say that his tax policies, though personally enriching for them, are irresponsible in the long run. PRESIDENT BUSH has put a lot of money in my pocket but I think his policies are a disaster," said Steven Rattner, the founding partner of the Quadrangle Group, a private equity boutique, and an adviser to Senator John Kerry, Mr. Bush's Democratic opponent. Even some Wall Street Republicans who say they expect to vote for President Bush voice concerns about the deficit as well as the fairness of a tax cut that makes rich people even richer. "My own feeling about the dividend tax cut is that I would not have done it," said Kenneth G. Langone, an enthusiastic Republican and co-founder of Home Depot who owns more than $700 million of the company's stock and runs his own investment bank. "It has meant millions to me, but I would have felt better if you dedicate it to deficit reduction." Whatever their views on his policies, few financial executives expect President Bush to reach out to Wall Street when he addresses the party faithful at the convention next week. >From a political perspective, it is easy to see why Mr. Bush has kept his distance. Just months after he took office in 2001, the Nasdaq market collapsed and he began to tilt away from Wall Street. That was a direct contrast to the approach of President Bill Clinton, who took every opportunity to celebrate a stock market that was soaring during much of his time in office. Mr. Bush's original economic counselors, Paul H. O'Neill, as Treasury secretary, and Lawrence B. Lindsey, as chief economic adviser, were also Wall Street skeptics who saw bond traders as whimsical and the markets as frothy. These views, historians say, informed the president's own mistrust of Wall Street leaders. Mr. O'Neill was a former chief executive of Alcoa; Mr. Lindsey was a conservative economist. "I think the president has a love-hate relationship with the Eastern establishment and that includes the money part of it," said Kevin Phillips, author of "American Dynasty," a critical account of the Bush family's business and financial ties. "He doesn't like the Wall Street stereotypes who are the gray flannel Eastern types. He didn't like them at Andover, and he didn't like them at Yale." While Mr. Clinton made many a foray to Wall Street, once speaking from inside the New York Stock Exchange, Mr. Bush has been an infrequent visitor to Lower Manhattan. Like all presidents, he has met in private with financial executives, but his only official appearance - not including his visits to the World Trade Center ruins - was a less-than-successful attempt in July 2002 to bolster the market's morale in the face of a wave of corporate scandals. In speeches over the years, President Bush has taken pains to link the stock market malaise to recession, the shriveling of tax revenue and the growth of the deficit. And he has done so in a way that suggests that the market boom, under Mr. Clinton and his Treasury secretary, Robert E. Rubin, was irresponsible, driven by Internet and technology stocks that eschewed dividends. "I would call that the pie-in-the-sky economic period,'' Mr. Bush said last year as he presented his dividend tax cuts as a way to restore probity to corporate America. "You know, 'Bet on us. Even though we don't have any cash, we've still got an interesting tale to tell, you know, the new economy.' " While he now criticizes this "bet on us" business mentality, President Bush's own first business venture, exploring for oil in the late 1970's, was also highly speculative in nature, paid little in dividends and lost money for its investors - much like the Internet stocks that tumbled as he took office. And his disdain for what he has called the "fancy footwork" of investment bankers comes despite the fact that his grandfather, Prescott S. Bush, was a senior partner at Brown Brothers Harriman, perhaps the most exclusive of Wall Street's old-line investment houses. Indeed, the president's family tree mirrors Wall Street's evolution over the past century. His great-grandfather, George Herbert Walker, founded his own investment bank, G. H. Walker & Company, in 1900; several mergers later, in 1978, it was acquired by Merrill Lynch. An uncle on his mother's side, Scott Pierce, was a former president of E. F. Hutton, a brokerage firm that was acquired in 1987 by Shearson Lehman (now part of Citigroup); his uncle Jonathan J. Bush ran a small money management operation that was later sold to Riggs Bank; and a second cousin, George Herbert Walker IV, is a managing director at Goldman Sachs. Mr. Bush's younger brother, Marvin, manages a series of hedge funds in suburban Virginia. When Mr. Bush was at Yale in the 1960's, the family history weighed heavily on him. "He wanted to be rich," said Douglas Hannah, a friend of the president's, as recounted in "First Son," by Bill Minutaglio. "He wanted to possibly be a stockbroker because his great-uncle and uncle were stockbrokers." But like his father, who spurned an offer to work at Brown Brothers, Mr. Bush turned his back on Wall Street; he chose instead to seek his fortune in the oil fields of Texas in the late 1970's. "Both George Sr. and the president had the same hands-off, stay-away attitude with regard to Wall Street," said Mr. Pierce, the president's uncle. "He is a Texan; that is where his ties are." His Texas roots notwithstanding, Mr. Bush tapped into his Wall Street network to finance his venture as an oil speculator. His uncle Jonathan led the way, raising money from financial and corporate sources. When it failed to strike oil, the company, called Arbusto, fell on hard times, and the initial investors lost most of their stakes when oil prices plunged before it was merged into another company in 1984. Mr. Bush would have no further need for Wall Street advice, and as he started his run for national office, his economic team was largely devoid of bankers. IN selecting his cabinet after winning the 2000 election, he reached deep into his father's administration to build his foreign policy team, but selected no one from that administration for a prominent economic post. Part of that was calculated politics: his father had been pilloried by conservatives for raising taxes, and any official close to that volte-face was immediately tainted in the eyes of the supply-side sympathizers close to the new president. But there may have also been a deeper reason: despite the Bush family's historical ties to Wall Street, the first President Bush was unable to lure a heavy financial hitter as Treasury secretary, like Mr. Rubin, who once ran Goldman Sachs; William E. Simon Sr., the prominent Salomon Brothers banker who served in the Nixon and Ford administrations; and Donald T. Regan, the former chief executive of Merrill Lynch who held the post under President Reagan. The Treasury secretary in that first Bush administration was Nicholas F. Brady, who also served in that post for the last few months of the Reagan administration. He was an old friend of the president's who had a respectable career at Dillon Read but lacked the clout of many previous Wall Street executives. Mr. Brady, now chairman of Darby Overseas Investors, an investment company, concedes that he has had no interaction with the current administration, but says he does not think that a banking pedigree is a prerequisite for being effective in the Treasury post. "I don't think that Wall Street qualifications are needed. Look at George Shultz," he said, referring to Mr. Nixon's third Treasury secretary. "What is needed more is a relationship with the president." But the second President Bush was unable to cultivate any meaningful relationship with the Wall Street executives presented as potential candidates for his cabinet. Then again, not having a Wall Street executive in the Treasury might have made political sense at the time. As a former oil industry executive, Mr. Bush had a crisp, keep-it-simple management style more in tune with the manners of conservative corporate chief executives than with the brasher, less risk-averse approach cultivated by Wall Street leaders. But now, given the emphasis that Mr. Bush has placed upon his capital gains and dividend tax cuts as a tonic for the markets, some people wonder whether he may reach out to a Wall Street executive for Treasury secretary in a second term. With the stock markets still shaky and investors worried about the growing budget deficit and a possible surge in interest rates, the president may need an authoritative voice to make the case that, in the long run, none of this is likely to result in a stock market crash. "Traditionally the better Treasury secretaries have come from Wall Street, dating back to Alexander Hamilton," said Bruce Bartlett, a deputy assistant secretary for economic policy under the first President Bush. "It's good to have someone to calm fears. Rubin was good at it, and sometimes corporate guys just don't get it." While the current Treasury secretary, John W. Snow, a former steel executive, has been a loyal soldier, he is seen by traders as being a fairly inconspicuous figure on Wall Street. But there is one senior Wall Street executive in the Bush administration: Stephen Friedman, who together with Mr. Rubin ran Goldman Sachs in the early 1990's. He is now director of the National Economic Council, the post that Mr. Rubin occupied before ascending to the Treasury. WHEREAS Mr. Rubin made his name as a trader, Mr. Friedman rose through the ranks at Goldman as an investment banker. Well regarded on Wall Street, he has not often been seen publicly since joining the administration in late 2002. And he may not have any intention or desire to follow Mr. Rubin into the cabinet. There is no indication so far that Mr. Snow's job is in jeopardy, but there is frequent turnover in a cabinet in a second administration. So is there anyone on Wall Street who has the right combination of charisma, scandal-free reputation and ability to calm volatile markets to handle the job? The Wall Street rumor mill has churned out some names, like Henry M. Paulson Jr., the chief executive of Goldman Sachs, and E. Stanley O'Neal, Merrill Lynch's chief executive - both whom have raised large sums for the president this year. While Mr. Paulson may have the political background - he served briefly in the Nixon administration - people who know him say he has his hands full running Goldman Sachs. Mr. O'Neal, for his part, has raised more than $500,000 for the campaign, but he has been chief executive of Merrill for less than two years and has maintained a low public profile on the Street. Then there is Mr. Mack, who was forced out at Credit Suisse close to two months ago. He is an acquaintance of Vice President Dick Cheney, who played a crucial role in selecting the last two Treasury secretaries. Mr. Mack would not comment on such speculation. All the same, he is willing to do his bit for the campaign - whether raising money or engaging in some retail politics. "If things get too quiet here, I may call down there," he said. "The race is too close to call, but I think he will win." _______________________________________________________ portside (the left side in nautical parlance) is a news, discussion and debate service of the Committees of Correspondence for Democracy and Socialism. It aims to provide varied material of interest to people on the left. 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