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By SAM SUTTON and KATE DAVIDSON
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There’s a non-zero chance that the U.S. will be hit with a constitutional crisis around the 2024 presidential election. Given how bad things are in Europe and across the globe, it might not mean much for the global financial system, according to AXA CEO Thomas Buberl.
“This extreme amount of stability that we’ve been used to, it’s just not there anymore,” Buberl said.
Even if a presidential candidate in the U.S. — presumably former President Donald Trump — convinced a handful of state officials to reverse the outcome of a legally held election; that would not prompt an exodus of institutional investment from the U.S, he added. There’s nowhere else to go.
The deterioration of Europe’s economy, an increasingly isolationist China and political upheaval across governments from the U.K. to Italy have made it difficult to envision a scenario in which “the U.S. dollar and U.S. financial system would significantly lose [out],” said Buberl, whose firm manages roughly $1 trillion of assets.
“It’s a question of relative cleanliness as opposed to absolute cleanliness,” he added.
AXA CEO Thomas Buberl says a U.S. constitutional crisis around the 2024 election might not mean much for the global financial system. | Thibault Camus/AP Photo
The AXA CEO’s comments — which he delivered at a breakfast briefing in New York on Monday alongside Eurasia Group President and co-founder Ian Bremmer — paint a bleak picture of how financial institutions are navigating the growing threats posed by the destabilization of once-steady global institutions. Climate change, growing cybersecurity risks and worsening economic conditions have provided a steady supply of kindling to the social unrest that’s thrown the future of some Western democracies into question.
“It turns out you have boom and bust cycles in geopolitics too,” Bremmer said. Given the scope of current challenges, “institutions are too inadequate for the existing balance of power and priorities to function well.”
That’s one reason why global financial institutions are starting to handicap the odds of the U.S. political system fracturing over the next election. The ascension of state officials who’ve bought Trump’s claims about election fraud will make that scenario much more likely, Bremmer said.
“The likelihood of a constitutional crisis has gone up [over the last six months]. Maybe it was 2 percent before; now it’s five to 10,” Bremmer said. And while institutional investors would likely stay stateside in the near-term, “five years after a constitutional crisis like that, [the] market trajectory for the United States will be different.”
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FHFA U.S. home price index released at 9 a.m. … Consumer confidence index released at 10 a.m.
LUETKEMEYER’S NEXT MOVE — Rep. Blaine Luetkemeyer will forego a run as chair of the Small Business Committee if the GOP wins back the House and will instead seek a subcommittee gavel on Financial Services, the Missouri Republican tells our Zach Warmbrodt.
Luetkemeyer is one of the most influential House Republicans on banking issues, having served as the top Republican on the financial institutions subcommittee for several years. House GOP rules generally limit conference members to one chairmanship, and so Luetkemeyer would have to seek a waiver to lead Small Business — where he is currently ranking member — and another subcommittee.
“I thought it would be a better way for me to utilize my background and experience,” he says.
Another news nugget: Luetkemeyer says he expects Rep. Patrick McHenry to restructure subcommittee jurisdictions if the North Carolina Republican takes over as chair of the full Financial Services committee. “Whatever assignment he has for me I’ll be excited to take on,” Luetkemeyer says.
HERE COMES GARY — Our Declan Harty: “SEC Chair Gary Gensler signaled Monday that the agency will crack down on dominant exchanges, market makers and asset managers in stocks, cryptocurrency and other financial products in the name of boosting industry competition. Gensler said in remarks to a Securities Industry and Financial Markets Association conference that ‘we must remain vigilant to areas where concentration and potential economic rents have built up, or may do so in the future.’”
SEC-UNION STANDOFF ESCALATES — Also from Declan: A clash between SEC Chair Gary Gensler and the union representing much of the Wall Street regulator’s staff is heading to the Federal Service Impasses Panel, which handles standoffs between agencies and their employees, the union wrote on its website Sunday. The two sides spent much of last week in mediation talks that wound up falling through, according to the union, which has been trying for months to come to terms with the SEC on a new collective bargaining agreement and how to return to the office.
STOP TRYING TO MAKE ‘TAX CUTS’ HAPPEN — Former U.K. Prime Minister Liz Truss was right to defend her vision for a high-growth economy, says Michael Strain, director of economic policy studies at the American Enterprise Institute. The big mistake was focusing too much on individual income tax cuts.
“And ahead of the midterm elections in the US, the Republicans risk making the same error,” Strain wrote in an FT op-ed Monday. “Tax cuts are not as important today as they were four decades ago, when rates of taxation were much higher and more damaging to the economy.”
GREEN SHOOTS — From Sam: Treasury Secretary Janet Yellen on Monday said she was exploring how the administration could develop standards for voluntary carbon markets as part of broader efforts to address climate change … Any voluntary carbon market would need to have “appropriate guardrails,” she added.
TO THAT END — Our Hannah Brenton: “The EU’s top financial authorities warned Monday that ‘green’ financial products may be mis-sold to consumers despite a raft of European legislation intended to settle what counts as environmentally friendly investments.”
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GLOBAL HEADWINDS — WSJ’s Paul Hannon and Austen Hufford: “Fresh economic data pointed to a slowdown in U.S. and global growth, as higher prices and interest rates weigh on consumer demand, Europe enters a critical phase of its economic conflict with Russia, and China faces headwinds. U.S. and European business activity fell in October, according to new surveys released Monday. A sharp slowdown in services activity, the biggest driver of the world’s largest economy, led the U.S. decline.”
HOUSING TURMOIL — Our Katy O’Donnell: “Fannie Mae and Freddie Mac will eliminate upfront fees for some first-time homebuyers and loans, the Federal Housing Finance Agency announced Monday, as rising interest rates batter the housing market and exacerbate a long-building affordability crisis.”
THIS TIME, BUILDERS ARE READY — WSJ’s Nicole Friedman: “During the earlier housing downturn, which was triggered in part by the collapse of the subprime-mortgage market, about half of all home builders disappeared. Home builders that lived through that said they learned some hard lessons, and that the current slowdown won’t lead to another industry implosion.”
BAD OMEN — Bloomberg’s Martine Paris: “Would a championship win for the Philadelphia Phillies be a good thing for the nation’s economy? The only times the team has won has been in the midst of economic chaos: the financial crisis of 2008 and the recession in the early 1980s. Prior to that, the Athletics, a former Philadelphia baseball team, won during the stock-market crash of 1929 and the Great Depression of 1930.”
Tony Fratto is joining Goldman Sachs as partner and global head of corporate communications. Fratto is a partner at Hamilton Place Strategies — now known as Penta Group — which he founded in 2009 after working as deputy White House press secretary and assistant Treasury secretary for public affairs during the George W. Bush administration.
Infighting at JPMorgan Chase over how to manage the fortune of retired baseball star Alex Rodriguez has escalated into a two-year battle within the bank, involving prominent personalities such as pop sensation Jennifer Lopez and author Malcolm Gladwell, as well as chief executive Jamie Dimon. — FT’s Joshua Franklin
The cost of insuring Britain’s debt against default fell to its lowest since last month’s “mini budget”, according to data from S&P Global Market Intelligence on Monday, after Rishi Sunak won the race to become Britain’s next prime minister. — Reuters’ Amanda Cooper
Banks are selectively raising interest rates on deposits following the Federal Reserve’s steep rate increases this year. — WSJ’s Rachel Louise Ensign
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