Politics is a game-changer — nothing makes the markets gyrate (in either direction) more than an unexpected announcement by Timothy Geithner, breaking news on financial regulation reform or news of a rate hike/decrease by the Fed. Political and policy moves are among the few things that traders can’t take advantage of because they are so unpredictable in nature.
A savvy mind could have predicted that Congress would pass TARP to bail out the banks. But very few could have called the right time to make a play on Citigroup (NYSE: C), Bank of America (NYSE: BAC) or even the Financial Sector Select SPDR (NYSE: XLF) based on that foresight because it’s so difficult to guess political timetables. Often, unforeseen moves by Congress, President Obama, etc. can send the markets into a tailspin that throws a wrench into traders’ strategies. I hypothesized that this was the reason for the anti-government feeling that seems to dominate finance.
So, I set out to see what drives the political opinions of those who work in the financial sector.
After interviewing Larry Williams for the Benzinga podcast, I followed up with the commodities trader and two-time Republican nominee for the U.S. Senate in order to ask him about what motivates his political philosophy.
“In the world of trading, I only make money if I’m correct. If I lose money, no one bails me out,” he said in an email. “Trading allows one to be independently successful (we have no boss and we have no employee[s]).”
That independence is the bedrock of capitalism and the American dream. It’s the freedom to be successful and the freedom to make mistakes. The fast-paced, freewheeling nature of trading and finance may have its problems, but there’s no denying that the independence afforded to its players is something that we all aspire to. In a society with one of the world’s highest levels of entrepreneurship, no child says, “When I grow up, I want to take orders from someone else.”
“Trading creates freedom, so it is only natural for a trader to work passionately for the political ideology that allows for the most personal individual freedom,” Larry said, referring to a limited government, libertarian point of view. “Government is not the solution, it is most often the problem.”’
On that note, I tested my theory. I asked Larry whether he thought that economic and financial policy moves were predictable, to which he responded, “Politics is very predictable once you understand the driving force behind the politician. They are consistent, perhaps not to a philosophy, but all of them are consistent to getting reelected and will do whatever it takes.”
Hardly an affirmation of my hypothesis, his answer was reflective of the anti-politician feeling that has long driven America’s political apathy. And, on the whole, while I might not agree with some of his conclusions, Larry’s comments touch on something at the core of our national identity. The financial sector, especially trading, is the epitome of the sink-or-swim, pull-yourself-up-by-your-bootstraps brand of American capitalism. Despite inherent problems — both implicit and explicit — it affords every citizen the ability to be their own boss and profit from their own skills, strategies and decisions.
Stan Blacker, President of Mortgage Resource Partners, is just such a story. After wading through the fraud, abuse and unethical practices by his peers in the mortgage industry, he pioneered a business model that partners real estate agents with his company in a way that allows him to provide fixed, rather than estimated, closing costs to his clients.
As a bona fide liberal, Stan is somewhat of a proud rarity in his field. But despite approaching politics from the left rather than the right, he reaches a similar conclusion to Larry: “politicians as a whole do not and refuse to act in the best interest of consumers and the public at large.” When asked how his experience in the financial industry has influenced his political opinions, he said, “It’s made me more apolitical than anything else.” He pointed particularly to the bipartisan blocking of RESPA amendments designed to bring transparency to real estate transactions.
It appears that there is more than the libertarian right when it comes to anti-government sentiment. There are those, like Stan, who work directly with those for whom a hands-off economic and regulatory policy harms most and lament that government does too little to protect the little guy.
Testing my theory, I asked Stan whether he thought that economic policy moves are predictable and if he had ever made any politically-based investment decisions. “[Policy moves are] actionable as an investor…in my personal opinion they were going to lead to a decrease in interest rates for an extended period of time,” he said and added later, “I geared up for the refinancing wave that I knew would be coming. As rates dropped, I knew people would want to take advantage of it. I’ve lived through these cycles before five or six times.” That’s 0-for-2 for my theory.
On the surface, at least, the anti-government sentiment that emanates from the financial sector coalesces around the general disappointment, frustration or anger that many conservatives and liberals in any other profession feel towards the federal government. On the right, there is the feeling that government creates problems and inefficiencies through over-regulation and over-involvement. On the left, there is the discontent that government does too little to help the little guy and ensure a level playing field. Just as the financial sector is a microcosm of our capitalist system, so too is it a snapshot of the age-old culture war over the role of government.
As usual, trying to simplify what motivates diverse individuals down to a generalized theory tends to overlook the complexity of human thought and action. Ultimately, the “Masters of the Universe” are motivated by the same things as the rest of America: a little bit of self-interest, a lot of environmental influences and, most importantly, how their personal experiences color the way they see the world.
–Alex Schiff
