Roger Altman On the Pain Ahead and Election 2008
Roger Altman lives in two worlds. As a former Blackstone Group (BX) executive and chairman of the boutique investment and private equity firm Evercore Partners (EVR), he is a power on Wall Street. As a former Deputy Treasury Secretary under Bill Clinton and an adviser to the campaign of Senator Hillary Clinton, he is a player in Washington. I talked with Altman about whether 2008 could be the election year when "It's [really] the economy, stupid."
Is the housing slump spreading to the whole economy?
The outlook for 2008 is weakening steadily. The question is how weak a year is it going to be. I see about a 50-50 chance of recession next year. And what I am paying particular attention to is falling consumer confidence. Retail sales are very weak right now, and Christmas may surprise on the downside. Those factors, in turn, affect the declining home values on consumer psychology, the so-called negative wealth effect. And, of course, energy prices, as they translate into gasoline prices and shortly home heating oil prices [are a factor]. I also would add that business confidence is starting to weaken as it relates to 2008. So for all those reasons, the economic outlook is getting weaker by the day.
Is the state of the economy emerging as a major factor in the 2008 Presidential election?
Yes. Economic issues are going to play a big role in next year's election. They may well turn out to be the No. 1 issue. The obvious implication is that would not be good for Republicans because they are seen as the incumbents.
You've been advising Senator Clinton. Would an economy on the edge of recession help or hurt her?
Let me answer that this way: With the economy weakening, it's going to be more difficult for Republican candidates than it otherwise would be. So it's going to help whoever the Democratic candidate is. The weaker the economy, the greater the voter anxiety and the greater desire for change. And obviously change means Republican out, Democrat in.
What about the idea that the Democrats want to raise taxes? Some people feel if taxes go up, that's going to further weaken the economy.
I think that's a red herring. None of the Democratic Presidential candidates are proposing widespread tax increases. If you take Senator Clinton, for example, she simply proposed that the Bush tax cuts involving the two top marginal rates lapse on schedule in 2010 when they expire. Those top two rates would return to the 39.6% and 36% percent brackets that existed when President Bush took office. And that's the only tax proposal that she's made.
Credit-card debt is becoming another headache for the strapped middle class, yet Senator Clinton, unlike, say, former Senator John Edwards, never talks about reining in the credit-card companies. Why is that?
I can't answer that. You'd have to ask her.
What do you believe is the most important job any new President will have to tackle?
Restoring America's standing in the world. All of us are dismayed by the negative attitudes and antipathy toward the United States around the world, even in places that historically have been our friends. The next President has an opportunity and a responsibility to try to restore the role of moral leader and humanitarian leader that the United States has played for so many decades.
If you were advising the next President, what would you recommend that he or she do about the subprime crisis?
If you ask me for one particular thing, I think providing federal funds to qualified community organizations to work directly with the stressed mortgagees on counseling and on restructuring their mortgages would be the best single thing we could do.
It seems as though there aren't any candidates with strong free-trade platforms.
Will free trade take a beating in the next Administration?
Do I think that the next President is going to wrap himself or herself in a protectionist blanket? No. Do I think that the next President, if he or she is a Democrat, is going to pursue a more vigilant approach to trade in terms of enforcing the agreements we already have and making sure labor and environmental standards are central to the future trade agreements we have? Yes.
Could the housing crisis have been prevented?
No. Not anywhere near in its entirety. This was the type of speculative excess we see periodically. We saw it in the dot-com bubble in the late '90s and in the S&L crisis in the late '80s and early '90s. It's the natural excess of markets.
How serious is the tight credit environment and all the bad loans on the books of financial firms?
The [bad loans] have caused a crisis of confidence in many parts of the financial community. And I think there will be more negative surprises. I don't know which firms will be victimized and when, but I don't think this is over. This credit market correction is still in mid-phase.
How much wind has come out of private equity's sails?
The flow of private equity transactions obviously has slowed sharply, but we're just moving into a different chapter of private equity. This is a permanent, powerful sector of finance. And it's gone through many chapters since the modern era began in the late '70s. Now we're entering a new chapter. So there will be plenty of private equity transactions, but they'll be different types of deals. They'll be more conservatively capitalized and will involve a lot more equity rather than leverage. But they will proceed, probably at a slower pace for the time being. Private equity is very creative.
Sovereign wealth funds seem to be the next big power players. Are they getting more aggressive investing around the world?
Of course they've become much bigger investors, and in places where oil is produced the transfer of wealth is staggering. Therefore they're going to become even bigger investors. I think what's needed is transparency so that the world knows what they're investing in and what their approaches are, and the thing to watch out for is investments made for political purposes, not investing purposes.
Should America be fearful of some of these funds, since they may, in some cases, have national interests that conflict with our interests?
I don't think fearful is the right word. We shouldn't fear entities like Singapore, which has been a long-standing and sophisticated investor, or Dubai, which, in general, is an enlightened investor. I just think we should be vigilant.
If Senator Clinton is the nominee and wins the election, would you accept a post in her Administration?
That's too far off for me to answer.