DealBook Briefing: Capitalists Fear a Socialist Revolt

DealBook Briefing: Capitalists Fear a Socialist Revolt

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Good Thursday morning. This weekend, I’m headed to Omaha to ask Warren Buffett and Charlie Munger questions at Berkshire Hathaway’s annual meeting. If you have questions you’d like to suggest, please email them to me. (Was this email forwarded to you? Sign up here.)

“What’s really coming is class warfare”

As billionaires and business leaders congregated in Los Angeles for the Milken Institute’s annual global conference this week, many shared a concern: a coming backlash against capitalism.

With democratic socialism ascendant and presidential candidates talking about raising taxes on the rich, Ray Dalio of Bridgewater Associates and Jamie Dimon of JPMorgan Chase have both recently said they believed capitalism needs to be reformed if it is to survive.

That message came through loud and clear at the conference:

• “The disparity in wealth is so extreme, it’s feeding populism,” Scott Minerd, the chief investment officer of Guggenheim Partners, said in an interview with Bloomberg at the event.

• “If you have a population where there’s a large wealth gap and you have an economic downturn, it’s almost reliably there is conflict,” Mr. Dalio noted, according to Bloomberg.

• “What’s really coming is class warfare,” Alan Schwartz of Guggenheim Partners said, according to the FT.

Others championed capitalism. “I’m concerned with this notion that somehow socialism’s going to creep back in, because capitalism is the source of our collective wealth as a country,” Eric Schmidt, the former executive chairman of Alphabet, said according to the FT. “It’s working,” he added.

One thing unified the crowd: Margaret Thatcher. A video of the former British prime minister lauding capitalism drew the “biggest applause” of the event, the FT writes.


Today’s DealBook Briefing was written by Andrew Ross Sorkin and Michael J. de la Merced in New York, and Jamie Condliffe in London.


What else the F.T.C. might ask of Facebook

News last week that Facebook expected to be fined up to $5 billion by the Federal Trade Commission over privacy violations was met with disdain by many because it didn’t go far enough. New details suggest that the F.T.C.’s settlement could also require the social network to adopt a new corporate governance structure, Cecilia Kang of the NYT writes.

• “Facebook has agreed to create a privacy committee to protect its users’ data, as well as an external assessor who would be appointed by the company and F.T.C.,” two unidentified sources told the NYT.

• “The social network will also appoint a head compliance officer — who could be its chief executive, Mark Zuckerberg — to oversee privacy efforts, one of the people said.”

The final settlement will be an indicator of how aggressively the U.S. plans to regulate tech. Facebook has said that it is still talking to the F.T.C., so things could change.

But critics will probably want more. Some have demanded that Mr. Zuckerberg be held liable for the company’s privacy violations, while others want the F.T.C. to curb Facebook’s ability to share data with partners and make it tell users when and how data is collected. None of that is present in the settlement, according to the sources.

The Fed held steady. Markets wobbled.

The Federal Reserve left interest rates unchanged on Wednesday — and the markets didn’t like it, Jeanna Smialek of the NYT reports.

The Fed became newly cautious earlier this year. It had raised rates nine times since 2015 in response to a strengthening economy. But as economic growth has wavered and inflation has fallen further below a 2 percent target, it has been leaving rates alone.

Its cautious approach continued yesterday. The Fed’s chairman, Jerome Powell, said that he did not “see a strong case for moving in either direction.”

“Risks have moderated somewhat,” he added. “Our outlook, and my outlook, is a positive one, is a healthy one, for the U.S. economy for the rest of this year.”

That puts the Fed at odds with President Trump again. On Tuesday, Mr. Trump urged the Fed to cut rates, saying the U.S. economy would “go up like a rocket.”

And stock markets fell. Many investors had begun to expect a rate cut later in the year.

The Fed may need to develop a better feel for the markets, Mohamed A. El-Erian of Bloomberg Opinion argues. “Absent a better understanding,” he writes, “the Fed risks undue volatility that could be costly to economic well-being.”

Morgan Stanley and the admissions scandal

Morgan Stanley has fired a financial adviser who was accused of introducing a Chinese family to the businessman accused of arranging bribes to get children into top colleges.

The family is said to have paid $6.5 million to the businessman, Rick Singer, to help a daughter get into Stanford in 2017, according to the WSJ. The adviser accused of introducing them is Michael Wu.

Mr. Singer was on Morgan Stanley’s list of service providers that advisers could refer clients to until 2015. But individual advisers appear to have stayed in touch later.

Morgan Stanley fired Mr. Wu for not cooperating with its inquiry, according to the WSJ and FT. But federal prosecutors haven’t charged anyone from the family in question.

More: Fear is stalking L.A.’s elite as more parents there come under investigation.

The F.A.A. examines Boeing’s South Carolina plant

The Federal Aviation Authority is taking a close look at the South Carolina factory that produces many of Boeing’s Dreamliner jets, after suggestions of manufacturing errors that threaten to compromise safety, Natalie Kitroeff of the NYT writes.

The South Carolina plant has suffered from sloppy manufacturing, current and former employees told the NYT. A stray bolt was discovered in an engine, and a plane went out for test flights with a ladder left in the tail.

The regulator has imposed a high level of oversight at the plant, according to an internal memo reviewed by the NYT. It “has forced employees to take extra steps to demonstrate that they are complying with federal regulations.” Inspectors are visiting “every other week.”

“There are ‘several open compliance and enforcement cases’ regarding debris being left inside aircraft and keeping track of tools in the factory,” Ms. Kitroeff writes. Such issues are “a problem across all sites” at Boeing, according to the F.A.A. memo.

Barclays faces a showdown on strategy

Shareholders in Barclays are scheduled to vote today on whether to put the hedge fund manager Edward Bramson on the bank’s board. That could decide whether the British lender can pursue its global ambitions, Margot Patrick of the WSJ writes.

• The vision of Jes Staley, Barclays’s C.E.O., is to create “a compact version of JPMorgan Chase & Co. — the bank where he spent more than three decades of his career.”

• But Mr. Bramson’s firm “argued that in the post-financial-crisis world only the biggest American banks are in a position to offer the full suite of investment-banking products.”

• “By refusing to retreat, Mr. Staley is going against the grain in Europe. Stock valuations rose at UBS Group and Credit Suisse Group after they decided to narrow their focus several years ago.”

• “The struggle over the soul of Barclays has been going on since U.K. financial markets deregulated in the 1980s, fueling the ambitions of British banks to be global players in securities trading and corporate advice.”

How Remington went bankrupt

Remington, one of America’s biggest gun makers, filed for Chapter 11 bankruptcy protection while owned by the private equity firm Cerberus Capital Management. Jesse Barron of the NYT Magazine blames financial engineering gone bad:

• Cerberus bought Remington in 2007, during the private equity boom. It took on hundreds of millions of dollars in debt to do so, and made Remington acquire other gun makers, like AAC.

• Cerberus created a holding company that technically owned Remington and held the debt taken on to buy the gun businesses. But in 2012, Cerberus had Remington borrow hundreds of millions to buy the holding company’s debt, “effectively transferring responsibility for the principal and the interest payments onto Remington.”

• “The private-equity firm had made back its initial investment and was playing with house money. Remington owed hundreds of millions that it hadn’t borrowed. And its workers, urgently, had to make a lot of guns.”

• But in 2016, Cerberus researchers saw a drop in federal background checks for gun purchases, which foreshadowed a plunge in gun sales. “Remington’s profit slid toward zero. The debt, meanwhile, was racing upward.”

• “In 2017 the market was choked with surplus product, and Trump’s Second Amendment enthusiasm was dousing any hope of a panic buy.”

• Remington finally filed for bankruptcy last year, but because the company — and not Cerberus — was responsible for its debt, the gun maker would be held accountable for its obligations.

Revolving door

Walt Disney extended the contract of its movie studio chairman, Alan Horn, and gave him the additional title of chief creative officer. It also promoted Alan Bergman to co-chairman of the unit.

Morgan Stanley rehired Michele Colocci, a health care banker, from JPMorgan Chase. He will focus on “key clients” from the London office.

The speed read


• Andreessen Horowitz has reportedly closed two new funds: a $750 million early-stage fund and a $2 billion later-stage fund. (Axios)

• The Meredith media group is said to be exploring a sale of its U.S. TV stations. (Reuters)

• The vegetarian burger company Beyond Meat priced its I.P.O. at $25 per share, the top of its anticipated range, for a valuation around $1.5 billion. (Reuters)

• The e-cigarette maker NJOY is pursuing funding that would value it at up to $5 billion, just three years after filing for bankruptcy protection. (WSJ)

• The U.S. education groups McGraw-Hill and Cengage are planning an all-stock merger. (Reuters)

• The cannabis company Curaleaf plans to buy its rival Select, which would create the world’s largest pot company by revenue. (Reuters)

Politics and policy

• Attorney General William Barr defended himself at a Senate hearing yesterday against criticism of his handling of the special counsel’s Russia investigation. Here are highlights. Mr. Barr said he would skip a House hearing today. (NYT)

• James Comey, the former F.B.I. director, explains how he thinks President Trump co-opts leaders like Mr. Barr. (NYT Op-Ed)

• A lawyer with ties to prominent Democratic politicians in New Jersey helped companies win millions of dollars in state tax breaks. (NYT)

• Prime Minister Theresa May is reportedly considering keeping Britain inside the E.U. customs union if it will persuade the opposition Labour Party to vote for her Brexit deal. (FT)


• The U.S. and China ended “productive” trade talks in Beijing, having reportedly made progress on discussions to end some tariffs. Unidentified sources said that a final deal is “possible” by next Friday. (Reuters, CNBC)


• Qualcomm is expected to receive at least $4.5 billion from its patent settlement with Apple. (WSJ)

• Prime Minister Theresa May fired her defense secretary, Gavin Williamson, blaming him for a leak that suggested Britain would use Huawei 5G hardware. (NYT)

• Super Micro Computer, the U.S. server maker that became embroiled in a spy chip scandal last fall, told its suppliers to stop using Chinese hardware. (Nikkei Asian Review)

• Amazon dismissed the idea that robots would soon replace its warehouse workers. But machines are hiring and firing such workers. (Reuters, WSJ)

• The family of a driver who died in a Model X is suing Tesla, saying its Autopilot software steered him into a concrete barrier. (Bloomberg)

• An investor group has called for Uber to remove John Thain, the former Merrill Lynch chief executive, from its board. (FT)

Best of the rest

• Need a good U.S. job, but don’t have a college degree? Here’s where to look. (NYT)

• Nielsen ratings now cover L.G.B.T. households. (NYT)

• Julian Assange, the WikiLeaks founder, was sentenced to 50 weeks in British prison for jumping bail seven years ago. (NYT)

• A deep dive into how Commerzbank and Deutsche Bank failed to merge. (FT)

• Inside “the ruthless, secretive, and sometimes seedy world of hedge fund private investigators.” (Institutional Investor)

Thanks for reading! We’ll see you tomorrow.

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