The Bishop and the Butterfly: Murder, Politics, and the End of the Jazz Age
    Michael Maiello's picture

    The Shutdown is Killing the Capital Markets

    So many of us are rightly worried about how long the Transportation Security Administration can keep pushing people through screening lines for free that, or how much food the federal government can inspect for safety for free, that we're just ignoring the huge work slowdown at the Securities and Exchange Commission.

    Bear with me, friends. If you have more important priorities than the SEC, I feel your pain.  However, if the SEC can't process regulatory filings, then companies can't go public.  If companies can't go public, that means they can't raise rounds of capital by selling stock. Many of these companies are owned by a combination of insiders, venture capitalists or private equity investors.  Going public is not only how those investors realize their returns, but how these companies pass from Series A-D rounds of funding in order to raise capital for their public phase of growth.

    Without asking anybody to cry for the fat cats and lucky entrepreneurs who are putting off their multimillion dollar paydays, I think we have to recognize that completely shutting down an avenue that companies use for capital raising is... bad for the economy.

    At the same time that companies cannot go public, investors cannot register new hedge funds, mutual funds, exchange traded funds, or business development companies.  So, we get no new issues and, at the same time, no new pools of capital to invest in new issues.  This, at the very least, slows the velocity of the economy.

    As with the missed wages of federal employees, the shutdown advocate's response can only be, "but the government won't be shut down forever and so these companies can all IPO later in the year."  But it's not a great answer for a few reasons:

    1. Some companies might need funding sooner rather than later. This is often the case with biotechnology companies (and don't get me started about slowdowns at the FDA).
    2. All of these companies can't IPO at once as there is finite demand for new issues. Shutting down the government compresses the IPO calendar.  Underwriting banks are going to have to make some decisions and some companies might never get their chance if the calendar is too compressed.
    3. Making the VCs and Private Equity firms wait longer hurts their returns since their ability to deliver for their investors relies on them earning the highest return in the shortest amount of time. That can hurt the whole funding model for emerging businesses and can also hurt the public and private pension funds invested in these vehicles.

    To end on a scarier note -- you also need the SEC to review and approve filings for issuing corporate bonds.  While many companies can get by with ultra short term commercial paper, companies that issue high yield bonds generally don't allow those bonds to mature -- they refinance them in order to maintain and extend liquidity.  Without an SEC around to facilitate that process, we could see companies crashing into a wall of liquidity that would make 2008 look like... well... 2008 without a functioning government.



    The effect is becoming massive, across so many sectors, and yes, it's frightening. Here's another example:

    and we are all in denial about that because like people living during a war on their soil, it seems like the only thing one can do is "keep calm and carry on". It's not so easy to do so if one of yours is having his/her financial life goals screwed up after risking everything to do it,  or is a victim of one of the crimes where the investigation is growing cold.

    So thanks for writing this up.

    Even if you are a died Norquist-kill-the-federal-government libertarian conservative, you shouldn't want your goals to happen this way, the cost of the chaos of people not knowing what rules are going to be is enormous. It becomes easier to believe this:


    This is why negotiating with Trump in "good faith" is an exercise in suicide. He has no intention of living up to anything, and if he can watch the world burn, he will - even if it *doesn't* make him a buck.

    Yep, Norquist always figured the rest of his apartment would still be there when he stepped out of the tub.

    Silberman should get the Twitter Pulitzer for exposing the dirty truth that Pelosi was secretly working for Putin when she cleverly manipulated Trump into the shutdown to destroy our great Republic. The patriotic Dems can wrap themselves in the flag and without irony start chanting 'Build The Wall' and 'Lock Her UP' to the cheers of all Americans.

    Schumer can escape a trail of tears when he turns on his harsh mistress and becomes the Savior of Wall Street ending this sinister shutdown plot and bask in the glory of a ticker-tape parade.

    Needs more Ann Coulter.

    Trump is such a punk that he didn’t bring up Mexico paying for the wall when he was face to face with the leader of Mexico. Now he backs down on his SCOTUS speech. What a coward.

    The fake POTUS imbecile, the staggeringly low IQ TeeVee shilling dotard, lives in a Fox and Friends parallel universe of dunces, reprobates, grifters, fawning imbeciles and slack-jawed yokels.  The Ice Queen has shorn his porn star coddled jewels. He is terrified that the slobbering pack of white wolves he has nurtured will tear him apart and gnaw on his bones as he inevitably fails to satiate their craving for blood that he himself, the stable genius,  has created.  

    I don't believe that shutting down the government to attempt to coerce the opposition to surrendering on policy to be an acceptable part of the democratic process. Therefore I'm on the record of opposing the democrats when they had a short lived shutdown to push for protections for Dreamers. Even though I support very liberal protections for Dreamers.

    If you see shutdowns as acceptable than you must give us some examples when a democratic shutdown is acceptable and when the republicans should surrender their policy objectives to end the shutdown. Otherwise your support is purely partisan and irrational. Your argument becomes nothing more than I want what I want when I want it and I don't care how I get it. That's the rational every two year old uses when ever parents say no.

    I agree with you, ocean-kat.  I’d support some measures to prevent shutdowns from happening (like, the previous budget just carries over) even though they create other perverse incentives. The people who run government have a responsibility to... keep government running. These shutdowns are obviously unfair to the workers, are economically dangerous and they violate the social contract that says that whine thought I might, it’s okay for the government to take taxes from me in exchange for all of the services it provides.

    A lot of people will not realize this until the planes stop flying, I guess.

    Agreed. I would be interested in legislation that did not permit tying isolated items to whether the rest of the government functioned or not.

    This taking of hostages has to stop.

    First they came for the venture capitalists, but I was not a VC, then they came for the hedge funds.....then the junk bond issuers...

    I know... I know... but... this is kind of how to break a finance system.

    And don't forget the poor investment banks who might miss their quarters when they don't get those sweet, sweet IPO fees!


    Watching America drown in the bile.


    Isn't it impossible that a deregulating, deficit exploding, Wall Street tax cutting, donor enriching, businessman led, government closing, cabal of lying race baiting Republican administration grifters and profiteers, could result in an economic downturn, or...collapse...

    ....when did it ever happen..??

    A.P.'s got him going down to rock bottom on the approval rating. Myself, I don't know if this happening is worth that, though. I think it will be a miracle if we don't get a recession in many areas with this as the trigger. I'm not just talking abstract, either, if it happens is going to hurt me badly personally at a very vulnerable time. I wish it weren't so. Doesn't do me any good to have everything all sort itself out 10 years down the road. The 800,000, most of them have already been hurt badly, they aren't going to go wild buying stuff much less houses if they ever do get made whole, they'll be paying all those interest fines and fees.

    On NPR just a little while ago, I heard talk of how the the IRS people got a mess of a backlog when and if they do get back, just in time for filing season, with a totally new tax code in effect. Imagine how that's going to effect the tax preparing industry. Just imagine dealing with any government workers if you've got something pressing once they get back. It's not going to be pretty....

    As Mike already pointed out...

    Trump economic adviser says zero percent growth possible due to shutdown


    Along the same lines of thought, GSA has not only been reduced to mopping a few floors but is running out of money to pay commercial landlords. Where are the bills to cover that action?

    People might not like it (I am not fond of the fact) but this is the scaffold of most building projects.

    Financing is not just about Wall Street.

    Everybody knows the stable genius knows more about security than.......

    You see a wall, it's like a wheel...duct tape...duct tape...bad hombres...

    I not surprised to find recent related analysis suggesting that he may not be able to retain attention span for an entire movie. Curating another reality from bits and pieces 24/7, that's our CIC

    but wait there's more


    Everyone knows how long it sometimes takes to make a left turn. It just makes sense for illegal immigrants to make that left turn as soon as they cross the border so if there's some trouble later it's all quick right turns. You can even make that right turn legally against the light.

    ocean-kat I see wrong turn into scanner made by 18-wheeler load of "cucumbers" @ Nogales port of entry the other day

    Wow, it took a union to talk some sense into Republicans? Cherish that thought.

    Wilbur Ross doesn't understand why furloughed federal workers need food banks

    Commerce secretary suggests they should be able to take out bridge loans

    @ Roll Call, Jan. 24

    That's insane.

    One, post financial crisis, traditional banks rarely even underwrite such loans.

    Two, Shouldn't the government pick up the interest payments on these loans, since the workers are being forced to pay them out?

    I guess one way to look at it is if the government guaranteed principal and interest payments on payday bridge loans to furloughed and unpaid government workers, it'd be a screaming buy for hedge funds.  Free money!


    Reminiscent of the troops improvising with taping ceramics to vehicles, in GW's Great Iraq Adventure, and asking for armored Humvees and Rummy saying "you go to war with the blah blah you have...." ... f the troops

    Marie Antoinette, is that you?

    You look awful.....

    The Prez just chimed in with a Wilbur Ross 'splainer cheeky

    i still think an underrated method of interviewing trump is just asking him to describe straightforward things or state basic facts

    — b-boy bouiebaisse (@jbouie) January 24, 2019 me thinking of the good ole days when someone like Geo. Bush Sr. could lose an election for not knowing the price of a gallon of milk or how supermarket scanners worked..and then I got to thinking of the flip side of that, how Wilbur might be thinking "hey, I thought Trump understood people like us, guess I was mistaken...."

    What's puzzling is why these federal workers don't just sell several hundred thousands of dollars of stock. That's what people like Ross do when they have a temporary cash flow problem.

    here ya go, an illustration for your meme:

    two people just wondering:

    and another thing:

    MAGA = Make America Go Away

    Criminy, CNN this evening, somebody leaked this for a reason, who the hell knows why:

    EXCLUSIVE: The White House is preparing a draft proclamation for President Trump to declare a national emergency along the southern border

    — CNN (@CNN) January 24, 2019

    Given that it was given to the arch enemy CNN, one would first think it's to hurt Trump, but then they are not big name reporters so maybe it was one of the little White House people to little reporters

    Democrat judges will block it so long that the country will be overrun with Guatemalan ISIS. Trump wants a win NOW! NATIONAL EMERGENCY !!

    PLUS people are going to love this great new plan to have MEXICO PAY FOR IT !!

    Good luck explaining to that judge why the caravan is a greater national emergency than shutting down the government for over a month, or why every other authority outside of government disagrees with the President's claim (almost said "assessment", but that's way too crime kind)

    There will be more homelessness, and that effect is going to be fairly long lasting as more and more landlords realize renewing a Section 8 contract is risky business with a government that has gotten into the habit of shutting down so often.What I am saying is that I venture that this effect will not fade after this shutdown ends, it will only end when the rental market in this country is not as crazy as it is now, because landlords can find full paying customers right now and don't need the gummint's checks:

    ‘It’s like the real-life Hunger Games in America:’ Shutdown threatens HUD’s protections for vulnerable

    By Tracy Jan, Jan. 23 @ WaPo

    [....] Diane Yentel, president and chief executive of the National Low Income Housing Coalition, said the lengthiest shutdown in history has prompted more landlords to reject housing vouchers as payment, as well as to refuse to renew the leases of tenants receiving government subsidies.

    “Really, why would they at this point?” Yentel said. “How can they count on the federal government to pay its bills or keep its commitments while the shutdown drags on?” [....]

    article has several anecdotals of subsidized lessees losing their apts., not just her comment. Hot tip to Wilbur Ross: landlords have mortgages to pay too, and since 2009 the banks are not that friendly with them. I think, er, that I read somewhere that the Trump and Kushner families used to know something about this whole racket, but they may have forgotten?

    Trump has backed down, is going with opening for 3 weeks, if you haven't checked the headlines.

    Still back to the theme of much damage is done, this story caught my eye. The backlog is not going to disappear in 3 weeks:

    At least 14,000 unpaid IRS workers did not show up for work as broad shutdown disruption hits tax agency, according to House aides

    By Jeff Stein and Danielle Paquette @, January 25 at 12:18 PM

    At least 14,000 unpaid workers in the Internal Revenue Service division that includes tax processing and call centers did not show up for work this week despite orders to do so, according to two House aides, posing a challenge to the Trump administration’s ability to minimize the damage from the government shutdown.

    The Trump administration ordered more than 30,000 employees back to work unpaid to prepare for tax filing season, which is set to begin next week. But of the 26,000 workers called back to the IRS division that includes the tax processing centers and call centers, about 9,000 workers could not be reached and about 5,000 more claimed a hardship exemption, IRS officials have told members of Congress, according to aides, who spoke on the condition of anonymity because they were not authorized to speak publicly about the numbers.

    These numbers are as of Tuesday, according to the House aides, and the rate of employees returning to work may have changed since then. The IRS announced on Jan. 15 it would begin calling back workers as fears mounted about the IRS’s ability to process tax returns [....]

    And personally, I think incredible major damage has been done that will affect all of us for many years. In that these jobs were always considered smart choices if you wanted stable employment. Since that "brand" has been ruined, we will all have to deal with less quality in federal employees long term. Short term, anyone who needs their help are going to have to deal with this situation

    Once furloughed workers begin returning to their jobs, managers across the federal bureaucracy will face the monumental task of helping people wade through an overwhelming backlog of work, perform without being overly distracted by questions about their future and grapple with the sudden uncertainty of once stable jobs.

    “These folks, I believe, are going to be returning to work both frightened and angry,” said Robert Tobias, director of business development for the Key Executive Leadership Programs at American University’s School of Public Affairs. “Angry that they’ve been made hostages and pawns in a fight over which they could have no control, and frightened about the future.”


    The furlough is terrible for workers -- even when they are back on the job

    By Jena McGregor @ WaPo, Jan. 25

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