COMMENTARY | House Minority Leader Eric Cantor made it known today that tax loopholes would now be allowed consideration in the debt ceiling negotiations. According to the Associated Press, the statement was a break from his former position that they only be considered in an exhaustive overhaul of the tax code. It is a slight break in what has become a deeply entrenched partisan-specific debate. But Rep. Cantor has a problem with conflict of interest with regard to the negotiations, something that was made public a week ago. So why hasn't he recused himself not only from the negotiations but from having anything to do with the debt ceiling talks and/or its subsequent vote?
Last week, Salon.com ran an article revealing that Rep. Cantor had up to about a $15,000 investment in ProShares Trust Ultrashort 20+ Year Treasury EFT, a fund that deals in "shorting" U.S. Treasury bonds. To explain: a "short" increases in worth when something fails. In this case: U.S. Treasury bonds. If the debt ceiling is not raised and the United States defaults on its loans, treasury bonds are likely to see increased market volatility and an assured drop in worth. If that were to happen, Cantor stands to make a lot of money on his investment.
Yet, the congressman is in negotiations with Vice President Joe Biden and others in what is supposed to be attempts at resolving the debt ceiling issue and keeping the government from shutting down, which could occur should a compromise not be reached by Aug. 2, the last day Treasury Secretary Timothy Geithner maintains he can keep juggling the government's bills in order to keep it running smoothly without defaulting on at least some of its debts.
Motley Fool investment writer Matt Koppenheffer told Salon that a static debt ceiling could see investors abandoning U.S. Treasuries. "Yields would rise, prices would fall, and the Proshares ETF should do very well. It would spike."
The fund has not risen thus far because most investors see a resolution in the debt ceiling crisis. But with both political parties virtually locked in stand-off positions and Cantor looking to gain financially from a resolution not being reached, his motives become suspect and questionably unethical.
"Cantor's involvement in the fund and negotiations is not ideal," Koppenheffer said. "I don't think someone negotiating the debt ceiling should be invested in this kind of an ultra-short. We can only guess how much he understands what's in his portfolio, but you'd think a politician would know better. It looks pretty bad."
But if Cantor's latest move looks as if he's willing to find compromise, that "we'll be glad to talk loopholes," it is actually more in keeping with repositioning. He suggests any tax loopholes closed should be used to pay for "tax cuts elsewhere." This would be a zero-sum game that actually accomplishes nothing with regard to increased revenues, which Democrats believe should be considered as part of the negotiations (and Republicans do not, calling loopholes and tax cut eliminations "tax increases").
In the end, getting nowhere in the negotiations could be what Cantor wants. It certainly would not hurt him financially. And according to Salon, there is no indication that Cantor has divested himself of his investment in ProShares Trust Ultrashort 20+ Year Treasury EFT, so a static debt ceiling and a government shutdown could be of benefit to the House Minority Leader.
So, again, why is Rep. Cantor part of the negotiations at all?
- Treasury Secretary Timothy Geithner
- Motley Fool investment writer
- Vice President Joe Biden