FSC, Wesley, Grasso Jude Wanniski September 18, 2003

Our nation`s capital is totally shut down, awaiting Isabel, but enough news has leaked out to send the DJIA up another bunch today. From the Senate of the Hill, Sen. Chuck Grassley of the Finance Committee announced he and ranking Democrat Max Baucus have agreed on legislation that would cut the corporate tax rate on manufacturers by 3%. The legislation could not survive in this form, as it would have to somehow differentiate between corporations that "manufacture" and those that do not. But it now is becoming clear that legislation may emerge from both House and Senate that can reach compromise in a conference committee, perhaps this year, but certainly after the first of the year. The Grassley-Baucus bill has a three-year phase-in period and so might a compromise that comes out of the House Ways & Means Committee. The World Trade Organization (WTO) would balk, insisting export subsidies by the Foreign Sales Corporation (FSC) end within a year. Congress will be in a position to get the WTO to back down, especially now that the world trade organization has lost considerable prestige with the failure of the negotiations at Cancun between developed and underdeveloped nations. The Grassley-Baucus bill would cost $92 billion over a decade, while an end to the FSC only frees up $50 billion. Grassley says there is no chance the Senate would approve any bill that does not pay for itself, and the gap will be closed by closing corporate loopholes and adding user fees. But if the House produces a compromise between Chairman Bill Thomas of Ways & Means and ranking Democrat Charlie Rangel, a conference committee probably would permit at least enough dynamic analysis -- feedback from economic growth -- to make unnecessary any loophole closing or user fees.

As a note on General Wesley Clark`s entrance to the Democratic presidential field, it is clear that his way was cleared by former President Clinton and Senator Hillary, with Charlie Rangel the interlocutor. Remember it was Rangel who with former New Jersey Sen. Bob Torricelli midwifed Hillary`s Senate campaign. Even before Clark announced, Rangel was all over the tube singing his praises. Clark does have decent credentials, but my guess is that this opens the option for Hillary to join the ticket if Clark takes the nomination. As long as there is speculation that he is the "Clinton-Gore" candidate, he should have no difficulty raising money. He will not lack for staff support, as he has been quietly lining up Clinton-Gore folks in the last few months. Would Hillary be satisfied with Veep? Of course she would. It is a much nicer spot than the Senate, where the seniors could care less if she was First Lady. She is still a freshman senator. Will this all come to pass? My guess is that Clark will not have the experience to cut off Howard Dean at the pass. If Dean can win Iowa and New Hampshire, even with Clark coming in to pull some anti-war votes from him, the Clark candidacy might do more damage to the other hopefuls in South Carolina and the other early primary states, where the black vote counts for much more than it does in Iowa and New Hampshire. If Clark falls flat with the voters, which is a big possibility given the fact that he is no General Eisenhower, it would take him out of the running for the second spot on the ticket. Dean would look around for an alternative and play the VP card the way it traditionally has been played, giving several contenders the idea that if they help him get the nomination, they will get the nod.

P.S.: See my "Memo on the Margin" today on Richard Grasso, entitled "Goodbye Grasso!" And one more word on Grasso from a seasoned Wall Streeter, a longtime Poly client: "One aspect of his incompetence that, at best, has been overlooked, or, most often and worse, praised, is his 9/11 performance. The fact that it took an entire week to get the exchange reopened was scandalous, and reflected the complete lack of backup systems of any kind. Beneath that, it showed total incomprehension of the fact that the trading of stocks had become (or at least was rapidly becoming) essentially electronic and did not require a physical location at all, and that the floor traders, specialists, and indeed all the members were dying dinosaurs.  In fact there is no remaining reason for "membership" other than the regulatory need to know who the players are so someone can keep an eye on them. I guess the historic hagiography of the venerable exchange going back to the original buttonwood tree continues to blind most observers."

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