By Howard Hill

Lobbyists: The Best Risk Arbitrage Your Money Can Buy

January 3, 2013 3:10 pm Category: Memo Pad, Politics 19 Comments A+ / A-
Lobbyists: The Best Risk Arbitrage Your Money Can Buy

When I began investing decades ago, one of the earliest versions of hedge fund strategies was to simultaneously buy the stock of a “target” company in a takeover and sell the stock in the company that was doing the purchase.

They call it “risk arbitrage,” where the risk is that the announced deal might not happen.  While not nearly as profitable on a percentage basis as guessing ahead of time which company will be taken over, it nearly always works.

There was a profit to be made as long as the deal got completed, something that usually happened and usually resulted in a 10 percent or higher return in a couple of months.

Today I saw evidence of the modern version — making political contributions to “freshmen” politicos to help them retire campaign debt.  How cool is that?  Lobbyists who seldom make political contributions to challengers can endear themselves to the winner after the election, yet before they get sworn in.  The lobbyists can put their money to work on newcomers without having to take the large risk that they’ll lose to the incumbents.

This brings to mind a book topic I’ve been trying to figure out how to research.

The premise of the book is that, for the largest companies, no matter what business they’re in, the single highest return on investment they can make is spending money on lobbyists.

The steady increase in pay for lobbyists right through the recession that crushed almost every other profession’s payscale should give us a clue.  So should the steadily increasing cost of elections.

And then there’s the massive difference between the supposedly high corporate tax rate (35 percent) in America and the actual amount paid by US corporations (roughly 15 percent).  When GE earns multiple billions but pays zero in corporate income tax, you can see that they are getting a massive return on the millions they spend with lobbyists and politicos.

Or look at Wall Street and the banks.  After engineering the collapse that crushed savers and borrowers alike, they made out like bandits.  They even got their pet politicians to turn to them to “help” write the regulations to fix the problem.  How much is that worth?  It sure beats the profit margins in taking in deposits and lending to people or small businesses, right?

Just to be clear, the return on political investments isn’t limited to the big national issues, either.  In fact, much smaller contributions to state legislators can be an even better percentage return.  Does anyone doubt that a thousand dollars contributed to a state legislator in a relatively small state gets that lawmaker’s attention?  Throw in a “force multiplier” like the legislative language clearinghouse called ALEC, and a five-figure investment can return tens of millions in profit.

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Lobbyists: The Best Risk Arbitrage Your Money Can Buy Reviewed by on . When I began investing decades ago, one of the earliest versions of hedge fund strategies was to simultaneously buy the stock of a "target" company in a takeove When I began investing decades ago, one of the earliest versions of hedge fund strategies was to simultaneously buy the stock of a "target" company in a takeove Rating:

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Comments

  • Progressive Patriot

    Where do you think all the money goes to when they continuously cut worker pay? CEO’s, Lobbyists, and off shore accounts!
    Very bad for democracy! Campaign finance reform! Move to Amend!

  • prosenwald

    Very good piece and right on (forgive me) the money.

    It has become all about money. What has happened to those other values we grew up thinking were important? Like the common good? Like honesty? Like sharing?

    We seem to be living an endless reality show, more absurd than the wildest ideas of Hollywood.

    Do we really need to fall off the cultural cliff before we wake up and change direction?

    I hope not.

  • http://www.facebook.com/dominick.vila.1 Dominick Vila

    This strategy has been working very well for the oil companies, insurance companies, the agri-business, and people like Dick Cheney and the Koch brothers. No wonder they hate President Obama’s regulations so much! They are longing for a return to the good ole days of sole source contracts, the days when ENRON, AIG and Bernie Madoff we able to do their thing unchallenged. They want freedom…to rip off the populace and the country with impunity.

    • sigrid28

      Our local “Democratic Central Committee” president admitted to being taken in at first by ALEC, and still acts like he has to hold his nose to include minority Democrats at his invitation only meetings. This has nothing to do with big money and everything to do with bigotry. The same can be said for the Republican secretary of state in Iowa, who is pushing for voter I.D. legislation “to prevent fraud.” Nothing surprises me anymore, here or in Washington. The level of corruption on Main Street as well as Wall Street is astonishing, but not incomprehensible. I just wish there were something I could do about it.

      I AM disappointed that the OFA and Barack Obama websites just keep asking me for contributions and do not open up the volunteer call center, which many of us would be happy to serve by calling anywhere on earth in support of a living wage, the cause of women’s and children’s health, measures to curtail gun violence, prison reform, civil rights, fill in the blank __________________________________________

  • http://www.facebook.com/people/Daniel-Jones/827014412 Daniel Jones

    If we don’t pop and cauterise the lobbying pustule, this country is doomed.

  • http://www.facebook.com/people/Daniel-Jones/827014412 Daniel Jones

    You ever hear of the “bubbles”, housing, net businesses, etc.?

    America has a lobbying pustule, and the infection nis killing us.

    We *have* to pop it and cauterize the fucker.

  • montanabill

    Alternatively, you can become a useful stooge for the President. You can go on national TV and announce that you aren’t paying enough in taxes and that tax increases need to be passed. Meanwhile, you get your new friend to help you with a little back tax problem you have. Then, go on TV again and talk about not paying enough in taxes again, all the while making sure that you, yourself will never have to pay those increases for others you are touting. Since you have been so helpful, the President will see to it that there will be big tax benefits for public transportation. Fortunately, you own railroads. Life is good.

    • http://profile.yahoo.com/QCYL4OYHXBJ4UKIU45VOA623IQ Dan

      If you are referring to Warren Buffet having any sort of a back tax problem you are either stupid or just don’t know what the hell you say when it comes out of your pie hole.

      • montanabill

        www dot huffingtonpost dot com/2011/08/29/warren-buffett-taxes-berkshire-hathaway_n_941099.html

        Do I get a third choice?

        • Sand_Cat

          Yeah. You could go write your trash on another site.

          • montanabill

            Just providing a less than ‘far right’ site for you to get your news, unless you like being a low information voter.

    • jarheadgene

      Sounds like what the Koch Bros had planned with their hopeful election of Romney. Not to worry they will “grease” some wheels again….they just have to pick the right horse. First person that runs, without a party, is incorruptable and doesn’t take lobby money or party money and pledges to give Americans back the rights we all “used” to have, before Al Queda successfully manipulated Cheney and his lackie GW, Gonzales and others into stripping us of so many rights and adding, torture of prisoners, to our agenda, gets my vote……Oh wait I must dreaming. Both Parties stink to the high heavens, are filled with graft and really could care less about America….well one party care less than the other….but not by much.

      • Sand_Cat

        Was that the right “horse” you meant, or the right “whores”?

      • montanabill

        jarhead, it sounds like you might be old enough to remember when you could do something as simple as put a .22 on your handle bars, petal to the edge of town and go rabbit hunting, or sell lemonade on your street corner without a permit or work for some company as a teenager without them fearing they would be violating child labor laws or wearing a scout uniform (usually just a shirt) without being sneered at, or play baseball/basketball/football on a vacant lot without adults, or call a doctor who knew you. Much has been lost in America, and most of it because of well intended people who simply won’t let other people live their own lives, make their own mistakes and work their own way out of difficulty. When such was the case, we had much stronger people.

        • jarheadgene

          Yes, and there were after school fights on occasion, where two guys duked it out in a “marquesss of queensberry rules” fight and shook hands in the end, sometimes becoming best of friends after. No lawsuits, or lawyers, or guns or knives just a fair fight with lots of other kids to monitor and keep it clean. Not that those days did not have their bad as well as the good. Remember those were pre-Civil Rights laws. The first house I ever owned I bought in the mid 80’s for over $250K and I found it interesting reading the deed and seeing the stamp invalidating the community rules that a minority could not live in that neighborhood, and were only allowed to stay overnight for extended periods unless it was as a household servant. As I am a minority, who spent his school years in the suburbs I ran across the Romney rich kid bully types. I only had to kick a few of their asses and then my rep was made…..”Don’t mess with that guy, as long as you are cool to him, he is cool with you,” was what my peers would say. But being the recepient of prejudices, based on skin tone alone, gives one a different view of the world. To me the “Leave it Beaver” and “Opie Taylor” days only existed on TV. Both Parties suck and have been whittling away at our freedoms since GHW Bush. I remember his Presidency being the first that started reversing freedoms and his son and Cheney dwarfed his actions regarding freedoms. Ironic isn’t it, One of THE BIGGEST COWARDS of American History, Dick Cheney has been at the forefront of stripping Americans and POWs of their rights, as he hides behind the Secret Service and their protection. He is such a coward he won’t set foot in Canada. I don’t always agree with you Bill, but I will defend, to the death, your right to voice your opinion. I know the rhetoric got pretty mean and nasty this last election cycle, but we ALL need to find some common ground, or we are ALL doomed. And we musn’t let an elite handful of extremely financially wealthy dictate what that common ground should be.

          • montanabill

            Where I grew up there were no minorities, except for a few months a year when migrant workers came through. I did have a native Hawaiian for a room mate my first go round in college. I didn’t meet my first black until I was 21 and had moved to Denver. We got along great and I never really understood until many years later why there was ever a problem. Even today, over half my golfing buddies are black, cuban and chinese. You have to venture into the highly segregated areas before attitudes change. I am very well off, but I live in a non-gated middle class neighborhood, very mixed. I could live anywhere I want, but life is more real here.

            I’m sure you’ve had your share of prejudicial idiots. I got a pretty good taste of that with Obama demonizing those who ‘weren’t paying their fair share’, lumping every business owner into hedge fund manager territory and cheaters who made good only by doing people in. I came from poverty. Lived most of my life as a lower middle class and middle class wage earner at a variety of careers. I became wealthy only after I got tired of working for others and took the gamble. (Actually, it took more than one gamble.) You’ve got to have a wife who is willing to take the risk and live with long hours, the struggles and the bad times. Mine’s a peach!

    • Sand_Cat

      Being a useful stooge – like a useful idiot – may be better than being a useless stooge for Faux news and the extreme right such as you.

      • montanabill

        Am I to gather from your seeming familiarity with Fox News, that you watch it?

  • quasm

    Mr. Hill;

    Spot on! A good example is the lobbyist initiated Family and Business Tax Cut Certainty Act, whose language Pres. Obama insisted be inserted in Title II of the fiscal cliff act. This pays off the president’s supporters, i.e. General Electric, Hollywood, the green energy industry and etc. with taxpayer’s cash.

    Dik Thurston
    Colorado Springs

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