Is the Fed making inequality worse?Credit…Stefani Reynolds for The New York Times
Engine of division
As stock markets set new highs, Karen Petrou is mad about monetary policy. Ms. Petrou, co-founder and managing partner of Federal Financial Analytics, a Washington-based consultancy, got so angry that she wrote a book about it, “Engine of Inequality: The Fed and the Future of Wealth in America.” In it, she draws a direct connection between the Federal Reserve’s decisions and the rich getting richer, with others struggling to get by.
“My book shows monetary policy makes the mess and can clean it up,” Ms. Petrou told DealBook. “The Fed makes markets bulletproof and sets rates so low that the only way to make money is in stocks.” In 2020, it doubled down on that approach in response to the pandemic downturn, “so the financial system got more bulletproof,” she said. The wealthiest 1 percent of Americans own more than half of all stocks, she noted, so a rich few grew even wealthier this past year. As she described it in the book:
Monetary policymakers have traditionally denied any role in driving inequality, Ms. Petrou said. But in 2016, she presented her thesis to central bankers and was surprised to find heads nodding. Evidence of the growing wealth divide, accelerated by policies meant to stabilize the economy after the 2008 financial crisis, seemed to make officials more inclined to listen. But her theory has been bolstered, again, by a year of market ebullience fueled by Fed policy, she said. (That has also prompted the Fed to think more expansively about its mission.) The stimulus was intended to stabilize the economy in a time of crisis, but has benefited the wealthiest most of all, widening the divide.
“If the Fed takes the punch bowl away, slowly and carefully, there will be a small cost to the markets,” Ms. Petrou said, capturing the debate many investors are having about how long the central bank can — or should — keep the gas pedal down. Since inequality undermines economic growth, and markets have had a long bullish run, “shared turbulence” is worth it for shared prosperity, she said. Improvements in education policy may manifest in broader wealth gains over 10 years, Ms. Petrou suggested, but monetary policy takes effect rapidly — as the pandemic has shown — so “changes will not just be constructive, but significant and fast.”
HERE’S WHAT’S HAPPENING
President Biden says all adult Americans should be eligible for Covid vaccines by May 1. He delivered the news in his first prime-time address, hours after he signed the $1.9 trillion relief bill into law. Lawmakers are already discussing another big spending bill, on infrastructure, which could come this summer.
Airlines and other hard-hit businesses got $65 billion from the stimulus bill. As a result, American Airlines and United told 27,000 employees that they could ignore the furlough notices they had received.
A renewed rally pushes stocks to record highs. The S&P 500 set a new record, as investors stopped worrying about inflation and focused on a brighter economic outlook. Tech stocks pared some of their recent losses, but the bullishness is centered on old-economy stocks that could benefit most from a post-pandemic reopening.
The New York State Assembly is opening an impeachment inquiry into Gov. Andrew Cuomo. The lawmakers will investigate sexual harassment claims and the handling of virus-related deaths at nursing homes. And the Albany Police Department said yesterday that it was notified about an alleged groping incident involving Mr. Cuomo and a female aide that may have risen “to the level of a crime.”
Christie’s auctioned off a digital image for $69 million, with a crypto twist. The price for the piece by the artist known as Beeple set a record for digital arka and came with a nonfungible token, or NFT, to give proof of authenticity and ownership using blockchain technology.
Why Vista’s investors shrugged
Robert F. Smith, the billionaire founder of Vista Equity Partners, paid $139 million in October to settle one of the biggest tax evasion cases in American history. In response, “his investors barely blinked,” The Times’s Matthew Goldstein reports in an account with new details of the situation.
The episode highlights a reality of the financial world: returns matter most. A recent Vista marketing document reviewed by The Times showed the firm generated an annual rate of return of 31 percent, higher than most private equity benchmarks — to say nothing of the low-yielding bonds where pensions and endowments park most of their cash.
Vista was quick to alert investors. Mr. Smith learned that he was a subject of a criminal tax investigation in the summer of 2016, and a few months later Vista began providing updates to investors on the federal inquiry, The Times has learned. Although the full scope of Mr. Smith’s actions weren’t clear until later, the disclosures and insistence that it was a “personal tax matter” seemed to keep Vista’s investors on side. (That approach contrasts with the more severe fallout at Apollo from co-founder Leon Black’s dealings with Jeffrey Epstein.)
That said, Vista was less forthcoming with potential new investors. When the New Mexico Educational Retirement Board was negotiating a $100 million investment a year ago, the tax investigation never came up. The pension fund canceled its plans a few months later when news broke that Mr. Smith could face serious charges.
The institutions that have benefited from Mr. Smith’s philanthropy are also standing by him. These include Carnegie Hall, where he is chairman, and Morehouse College,where Mr. Smith paid off the student loan debt of the 2019 graduating class. (As part of his settlement, Mr. Smith agreed to forgo claims he made on his tax returns for $182 million in charitable deductions.)
A month after his settlement, Mr. Smith appeared on a panel at a DealBook event and addressed the case (here’s the görüntü clip). “I made right with the government,” he said. “I’m absolutely committed to continuing my important work, my philanthropy, returns to all the stakeholders.”
“My experience with Roblox is that one time I looked at my Apple receipt and saw that my 9-year-old had made over $1,000 in purchases in Roblox. She hadn’t realized it was real money.”
— Mehrsa Baradaran, a UC Irvine law professor (and likely nominee to lead the Office of the Comptroller of Currency), on the day of the video-game company’s I.P.O.
In the papers
Some of the academic research that caught our eye this week, summarized in one sentence:
The bad things about mining Bitcoin — like emissions from vast energy consumption — get worse when the cryptocurrency’s price rises. (Alex de Vries)
How “a relatively simple algorithm” could automate antitrust screening, making it easier for regulators to spot wrongdoing. (Giovanna Massarotto and Ashwin Ittoo)
The greater the share of a C.E.O.’s political donations to Republicans, the lower the share of women in that company’s executive suite. (Alma Cohen, Moshe Hazan and David Weiss)
Slack adds to its criminal justice initiative
In 2018, Slack launched a six-month apprenticeship program to help formerly incarcerated people find skilled jobs and address the shortage of engineers in the U.S. Today, seven new companies are joining the initiative.
The program now has 11 corporate partners. The new companies include Affirm, Checkr, GoodRx, American Family Insurance and Lob. They join others like Dropbox, Zoom and Square. This year, 21 apprentices will start the program, receiving financial support, mentorship and services to help them re-enter society. (It will operate remotely during the pandemic.) Last year’s apprentices at Slack and Zoom are all now full-time employees.
Slack’s program is one of a growing number of criminal justice initiatives in corporate America, as DealBook recently reported.
All about Coupang, the ‘Amazon of South Korea’
Coupang made its market debut on the New York Stock Exchange yesterday, raising $4.6 billion in a monster I.P.O. that was the largest haul for an Asian company in the U.S. since Alibaba in 2014. Its shares closed the day up 40 percent, giving it a market cap of about $85 billion. DealBook spoke with Bom Suk Kim, who founded Coupang in 2010, about its path to profitability, potential acquisitions and why he said no to SPACs.
“We’re unique, not only in Korea, but globally,” Mr. Kim said. The company claims that 70 percent of South Koreans live within seven miles of one of its distribution centers. Customers who belong to its membership program can return a product by leaving it outside their door, without a box or return label. Coupang has also launched a meal-delivery service and a video-streaming app. Sales almost doubled last year to $12 billion, but the company still loses money. Mr. Kim declined to say when it might make a profit, but said the company is “self-funding” and would be “aggressive with reinvestments.”
Coupang is “laser-focused” on South Korea, said Mr. Kim, with no short-term plans to grow outside the country. It will consider acquisitions, though Mr. Kim said it has no specific plans in the works. (Some analysts have speculated that Coupang might buy eBay’s e-commerce subsidiaries in South Korea.) “We’re not in the business of just acquiring to build volume,” he said.
Coupang opted against going public by merging with a SPAC. “There were a number of people that spoke with us, but we really felt strongly that this was the right path for us,” Mr. Kim said. When asked why, Mr. Kim noted that a traditional I.P.O. brought Coupang “some amazing long-term investors.”
THE SPEED READ
Grab, the ride-hailing app popular in Southeast Asia, is reportedly in talks to go public by merging with a SPAC in a deal that could value it at $40 billion. (WSJ)
Verizon raised $25 billion in bonds, its second entry in the 10 largest corporate issues on record. (MarketWatch)
Politics and policy
President Biden announced four senior hires at the Treasury Department. (NYT)
The S.E.C. warned investors to be wary of celebrity-endorsed SPACs. (S.E.C.)
“Germany’s Main Opposition Became an Anti-Lockdown Party. It Didn’t Work.” (Times Opinion)
Netflix is testing a new feature to crack down on password sharing. (CNN)
Qualcomm is reportedly struggling to meet demand for smartphone chips. (Reuters)
Best of the rest
Jeffrey Epstein’s Upper East Side mansion sold for $51 million, which will go to a fund for the disgraced financier’s sexual abuse victims. (NYT)
Despite scarce public appearances in recent months, the logs for Jack Ma’s private jet show that the Alibaba chief has been crisscrossing China. (FT)
Will people play as much golf and tennis after the pandemic is over? (NYT)
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