Good morning. Join us on Dec. 4 for the DealBook Summit. Andrew will host a series of conversations with newsmakers including former President Bill Clinton; Sundar Pichai, the C.E.O. of Google; and Jerome Powell, chair of the Federal Reserve. Apply to attend in person here. On Friday, President-elect Donald Trump selected Scott Bessent, a top economic adviser and the founder of Key Square Group, to be his Treasury secretary. DealBook's Lauren Hirsch digs into what that could mean for his hedge fund. Plus, The Times's Talmon Joseph Smith interviews President Biden's chief economic adviser, Jared Bernstein. (Was this newsletter forwarded to you? Sign up here.)
Divestment complexAs President-elect Donald Trump takes an unconventional approach to stocking his cabinet, he's also embracing one candidate pool that has plenty of precedent: Wall Street chief executives. On Friday, Trump picked Scott Bessent, a top economic adviser and the founder of Key Square Group, a hedge fund, to be his Treasury secretary. He previously tapped Howard Lutnick, the chief executive of the financial services firm Cantor Fitzgerald, for commerce secretary. Executives appointed to government positions are often required to make extensive stock divestitures, so the path from Wall Street to Washington can be particularly complex (while also offering an opportunity to avoid certain taxes). Bessent's potential departure from Key Square may trigger "key man provisions" that often protect clients of hedge funds if top executives leave. And Lutnick is inextricably linked with Cantor Fitzgerald: He was named its president in 1991 and steered the firm after it was ravaged by the Sept. 11 attacks in 2001. Here is what we know — and don't know — about how Bessent and Lutnick plan to unwind. Lutnick would leave Cantor Fitzgerald. He said Thursday that, upon Senate confirmation, he would step down from the company and the two firms it spun out: BGC Group, a brokerage firm, and Newmark, a real estate firm. He'd be leaving during BGC's ambitious push to take on the exchange giant CME Group — likely a reason that BGC's shares were down 8 percent for the week. Shares of Newmark were up 1 percent. Bessent may wind down or sell Key Square, or put it into "sleep mode," Reuters reported, citing a person familiar with the situation. Lutnick would have to divest millions of dollars in stock. Federal law requires government employees to avoid holding assets that can be affected by their work. Lutnick plans to divest the 128 million shares he owns in BGC, spread out across his 401(k), retirement accounts and trusts, according to a company filing on Thursday. Some name his wife, Allison Lutnick, as a trustee. Lutnick also said he would not sell his shares on the open market, preventing a flood of new shares that could depress Cantor Fitzgerald's share price. Divesting can get dicey. John Paulson, the hedge fund manager, took himself out of the running for Treasury secretary because of his "complex financial obligations." Vincent Viola, the billionaire Wall Street trader whom Trump nominated to be Army secretary eight years ago, withdrew after he found it too difficult to untangle himself from his business ties. If he becomes commerce secretary, Lutnick may need to divest a particularly wide range of assets. The position "has pretty broad purview from an issue standpoint, so there could be a substantial number of divestments that are required by the office," Matthew Sanderson, a lawyer at the firm Caplin & Drysdale, told DealBook. But divestment might come with a big tax break — depending on how it's done. Special protections allow appointees to avoid paying taxes on gains from divesting in assets that pose a conflict, as long as they invest proceeds from a sale into "permissible property" like a Treasury bond or an approved diversified investment fund. It's not a permanent pass on taxes: If they eventually sell those Treasury bonds, for example, they have to pay the taxes. But the protections essentially give executives with stock concentrated in their own companies an opportunity for tax-free portfolio diversification. The former Goldman Sachs C.E.O. Hank Paulson, for example, famously had to sell around $700 million in the company's stock when he took the job as Treasury secretary in the George W. Bush administration, and was able to do without paying capital gains taxes. Some wealthy executives may be able to borrow against those less risky investments and live on the loans without ever paying the taxes. Trusts may not be eligible for the special tax treatment, say lawyers who specialize in helping executives divest their holdings. But other holdings might — depending on how Bessent and Lutnick divested them. Transfer shares to a foundation? That would not qualify for the tax treatment. A private sale to another individual? That would. Would divestment be enough? Senator Ron Wyden of Oregon, the Democratic chair of the Senate Finance Committee, has already indicated that he plans to scrutinize BGC's joint venture with China Credit Trust — an appearance of conflict for Lutnick that divesting from BGC may not sufficiently address, tax experts said. Of course, it's not entirely clear what a confirmation process will look like for Trump's cabinet picks given that his transition team has declined to sign an ethics pledge. And the top job at the U.S. Office of Government Ethics, the agency that oversees these conflicts of interest, is vacant. "Howard Lutnick, like all those who serve in the administration, will follow the laws and regulations for public service," Adam Kennedy, a spokesman for the Trump transition, said. — Lauren Hirsch
Amazon invested another $4 billion in Anthropic. The tech giant has now plowed $8 billion into the artificial intelligence start-up behind the Claude chatbot. The new investment comes even as regulators increase their scrutiny of Big Tech's ties to leading A.I. start-ups as they race to dominate the sector. The Justice Department called for Google to be forced to sell its Chrome browser. The request followed a ruling in August that the company was operating an illegal monopoly in search. The proposed remedies are the most sweeping since the Justice Department pushed for Microsoft to be broken up in 2000. If Google is forced to make the change, it would transform how businesses operate on the internet. Bitcoin edged toward $100,000. The price of the cryptocurrency has soared since Election Day on hopes that President-elect Donald Trump will adopt a friendlier approach to the industry than the Biden administration. The sector spent more than $130 million during the election to support pro-crypto candidates, and the president-elect has said he will create a crypto-advisory council.
Biden's chief economist on the electionSince the election, Jared Bernstein, the chair of the White House Council of Economic Advisers, has often found himself in a down mood — dealing, he says, with "confusion, guilt" and "cognitive dissonance." President-elect Donald Trump's sweeping victory was fueled in part by lousy consumer sentiment and working-class Americans' frustration with the underlying state of the economy. That is a big blow to the idea of "Bidenomics," of which Bernstein was a leading evangelist and architect. Bernstein, a longtime Biden confidant, spoke with The Times's Talmon Joseph Smith about how he is making sense of the moment. You told me three years ago that one goal of the American Rescue Plan was to intentionally "run the economy with a little bit more heat." We've seen benefits of that, but in light of ensuing inflation, do you regret the size and the scope of the American Rescue Plan? Twenty-twenty hindsight is an analytical luxury — certainly one we didn't have in January of 2021. Back then, we had millions of unemployed people. We had Covid deaths peaking. The economy was improving, but it was far from reopened. And vaccinations hadn't been anywhere near adequately distributed. So the extent of uncertainty regarding the impact of Covid on the economy warranted a very strong rescue plan. And I don't regret the plan. We certainly got more heat than I envisioned at the time, no question, but we also got a lot more growth, less child poverty, fewer evictions, more business survivals, and a much quicker return to full employment and very little economic scarring. At times, Democrats' economic messaging seemed uncertain or torn: bragging about data, but also apologizing for inflation, blaming corporations for higher prices or sometimes Vladimir Putin or supply chains. Doesn't it make sense, then, that Americans were uncertain about your stewardship, too? That is not really the way I see it, I guess. I think there are definitely ways in which we talked about the economy that didn't resonate with what people were going through. But I used to say, back then, "The risk of doing too little was greater than the risk of doing too much." And do you stand by that? Yeah, I stand by that. The inflation that ensued was largely caused by supply side snarls, but it was exacerbated by strong demand, no question. So I'm not giving fiscal policy a pass. But it's really important not to overly connect the rescue plan to the inflation odyssey we've been through. Do you think this White House was too antagonistic toward business? Remember, the corporate sector has been highly profitable over this period. So if we call them out for keeping and not passing savings along to consumers — or if this president finally won a decades-long fight with Big Pharma — that is a source of immense pride. No shame in our game there at all. Donald Trump convinced enough working-class Americans, across all demographics, that he's in their corner. How did that happen to your party, which says it still sees itself as a party for workers? The short answer is I don't know. I'm still an economist, not a political pundit. I've been intensely upset about that development. You may have heard us say, "We get up every day and try to realize the president's vision of helping the working class." That sounds like a typical political talking point, but it was basically our agenda for four years. And the idea that that went so unrecognized, perhaps because the price level ended up being so high when the election came along, is an intensely dissonant set of issues for me. You could argue that economists and economics reporters should have seen this frustration with the price level — rather than just inflation — coming from a mile away, but you all spent a lot of time touting falling inflation. Was that a mistake? I understand that disinflation is less satisfying to people when they want their old prices back. I get that, and I'm going to have to deal with that, but at the same time, I do not regret talking about the sharp disinflation, or the strong G.D.P. growth or the historically low unemployment rate. And, you know, the Trump administration is inheriting them in such a way that you'll probably start hearing about what a great economy this is in a matter of weeks. Chart of the week: Retailer dissonanceAs the holiday shopping season approaches, two of America's largest retailers are on very different trajectories.
Target's stock price dropped almost 20 percent this week after the company reported a sales and profit decline in the most recent quarter, despite the strong shopping seasons of back-to-school and Halloween. Walmart, which has a bigger grocery business and relies less on discretionary spending than Target, has seen its shares surge this year as it wins over value-conscious customers. We hope you've enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times. Thanks for reading! We'll see you Monday. We'd like your feedback. Please email thoughts and suggestions to dealbook@nytimes.com.
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Saturday, November 23, 2024
DealBook: Stock for sale by cabinet members
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