Joe Biden Should Visit Glover Park, Henry Paulson Should Call Goldman Sachs

Some will view this lament as a Washington, D.C. thing, but Town Hall closed after fourteen years on Sunday. A long-time staple of D.C.’s Glover Park neighborhood, it’s the latest bar/restaurant in the area to shut its doors. Once regularly packed with customers, the creeping norm the last few years had been increasingly empty tables and unclaimed bar stools.  

So while it’s always dangerous to presume exact correlation, the economic fortunes of Glover Park’s businesses have visibly declined since the March 2017 shuttering of Whole Foods. Thanks to a lawsuit between the landlord and the grocery chain, Glover Park’s “anchor tenant” as it were has been inoperative. Whole Foods formerly pulled well-heeled customers into the area from all over Washington, D.C., but with a lawsuit that’s taken on interminable qualities having kept it closed for over 2 1/2 years, foot traffic in Glover Park has fallen.

And with the decline in foot traffic related to Whole Foods, so have receipts fallen for countless businesses not Whole Foods. No doubt bar and restaurant patrons are a particularly fickle lot, but it’s not unreasonable to suggest that Town Hall’s decision to close was made quite a bit easier by the shuttered nature of the formerly vibrant grocery store across the street.

Democratic presidential hopeful Joe Biden would be wise to walk Glover Park, and maybe visit a few of its businesses. What he would discover might cause him to tone down his rhetoric about how “Wall Street” didn’t build the United States, that "small business" and the “middle class” did build it. Blah, blah, blah.

Try that line in Glover right now. Other than a CVS (the Rite-Aid across the street closed a few months ago) and a Subway store that has been rumored to be on the verge of closure for years, the businesses that surrounded Whole Foods almost certainly never attracted the attention of Wall Street. But they benefited from Wall Street as though they were its clients. Figure that Whole Foods did and does rate the attention of the highest of high finance, this is particularly true in the aftermath of Amazon’s acquisition of the grocery chain, and it’s a reminder of a simple truth that is too often ignored: small businesses aren’t the backbone of the U.S. economy, rather they’re a consequence of the biggest, well-financed businesses that are.

Just as all shopping malls have anchor tenants whose existence makes possible the opening of myriad smaller businesses around them, so do business districts. In Glover Park, big and international Whole Foods was the lure for all manner of customers who, after coming into the neighborhood to shop there, would eat, drink, exercise and browse elsewhere.

It’s a long way of saying that Wall Street most certainly did build that. Its intrepid financing of big business creates substantial opportunity for the small businesses that locate near the big. Paraphrasing a line about residential real estate, for small business it's all about "proximity, proximity, proximity" to the very large. That benefit frequently disappears when the big aren’t operating.

So while Biden would be wise to walk Glover Park for an economic lesson, former Treasury Secretary and Goldman Sachs CEO Henry Paulson would be wise to call the investment bank he formerly ran. It seems Paulson has forgotten the truth about investment. In particular, this formerly great investment banker has forgotten that capital flows reflect investor sentiment about the future. If “catastrophic economic losses” are in the offing as Paulson asserts in a recent Financial Times op-ed, this would show up in a collapsing investment environment. Yet there’s no evidence from Goldman, or any other Wall Street bank, that capital allocation is in major decline.

In Paulson’s case, he ties a looming ecological and economic collapse to a big decline in the global bird population. Remarkable and sad about this is that Paulson cites Rachel Carson, author of Silent Spring, as the person who predicted the loss of birds “more than half a century ago.” What Paulson conveniently leaves out is that to allegedly protect the bird population, Carson called for a ban of the pesticide DDT. She got her wish. The ban killed millions of human beings, and did so without saving the bird population as Paulson himself weirdly acknowledges. 

Paulson claims that collapsing bird counts in the U.S. and Canada “read like Black Monday in the stock market,” plus he cites an OECD study that estimates “the global economic costs of biodiversity loss to be on the scale of $10tn-$31tn a year.” As Paulson goes on to write, “We are fast approaching a tipping point of irreversible loss to naturally functioning ecosystems that will cause catastrophic – and frustratingly avoidable – economic losses at an enormous global scale.”

Can he really believe this? Implicit in Paulson’s alarmism is that Goldman Sachs and its world-leading clients aren’t just oblivious, they’re quite simply blind. Figure that Goldman is the world’s ultimate price giver by making markets in all manner of currencies, commodities and public shares, not to mention the many great companies (public and privaate) that its brilliant investment bankers finance. If the world were on the verge of eco and economic collapse as Paulson warms, wouldn’t Goldman’s traders, portfolio managers and investment bankers be feverishly moving precious capital to safer uses? And if they're oblivious, wouldn’t market prices reflect what they don't see?

Sorry, but wise as Paulson surely was in his financier past, it’s unlikely that he’s privy to bad news that markets haven’t already priced. Translated, his alarmism insults the firm he once led, its employees, and their top-drawer clients. And it insults markets themselves.

What’s known to be awful, good or in between is actively being priced. Which means Paulson has overreacted by a mile. Indeed, while it’s possible he sees something that the markets don’t, it’s unlikely. Thank goodness. As a consequence, maybe millions more won’t die in a repeat of the hysteria from over fifty years ago that set the stage for Paulson’s.