‘Fiscal cliff’ warning: Senators urge financial industry not to sit on sidelines
By Dina ElBoghdady,
NEW YORK — Two key senators told the financial community on Tuesday that the industry’s engagement is critical if the country is to avoid the “fiscal cliff,” a series of automatic tax hikes and spending cuts that are scheduled to take effect in January.
Sens. Mark R. Warner (D-Va.) and Saxby Chambliss (R-Ga.), both central players in a bipartisan effort to avert the cliff, said the industry cannot sit back as it did last year when an ugly political battle unfolded over raising the federal debt limit.
“One of the reasons I’m more optimistic is I think the business community writ large is engaged” this time, Warner told the audience gathered for a New York conference hosted by the Securities Industry and Financial Markets Association (SIFMA).
Chambliss said he expects a “tough political slugfest” between Thanksgiving and Christmas as Congress and the administration race to beat the end-of-year deadline in an environment that will be politically charged no matter who wins the White House.
“I don’t want you to underestimate your influence or underestimate the fact that we need you involved in the process,” Chambliss told the crowd.
The two lawmakers are part of the original “Gang of Six,” a bipartisan band of senators who tried to reach agreement on a deficit-cutting plan. But that effort stalled last year.
Their group, which has since expanded to eight members, reconvened this month, though it is unclear how much influence it can yield in the coming showdown.
Without congressional action, nearly all U.S. households will be hit with significantly higher taxes next year, the nation’s domestic and military budgets will be dramatically chopped and analysts say the country will probably be pushed into another recession.
While many in the industry are alarmed about the political fight that is brewing, they find it hard to believe that Congress or the administration would risk busting the deadline and plunging into recession, said Ken Bentsen, an executive vice president at SIFMA.
“There’s a consensus view that it’s so irresponsible to not have a short-term fix at the very least that everybody assumes it won’t happen,” Bentsen said.
Many speakers speculated about what that short-term fix might look like.
Brian Gardner, a senior vice president at Keefe Bruyette & Woods, said that if President Obama loses the election, he will most likely come under pressure from Democrats to give in to whatever deal Republican challenger Mitt Romney and his GOP allies favor.
Centrist Senate Democrats will have more seats to defend in the 2014 elections, some in Republican-friendly states, Gardner said. If they do not rally behind the new administration’s plan, it will get implemented anyway, he said.
“So why not get some of the political benefits” of supporting the deal, Gardner said.
A plan is likely to gel before year’s end no matter who wins, most likely postponing action for another year, said Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School.
“Even if Obama wins, he doesn’t want to start his second administration with a recession,” Siegel said.
But Warner and Chambliss agreed that putting off big decisions is futile.
“If we kick it down the road for another 12 months, as some people have suggested, I guarantee this time next year we’ll be in the same position we’re in right now,” Chambliss said.