On July 9, when Karl Rove, George W. Bush’s senior political adviser, sent the president into the great maw of a Wall Street desperate for gravitas, hard words, and action, he may well have been hoping for a robust, stand-up-for-the-little-guy, Teddy Roosevelt moment. What he got instead was a blinking man with a summer tan whose tongue seemed to swell up in his mouth when the time came to pull out the word malfeasance, as in the corporate kind. “The traders were looking for something they could trade up on,” says Michael Holland of Holland & Co. “Well, they didn’t get it.”
With the whiff of weakness and indecision strong in the air, traders up and down the Street unloaded more stock, and the market’s plunge continued. So Rove tried again. On July 15, President Bush was dispatched to a friendlier clime – Birmingham, Alabama. Again he did his best to assuage the market’s furor. In a meandering speech, delivered just after the opening bell of the stock exchange, Bush talked of growth, tax cuts, faith-based charity work, and his new corporate-fraud task force. Looking back, a bit wistfully it seemed, to the party-time joys of an earlier decade, Bush remarked a couple of hours later, “The boom days of the nineties, it was like we were on a binge where there was no … the horizon was forever going up. And we binged, and now we are suffering a hangover.”
Suddenly, the hangover intensified, as the Dow dipped 440 points, before bouncing back in the afternoon.
George W. Bush, who ran as the business president and made a point of his calm, delegating, CEO-like management style, has something of the market-moving touch of another business president, Herbert Hoover.
“Why does the market go down when the president speaks?” asks Orin Kramer, who runs an investment partnership and is also a prominent Democratic fund-raiser. “It is clear that the administration is dragging its feet on corporate reform. The market wants a mechanism set in place. In terms of economic policy, they are simply being ignored. This is also an administration without a credible economic spokesman.”
Others wonder what the heck Bush is doing on TV talking about the markets in the first place. “That’s a waste of time. Don’t do that,” says hedge-fund trader Daniel Gressel. “What Bush is saying is not relevant to what is going on down here. We had a bubble. There was too much private-sector error and investment. It takes time to work all this stuff off.”
The disconnect, however, runs deeper than what he said or didn’t say. It’s almost as if he’s speaking the wrong language. As former CEOs, Bush and his people have tended to see Wall Street as a means to an end: It’s where you went to raise or borrow money for your company or a place to sell your stock. Bankers and brokers come and go, but they are, in the end, mere money changers. There was no need to understand their culture. They didn’t dig for oil or smelt aluminum rods; they kept their hands soft and fleshy. In flush times, such an approach is well and good. But what the nineties boom wrought was a much broader and nuanced definition of Wall Street. When WorldCom implodes, a nation of stockholders takes the hit.
Bush’s disdain for Wall Street is shared by his economic team, none of whom have any meaningful ties to the Street. Indeed, every time Treasury Secretary Paul O’Neill opens his mouth – on the dollar, the yen, Argentina – the markets quaver. Bush and his men are corporate chieftains used to barking out orders in the dark-wooded coziness of their boardrooms. They are accustomed to creating fear, not managing it, which is why some on the Street pine for the days of Robert Rubin’s more sophisticated market touch. “Whenever the dollar was ticking down, and you would see Rubin, it would start to tick back up. He really hurt the shorts,” says Bank of America market strategist Tom McManus. “O’Neill is a good man, a great example for us all, but he can’t help but sound a little flip when it comes to defending the dollar. Traders are sensitive to this stuff. They do all that they can to look in the guy’s eyes, to see if he has his fingers crossed behind his back.”
But there is no Rubin on Bush’s team to tell him what the bond traders want, no man of the markets capable of keeping the shorts on their heels. No doubt about it: Paul O’Neill is no Bob Rubin – nor would he want to be seen as such. But that’s become a problem. “Bush’s economic people just don’t get the same respect that Rubin did – be it fair or not,” says Holland. “When Wall Street traders see Paul O’Neill running around with Bono in Africa, they ask themselves, ‘How does that help us?’ “
Another part of Bush’s problem has to do with bitter history. He and Rove are so obsessively mindful of the lessons of 1992, when Poppy remained disengaged from a floundering economy, that the son is following slavishly in his father’s footsteps, delivering his own message: I care speeches. The problem is that Wall Street – and nowadays that includes a lot of small investors, too – doesn’t care if he cares.
In the markets, it’s perception that counts. The perception now is that Bush and company have frozen up on economic and market policy. So it should come as no surprise that investors at home and abroad are in effect shorting the Bush administration. It is an irony that such a deeply pro-business administration can come off looking so passive and confused on economic and financial matters. But when Bush talks about the importance of free trade in his speeches and then green-lights protective tariffs for the steel industry and massive subsidies for farmers, it’s no wonder that traders are left scratching their heads. What do you really believe in? they seem to be asking. A strong dollar? Lower taxes? A balanced budget? Corporate reform? All of the above? No definitive answer is forthcoming, so the selling continues.
“The market wants leadership. We want our elected leaders to rise to the occasion,” says Stephen Roach, Morgan Stanley’s chief economist. “There are key issues out there: options expensing, early CEO cash-outs, independent directors – to say nothing of accounting reform. It looks like he is dragging his feet on all of them. He gave a fuzzy view, and for the markets, in times of maximum uncertainty, clarity is a terrific thing.”
So what is a president with a long-standing disdain for Wall Street to do to please the beast? It’s a tough call: The politics of today demand a tilt toward more corporate regulation, while too much government goes against the laissez-faire grain of Wall Street, as well as of Bush himself. Of course, that’s not the only message the markets might respond to. He could also swing for the supply-side fences and say now is the time to reduce the capital-gains tax. But the timid proposals offered thus far seem to please no one. The upshot of this tug-of-war in Bush’s brain is a muddled message that leaves investors and traders wondering what the president really stands for.
“They are trying to get him out there, but the trouble is that he has no new economic content,” says Republican talking head and economist Larry Kudlow. “Bush’s economic team is letting him down because they are not providing him with new ideas.”
Compared with the red-meat machismo of Bush’s foreign-policy team, O’Neill and the lumpy Larry Lindsey, Bush’s chief economic adviser and a former supply-side ideologue from the American Enterprise Institute who carries little clout on the trading-room floor, come off as wan and ineffectual. Neither can dominate a press conference like a Donald Rumsfeld or a Colin Powell, and neither has the Oval Office entrée of a Condi Rice. Bush’s in-box is chock-full of plans and strategies for a wag-the-dog invasion of Iraq, but his economic idea bank seems to consist of one idea: Call Alan Greenspan.
While Wall Street’s Republican sympathies are as strong as ever, its view of the Bush administration echoes that of many Democrats. The vice-president remains mute and invisible as questions of Halliburton’s accounting chicanery swirl around him – the very picture of the jowly corporate bigwig taking shelter in the executive suite. SEC head Harvey Pitt sounds screechy as Tim Russert grills him on his many conflicts of interest on Meet the Press.
And Bush and his team – their options exercised and their millions socked away in T-bills – are not sure whom to try to please. Which is hurting both the market and his party’s election chances.
“The small investor is the soccer mom of the new political season,” says Bill Clinton’s old Rasputin, Dick Morris. “And they are leaving the Republican Party because of all this. At this point, the best thing Bush can do to defense this scandal is to attack Iraq.”