There’s a little tidbit in the NY Times story about Heidi Cruz. Most people ignored it, but I work in the same industry and it made me laugh.
As she built a network of clients, she found politics to be an icebreaker and her husband a willing partner at dinners with prospective investors. She would call on him to “help make the ask,” she said on a panel at Claremont McKenna in 2011. (Mrs. Cruz told The Times, though, that she believed in a “separation of church and state” between business and politics and did not ask her clients to donate to the campaigns.)
Mrs. Cruz’s disavowal that she raised funds from clients would close the discussion for most people. But it shouldn’t really, if we remember four things:
- Separation of church and state is supposed to work both ways.
- How Heidi Cruz was compensated at Goldman.
- Ted Cruz’s Senate campaign was financed by margin loans using their assets (including earnings from Goldman) as collateral.
- While Heidi Cruz was climbing the ranks and pitching to clients at Goldman, her husband was Solicitor General for Texas (2003-2008) and elected to the Senate in 2012 (a few days after the election, she made MD).
Let’s start with what Heidi Cruz does for Goldman Sachs. Before she went on an unpaid leave, she ran “wealth management” for the South-West region at Goldman. Her job is to get wealthy individuals and families to put money in a Goldman brokerage account. In many ways, the job is similar to fund-raising. She’s trying to convince people to hand over a chunk of money for Goldman to manage. A big chunk, since Goldman has a hard $10 million minimum per relationship. As you can imagine, most of the clients are either owners or senior executives at corporations (they probably hire GS’s corporate advisory arm for their companies).
Part of the pitch is getting wealthy investors to believe they’ll be making a profitable investment if they place money in a brokerage account at Goldman. The campaign isn’t shy about saying this is very similar to fund-raising for her husband’s campaign, which is what makes her their top fund-raiser. (Follow on question no “journalist” is ever going to ask: So what’s the return investors expect on a campaign contribution?)
For the privilege of brokerage advice from Goldman, clients pay between 0.50% and 1.00% a year of invested assets as a fee. That’s a minimum of 50k, possibly much more. And a portion of the revenue from her clients goes directly to Heidi Cruz. At other American firms, a US-based wealth-manager would receive 45-60% of client revenue as pay. Goldman has a different, looser compensation system, but the number in the end looks pretty similar (if it didn’t they’d lose people to the firm across the street). By the way, Heidi Cruz is a “plain-vanilla” MD, not a partner-MD.
The territory she runs covers Texas, Oklahoma, Louisiana, Arkansas, Mississippi, Colorado and New Mexico. It’s not a stretch to suggest that most of her clients would like to be in the good graces of the Texas Solicitor General, or a future Senator/President. And what better way than to open an account with his wife. Probably didn’t hurt that she worked for the Bush administration. Hey, that’s how Texas politics is, remember LBJ’s long association with Brown and Root (later KBR, now part of Halliburton).
It all makes the fuss over Marco Rubio’s wife working for a donor’s charity and being paid $54,000 a year seem somewhat ridiculous. Clearly Ted and Heidi have a better business model.
As CNN explained ,Heidi Cruz can’t hit up her Goldman colleagues for contributions:
She isn't allowed to actively solicit money from her co-workers at Goldman, but advisers say those specific relationships matter less than do her fluency with the language of business and her work ethic that leaves even other aides in awe.
But that didn’t stop her colleagues and Goldman’s PAC from being the second largest contributors to Ted Cruz’s Senate bid.
Incidentally, I’m blasé about the loan from Goldman, it sounds like a standard margin loan. She’s probably required to keep her own accounts at Goldman. And it would be foolish not to, clients want to hear that you eat your own cooking.
The real story is this. Ted Cruz funded his campaign with loans against his wife’s account at Goldman. The account held her earnings at Goldman, which came from clients he would “help make the ask” with.
So Ted Cruz is very vulnerable to the charge that he’s part of the revolving door between corporations and business. Though in his case, there’s a division of responsibilities between him and his spouse. Fortune magazine calls this the “wives of Wall Street” model for politicians.
Hey, it’s a dog eat dog world, and everyone’s looking for an edge to get ahead. But let’s be honest, Ted Cruz knows how this system works for Goldman and for many of their clients:
Earlier this year, when asked about the political clout of Goldman Sachs in particular, he replied, “Like many other players on Wall Street and big business, they seek out and get special favors from government.”
And it’s the same story all over the world. JP Morgan works very hard to hire and retain the sons and daughters of Chinese politicians and corporate execs.