Jim Himes’ Wall Street savvy puts him on top in debt ceiling crisis

Washington – As an expert on Wall Street and global markets, Rep. Jim Himes’ stock is rising as the nation lurches toward the brink of a fiscal cliff.

For weeks, Himes, a Democrat who represents Connecticut’s 4th Congressional District, has been issuing Cassandra-like warnings about the dire consequences of defaulting on the nation’s bills, a looming possibility if Congress can’t agree on a way to raise the debt ceiling by Oct. 17, a week from today.

Himes, 47, is also the point man on the debt ceiling crisis in the state’s congressional delegation, said Rep. Joe Courtney, D-2nd District.

“For a lot of members, the connection between the debt limit and financial markets is still a mystery,” Courtney said. “Jim’s grasp of how markets behave make him the ‘demystifier-in-chief.’”

Himes is a former Goldman Sachs vice president whose constituents include some of the most powerful people on Wall Street. He’s also a member of the House Financial Services Committee, where he sits on a panel that focuses on capital markets, his specialty. 

Gary Rose, head of the political science department at Sacred Heart University, characterized Himes as the “go-to” guy on financial issues “because of his expertise, and his constituents without a doubt are far more involved in the financial world than those of other (congressional) districts.”

“Since he was elected in 2008, he’s defined himself as a voice of authority,” Rose said. “He’s emerged as one of the key figures in financial issues, even though he’s only in his third term.”

The threat of a government default plays to Himes’ strengths. Born in Peru to American parents, he worked in Latin America as a financial analyst and head of Goldman Sach’s telecommunications technology group. He’s known for his deft use of social media and prolific Twitter feeds, which often comment on the nation’s economic pulse.

He tweeted this, a week after the government shutdown began:

“Just talked to a friend in the IPO world. IPOs being postponed by uncertainty and #GOPshutdown Lots of talk, market is starting to murmur.”

Himes, who lives in Greenwich, did not set out to be a Wall Street whiz kid. He attended Harvard, then earned a Rhodes Scholarship that enabled him to study at Oxford University in Great Britain, where he studied Latin America, focusing on impoverished El Salvador.

He abandoned Goldman Sachs after a dozen years to run a nonprofit in New York that creates affordable housing.

Himes said he made the change, he said, because “he had very young children that I never saw.”

He also made the change because he was working in the technology sector, and that industry had just crashed, prompting Goldman Sach to tell him to “find a different role” in the company.

“I put all those things together and decided (to change jobs),”  Himes said.

Eventually Himes drifted into politics.

He was elected to the House of Representatives in 2008 as the nation plunged into a recession led by the collapse of Wall Street and the housing bubble. He quickly made a name for himself through his ability to decipher complicated financial instruments like debt swaps, derivatives and hedge funds.

The Almanac of American Politics described Himes as “a former investment banker who puts his understanding of Wall Street to use on the Financial Services Committee as well as explaining its workings to colleagues.”

‘Financial Armaggedon’ 

Himes riled liberals in 2009 by backing legislation that would weaken a Senate proposal to regulate derivatives during debate on the Dodd-Frank bill (named, in part, for former Connecticut Sen. Chris Dodd) that aimed to reform the banking system.

Derivatives are securities whose price is dependent upon or derived from one or more underlying assets, such as stocks or bonds. Most derivatives are highly leveraged, and the financial meltdown of 2008 was largely a result of risky derivative trading.

Himes said he wanted to separate “good” derivatives from the “bad.” An example of a good derivative, Himes said, is the one a farmer enters into when he wants to lock in a price for his wheat and corn before he plants, as opposed to risky things like the subprime mortgages that helped crash the economy. But tougher derivative regulation proposed by the Senate prevailed.

Himes tried again this year to change the law concerning derivatives, a big issue for the hedge funds based in his district. He sponsored a bill that would have ended the Dodd-Frank requirement that banks spin off their trading desks of “less risky” derivatives, keeping the trading of these financial instruments in federally insured institutions.

But right now, he’s one of the most vocal critics of the GOP’s showdown with the White House and congressional Democrats over the debt ceiling.

“Republicans are throwing everything on the table, including the full faith and credit of the United States government,” Himes said.

He said the current government shutdown, the result of Congress’ inability to agree on a budget, is bad for people and the economy. But a federal default would be catastrophic.

“Today, global capital markets are expecting Congress will find a way out of this, and you can understand that expectation because, in years past, while it’s been messy, catastrophe has been averted,” he said.

But this time all bets are off, he said, and the nation is in danger of plunging back into recession, Himes said.

“The entire global financial market, and that’s a mouthful, but people need to understand that: It’s their 401Ks, their IRAs, interest rates which they pay on their mortgages or their credit card bills, all of that depends on the assumption that the United States Treasury is risk-free,” Himes said. “If the Republican majority in Congress forces a default, all of the sudden, it’s not risk-free anymore.”

The result, according to Himes, is “financial Armageddon.”

Interest rates would skyrocket and credit would dry up. Stocks, the makeup of most 401Ks and many IRAs, would plummet. The global economy would plunge into a recession, or even a depression.

Default “should be used like a nuclear bomb,” said financier Warren Buffett, “Too horrible to use.”

Himes: GOP behavior is ‘harebrained’

Congress has raised the debt ceiling 78 times since 1960, most of the time without much fanfare.

But lately the issue has become a political football.

The last time the nation nearly reached the fiscal cliff was a little more than two years ago, the result of weeks of wrangling between the White House, Democrats in Congress and GOP congressional leaders.

The result was an Aug. 2, 2011, agreement that raised the debt ceiling, and resulted in the across-the-board budget cuts called sequestration.

That 2011 fight spooked Wall Street and led to a downgrading by Standard & Poors of the nation’s creditworthiness, from AAA to AA+. Stocks plunged in value.

“The last time around, we got perilously close to the debt ceiling, and we watched what happened with the S& P downgrade and the hurt it caused, the pain it caused to our economy,” Himes said.

Now, because the nation continues to take in less than it spent, the federal government is forced to seek another hike in the debt ceiling,

Treasury Secretary Jack Lew has said his department will have exhausted the “extraordinary measures” it has taken to extend the U.S. government’s borrowing ability on Oct. 17. After that date, Lew says the Treasury Department will have just $30 billion in cash on hand, “far short of net expenditures on certain days, which can be as high as $60 billion.”

At as they had in 2011, House Republicans are seeking concessions to raise the debt ceiling, including a rollback of the Affordable Care Act and new budget cuts. Himes calls the GOP behavior “harebrained, reckless foolishness.”

Democrats, like Himes, say the debt ceiling, like a short-term budget bill that would reopen the government, should be free of conditions.

Yet some Republicans, especially those in the tea party branch, insist that the fuss over default is misplaced and that Democrats are fear mongering.

“Call me a skeptic,” said Rep. Steve King, R-Iowa. “We know (Oct. 17) is not a hard deadline.”

To King, the Treasury has already pushed back the date of default a couple of times this year and could probably do so again.  He also believes the Treasury has enough money in tax revenues to pay interest on the nation’s current debt and fund some operations – he mentioned the military and Social Security.

“We should not be talking about default,” King said.

To lawmakers like King, the growing federal budget deficit does more harm to the economy than failing to raise the deficit.

Meanwhile, Himes has not been above using the specter of default to raise campaign funds.

“For years, the full faith and credit of the U.S. government has been sacrosanct.” A recent fundraising letter said, “a great country pays its bills,” and listed the demands of “Republican Tea Partiers” in return for lifting the debt ceiling, including a rollback of the Affordable Care Act.

“Jim stands against radical ideologues every day,” the fundraising appeal said. “When Washington does sober up, it will be because of independent, thoughtful voices for good government like Jim’s.”

President Obama has floated the idea of a short-term debt ceiling hike, to give more time for a “grand bargain” that would also encompass a budget bill to end the government shutdown. This morning, House Speaker John Boehner, R-Ohio, floated the idea of  a six-week rise in the debt ceiling.

Republican leaders are also meeting with Obama at the  White House today to discuss the issue.

Himes said eventually moderate Democrats like himself will join moderate Republicans to end the government shutdown and the debt limit crisis.

“At the end of the day, the solution here will involve the pragmatic centers of the parties,“ he said. “At some point the only way Boehner gets passed this is to get moderate Republicans to work with moderate Democrats to get something done.”

Himes said he’s discussed the debt crisis with some Republicans “who understand this is very, very dangerous.”

Meanwhile, Himes said he’s hearing from worried constituents, and even Republicans in his district, who don’t want Congress to play chicken with the debt ceiling.

“Because my constituents are educated and thoughtful, they are saying, ‘stop screwing around with the full faith and credit of the United States government’,” Himes said.

 

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