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Eric Cantor on left chats with President Obama in November 2010. Image courtesy White House
Reports surfaced this week that Republican House Majority Leader Eric Cantor may be invested in a fund that takes a leveraged short position benefiting from price declines in U.S. Treasury obligations. This type of fund would almost certainly appreciate in the event of a bond crash, the kind which some economists fear would unfold if the U.S. debt ceiling is not increased:
Last year the Wall Street Journal reported that Cantor, the No. 2 Republican in the House, had between $1,000 and $15,000 invested ... The fund aggressively "shorts" long-term U.S. Treasury bonds, meaning that it performs well when U.S. debt is undesirable.
This is probably not quite as diabolical as it sounds, but there is an important lesson here. A generic, diversified, one-million dollar stock and bond portfolio managed by an experienced financial adviser might have $50,000 spread across several of these type of investments, often referred to as non-correlated assets. Reason being, even if stocks and bonds get clobbered, the non-correlated asset[s] can appreciate dramatically, thus shoring up losses in stocks and bonds during bad markets. If Cantor has an investment portfolio with similar qualities, $15,000 in a non-correlated asset class wouldn't represent a financial incentive to destroy the U.S. economy. It would be like burning down a million dollar mansion to collect 100 grand in fire insurance.
But this is a great opportunity to remind White House budget negotiators that people with significant investment portfolios, like most conservative senior members of the U.S. legislature and those who donate generously to them, have to have a debt deal to safely stay rich. The idea the GOP is negotiating from a position of terminal strength may make great Fox News clips and fire up the base. The notion they're so batshit crazy they'll annihilate themselves and their billionaire political sponsors might serve the tactical purpose of trying to spook Democrats into signing a crappy debt ceiling deal. But every GOP lawmaker knows perfectly well they're not going to risk their own life savings, and they know they'll be ordered to crawl over broken glass if that's what it takes to protect every last dollar in the very deep pockets of their conservative sugar daddies.
Originally posted to Daily Kos on Thu Jun 30, 2011 at 06:00 PM PDT.