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Shorting America

July 12, 2011

Three weeks from today, one of two things will have happened and either way a few people will make a hell of a lot of money and score some huge political point.

As the political pundits, serious journalists and the general population speculate on whether the United States Congress will authorize an increase to the Federal debt limit (a necessary and normally simple process), there are wagers being made by the few who understand financial and political reality and aren’t ashamed to take advantage of that knowledge at the expense of the rest of us.

The same people who grabbed windfall profits betting against markets a few years ago (and were richly rewarded both by governments and market recoveries) are shorting” America and perhaps the entire global economic structure.

There is not a single rational economic argument to be advanced in favor of permitting the United States to default on it’s debt obligations. None, unless blind greed or political nihilism is your objective.

Yet someone like Eric Cantor, with a straight face, is trying to do just that because he understands the political reality of the position he’s secured for himself in American politics.

Cantor is not stupid. He attended the prestigious preparatory Collegiate School in Richmond, received his B.A. from Georgetown University and followed that up with a J.D. from William & Mary Law School backstopped by a Master of Science from Columbia. He’s a well-educated man, but more importantly, he’s crafty.

Cantor has emerged as the leading voice for the continued support of the G.O.P. within a community defined by reactionary self-interest and the dismantling of governmental programs (local, state and federal) which provide for the general well-being of all U.S. inhabitants. He employs super-patriotic slogans and defines words like “citizenship” and “constitutional” with a tortured appeal to what I find to be a really distasteful elitism.

I suspect that his motivation in all of this is not only to secure his continued re-election in Virginia’s strongly conservative 7th district (where he’s trounced every opposition candidate since 2000); but worse, because he knows that it means prosperity pocketbooks of those who’s financial success depends upon his continued quest, and perhaps his own.

In the process, Mr. Cantor’s personal gaming hasn’t gone without notice. His wife, Diana Cantor (a lawyer and C.P.A.) is the Managing Director of the Virginia branch of Emigrant Bank’s wealth-management division, called Virginia Private Bank & Trust, which targets an ultra-rich clientele. Eric, meanwhile, has been Washington’s strongest supporter of the Republican stonewalling of tax code revisions that would require income earned by hedge fund managers to be taxed at normal marginal rates (like the rest of us) rather than the current flat 15% rate.  This single, largely unknown hiccup in the Internal Revenue Code steals billions (yes, billions) of dollars every year from the U.S. Treasury. It’s currently a perfectly legal wealth management tool. And it’s perfectly indefensible.

Should reasonable voices fail in stemming the tide of this Quixotic mission, you can bet that Eric Cantor and those like Paul Ryan who subscribe to it will not suffer. Neither at the polling place nor in their portfolios.
Shorting America, it appears, is a reliable way for some to hedge their bets.

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