I believe the Greek Debt problem will resurface and the unraveling of the European banking system is not out of the realm of re-occurring. The financial debt problems of several European nations remain and those pigeons have yet to land.
Meanwhile, Obama's incompetent handling of our own economy, the passage of restrictive legislation and the impact of same will surely lead to inflation and has created a debt overhang that has stunted our recovery. Obama's stimulus program was a flop and his foreign policy initiatives have been ineffective. His rhetoric has been soaring but his accomplishments have fallen far short.
Consequently, I believe all of the above - Obama's continued failures - has made it easier for candidates of lesser talent and qualifications, than the job of president requires, to believe they have what it takes to right the nation's ship of state.
I am not taking credit away from Trump's personal accomplishments, Gingrich's fertile mind and ability to articulate and reduce difficult subjects into understandable down to earth explanations, nor Bachmann's obvious talents and achievements. Even Palin, once you get past her twangy voice, has a proven record of accomplishments that exceeds anything Biden, for instance, can point to, and for that matter, even Obama.
The fact that progressives are threatened by these lesser talents and feel compelled to demonize them is further evidence of our nation's leadership vacuum and their own ineptness. By attacking them The Far Left and their media minions build up their importance. Ignoring them would seem more effective but in politics every adversary seems to become a giant inflated enemy.
Romney and Daniels probably are among the most talented Republican candidates when measured by serious accomplishments but Romney's health care bill is simply 'Obamascare' at the state level and Daniels lacks charisma - a necessary ingredient when marketing the Oval Office. Neither shoot hoops nor hop onto stages to make banal speeches.
The more enormous the problem, one would think, the greater demand for stature but Obama's election has set the standard so very low that lesser beings see themselves as capable of fence jumping and that seems to be where we are at in our history.
"When all else fails lower your standards."
As I noted in a previous memo I am reading "Reflections." The likes of Washington, Madison, Hamilton, Jefferson, Monroe etc. were true patriots who were able to draft our Constitution which they all deemed inadequate but the alternatives were far more frightening. So they debated, did the best they could under the circumstances and provided for any flaws to be rectified through amendments. When we have adhered to the intent of our Constitution it has served us well and when we have strayed we have paid its many dire consequences.
When a nation debases its currency, as we have, the ultimate decline in that nation has proven to be an historical fact. Ayn Rand's "Atlas Shrugged" has finally been made into a trilogy and I went this past weekend to see the first effort. It took a free spirited capitalist to make Rand's prophetic movie about the decline of a nation which chose to go down the road of Socialism in the mistaken 'hope' that 'change' and fairness would give everyone a better chance at progress. In "Atlas Shrugged" the creative became cast as greedy and were made to sacrifice their 'ill gotten gains' on the altar of 'fairness.' Sound familiar?
Hayek also warned us in "The Road To Serfdom" but few have chosen to read it and even fewer adhere to its stark message - Socialism leads to moral bankruptcy.
Progressives have treated our nation to a constant meal of 'cruel gruel.' They have sold us a bill of goods which we no longer can afford and will never redeem unless we try and inflate our way out or simply bankrupt on our obligations.
If Obama was not born in America then he is an illegitimate president according to our Constitution. If he was born in America his policies and goals are anathema to our nation's welfare and therefore, comparably and politically equally illegitimate.
Obama is within sight of accomplishing his 'coup de grace' - the bringing down of America as an exceptional comet that has flashed across the milky way for over 200 years.
It might prove easier to break a nation than voter habits. Re-elect him at our peril.
What investment guru Jeff Clark is writing: "I hate referring to the "flash crash." Too many people do it, and it seems a bit inflammatory to keep saying one indicator or another is signaling another dangerous market event. But this one is staring us in the face and begging to be noticed.
The action in the Volatility Index (or "VIX") is eerily similar to what happened last year – just before the flash crash.
The VIX is a measure of fear in the market. It's used as a contrary indicator. So when the VIX is low, it signals investor complacency and warns traders that sentiment is too bullish. When the VIX is high, it indicates traders are fearful and we may have a buying opportunity."
Bernanke is finding out, at our expense, he might not be able to have it both ways.
(See 1 below.)
Is a not so subtle shift beginning to move the stable tectonic plates that have undergirded our nation? (See 2 and 2a below.)
My friend, Bret Stephens gives Will and Kate a sort of back hand congratulation and well wish but more emphatically, though knowingly not intended, supports the case Melanie Phillips makes about the Brits in "The World Turned Upside Down." (See 3 below.)
Yes ,Arabs are killing each other because Israel has not ceded land for peace or is it peace for land - whatever. (See 4 below.)
When those 'greedy Wall Street' types were throwing money at Obama they were considered enlightened by the White House. Now many are beginning to switch their allegiance and cash feeling betrayed. Determined self interest is a human characteristic and seems to be the driving force behind their 'hedging' actions. (See 5 below.)
1)Bernanke's Inflation Paradox
The Fed said it wanted higher prices. Voila!
The Federal Reserve's Open Market Committee meets again today, and we suppose congratulations of a sort are in order. Last September, the committee declared that it wanted prices to rise more rapidly, and on that score it has succeeded. The question now is whether the Fed's success in promoting inflation is undermining the economic recovery it claims to be supporting.
This is the paradox of exceptionally easy monetary policy, and rarely has it been as obvious as it is today. The Fed has flooded the world with dollar liquidity that by its reckoning has lifted stock and other asset prices, eliminated the risk of deflation (if such a risk really existed), and prevented a double-dip recession. Wall Street and the White House are delighted.
On the other hand, this dollar flood has also contributed to a boom in commodity prices around the world, spurred inflation in countries with links to the dollar, and prompted investors to seek returns in non-dollar assets that are often risky and in many cases will prove to be a misallocation of capital. All of this, in turn, has reduced growth in real incomes, undermined consumer confidence and raised doubts about the durability of the recovery. The American middle class doesn't feel any richer.
Call this the price of putting all of your economic expansion hopes in Ben Bernanke's monetary basket.
The Fed Chairman still sees only the bright side, much as he did during the Fed's previous easy money binge in 2003-2005. "I think the increase in inflation will be transitory," Mr. Bernanke said earlier this month in Stone Mountain, Georgia, blaming high oil and food prices on "global supply and demand conditions." The Fed's sages assure us that the "core" rate of inflation that doesn't include food and energy is rising slowly, and that the oil problem will dissipate. As for inflation in the rest of the world, Mr. Bernanke says that's not his problem.
But it is already proving to be ours. Rising prices for raw materials and components are starting to flow through to U.S. goods. Kimberly-Clark, the consumer products maker, reported a sharp profit fall yesterday on rising costs and announced plans to raise prices on most of its North American products. Do Kleenex and Huggies qualify as core price increases?
The nearby chart shows the monthly increases in producer prices for finished goods since the Fed announced its second round of "quantitative easing" (QE2) last year.
The press is busy speculating about if and how the Fed will extricate itself from QE2, which clearly matters. But the larger problem is America's overreliance on the Fed as the driver of economic growth. With the failure of their stimulus spending plans, prominent Keynesian economists and pundits in particular have been flogging the Fed to do more. They seem to think Mr. Bernanke must save the dimming reputation of Obamanomics.
But the Fed has already kept interest rates close to zero for 28 months, purchased mortgage-backed securities and Treasurys at unprecedented levels, and blown out its balance sheet to $2.7 trillion. America hasn't run a monetary policy this loose in modern history. It was possible to justify such extreme measures at the height of the financial panic, but by now the recovery is nearly two years old. The expansion may be mediocre, but at least the economy is growing.
We too want faster economic growth, but the keys to that are fiscal and other reforms that would reverse the policies of the last four years. Much lower spending and tax reform, freer trade, fewer new regulations, an end to foreclosure mitigation and banker harassment, and repealing ObamaCare's job-killing taxes and mandates, among others.
Meanwhile, the longer the Fed keeps the dollar flood going, the greater the risks of serious economic harm. We aren't prescient enough to know what form that damage will take, but the danger signs are everywhere. In China, truckers are on strike to protest rising fees from that country's inflation. In the Middle East, food price increases add to the sense of injustice driving political protests.
And around the world, investors reach for investments—gold, silver, Iowa farmland, emerging market stocks—to hedge against the decline in the value of dollar assets or to bet on booming commodity prices. This dollar flood can't last forever, and when it stops the reckoning could be—for many it will be—harsh.
As for Mr. Bernanke's confidence that inflation will be transitory, we hope he's right. But we also recall his confidence in May 2007 when he declared that "Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited." We know how that turned out.
2) Knave and Spalding
A law firm drops a politically incorrect case.
Is it now so politically incorrect to oppose gay marriage that a white shoe law firm will throw over a client rather than defend a law signed by President Bill Clinton? Apparently so, after yesterday's show of invertebrate representation by King and Spalding, the giant Atlanta-based law firm.
King and Spalding dropped the House of Representatives as a client yesterday only days after agreeing to argue for the House in defending the constitutionality of the 1996 Defense of Marriage Act, or Doma. The jilting prompted the firm's lead attorney in the case, former U.S. Solicitor General Paul Clement, to resign from the firm in what we would call principled protest.
In a letter to King and Spalding Chairman Robert Hays, Mr. Clement explained that he felt obliged to resign out of a "firmly-held belief that a representation should not be abandoned because the client's legal position is extremely unpopular in certain quarters. Defending unpopular positions is what lawyers do."
At least there's some honor among lawyers, if not at the top of King and Spalding. In his statement yesterday, Mr. Hays resorted to some spin that the firm had failed in properly "vetting" the House "engagement." But Mr. Clement's letter says "I would have never undertaken this matter unless I believed I had the full backing of the firm."
It's hard to believe such a prominent firm wasn't aware of the high profile of the House case. Speaker John Boehner had convened a bipartisan group to seek counsel to defend Doma after the White House reversed itself and said the Justice Department wouldn't do so. The House group reached out to several firms and chose King and Spalding last week.
The likely story here is that King and Spalding began to fear a political backlash after activists at the Human Rights Campaign launched a campaign to "educate" (read: intimidate) the firm's clients about "King and Spalding's decision to promote discrimination." Clients include Coca-Cola and other Fortune 500 giants that prefer to avoid hot-button social issues.
That's fair enough, but once a firm takes on a client it is the firmest of legal obligations to see a case through save for a clear conflict of interest. To drop a case under political pressure is especially unethical. Imagine the outcry if a firm of similar standing stopped defending Guantanamo detainees?
Whatever one thinks of Doma, it passed both houses of Congress with huge majorities, and Vice President Joe Biden was among 85 Senators who voted "aye." The law defines marriage as between a man and a woman and says states aren't obliged to honor gay marriages recognized in other states.
Social mores have changed in 15 years, but not so much that gay marriage should be imposed by judicial fiat in a way that further inflames the culture war. The Human Rights Campaign has every right to challenge Doma in court, but it does itself no honor by trying to deny that same right to Doma's supporters by harassing their legal counsel. As for King and Spalding, better not turn your back on its lawyers in a firefight.
The military is invited back on campus.
After Congress repealed the "don't ask, don't tell" policy for gays in the military late last year, one lingering question was whether it would be enough for America's leading universities to invite ROTC back to campus. Most elite schools expelled the Reserve Officers Training Corps amid the agonies of Vietnam, though the ban persisted under the aegis of nondiscrimination. Would another ideological academic cause take its place?
Well, we're delighted to report that ROTC seems to be returning nationwide.
On Friday, Columbia University announced that it would officially rerecognize ROTC, with president Lee Bollinger and Navy Secretary Ray Mabus issuing a joint statement about strengthening "the relationship between our military and civil society." The decision is notable in particular because of Columbia's deep ties to the armed services in the World War II era—Eisenhower once ran the joint—that the university repudiated in 1969 to appease the student and faculty activists who stormed academic buildings.
In March, Harvard also renewed its formal connection to ROTC after four decades of exile, and next month Yale professors will vote on a resolution to reopen its gates to ROTC after a favorable recommendation from a faculty panel. An ad hoc committee at Stanford unanimously supported the same conclusion last week, while uniform-gown relations are even thawing at Brown.
The Ivy League's estrangement from the Pentagon hasn't prevented ROTC from recruiting and training on other campuses, mostly in the South and Midwest, but the recent turn is an important institutional moment. The values of a liberal education are supposed to prepare future leaders—not merely in all fields except national defense—and rebuilding their ties to ROTC is one way for these schools to fulfill the responsibilities that society has entrusted to them.
3) A Toast to Will and Kate Britain could use a happy occasion to reaffirm—or rediscover—its identity.
By BRET STEPHENS
Like this columnist "Demanding more than the world can give us, we require that something be fabricated to make up for the world's deficiency."
So wrote the American historian Daniel Boorstin in his 1962 classic "The Image," which gave us the term "pseudo-event" along with the now-standard definition of a celebrity: "a person who is known for his well-knownness." Regarding this Friday's wedding of Prince William and Kate Middleton, curmudgeons have said that here is the ultimate celebrity pseudo-event, a manufactured fairy tale from the politically powerless and morally deficient House of Windsor, the significance of which is not only inversely proportionate to the global attention it inspires, but also a gross distraction from everything that ails our troubled world.
The curmudgeons are wrong. Sure, there's plenty to be said against the royal family. And few people have said it better than Christopher Hitchens, who in a column in Slate the other day observed that the love Britain has for its rulers "takes the macabre form of demanding a regular human sacrifice whereby unexceptional people are condemned to lead wholly artificial and strained existences, and then punished or humiliated when they crack up."
Maybe so. Still, it bears pointing out that royalty is the most venerable embodiment of British tradition, tradition is the lifeblood of identity, identity generates social cohesion without resort to force, and social cohesion is the sine qua non of a viable polity.
Today Britain could use a grand and happy occasion to reaffirm—or rediscover—its identity. A third of Londoners are foreign-born. Three million immigrants have arrived in Britain in the last 20 years alone. "Among these," reports John Burns in the New York Times, "have been many Muslims, members now of a community estimated at 2.5 million, with community groups that have called for an end to the monarchy, or at least for an end to the primacy of the Church of England . . . with the monarch at its head."
When Britain began transforming itself this way in the 1990s, it was celebrated as an overdue do-over for a shopworn state. Out with "Rule, Britannia!" in with "Cool Britannia." In practice, the slogan meant being as minimally British as possible—more Scottish and Welsh and Irish, thanks to devolution; more European, thanks to regulations from Brussels; more multicultural, thanks to lax immigration policies and earnest political appeals to diversity.
For a while it all seemed to work. A buoyant economy—legacy of the decidedly uncool Margaret Thatcher—meant most people could find a job and a path to upward mobility. There was new money to replace the old, and it was unencumbered by restrictions and conceits of class. Peace came to Northern Ireland. The tarnished monarchy was resurrected by the tragedy and instant apotheosis of Lady Di.
Yet even then there were signs of trouble. As an intern at the London Times in the early '90s, I remember being mystified by oblique references to riots in "Asian" communities in the north of England. It was only after reading Hanif Kureishi's novella "My Son the Fanatic" that I realized that "Asian" meant "Muslim," and in particular a second generation of British-born Muslims who had convinced themselves that they were living among the infidels.
"My Son the Fanatic" was a work ahead of its time, foreshadowing the homegrown Islamist terrorism that was later to befall the U.K. and raising some anxious questions about what Britain is, or should be, about. In a speech earlier this year, David Cameron made a stab at an answer, inveighing against "a passively tolerant society [that] says to its citizens, as long as you obey the law we will just leave you alone." In its place, the prime minister championed a "muscular liberalism" that "believes in certain values and actively promotes them." Among those values: freedom of worship, democracy, equal rights—in short, everything the modern West is all about.
Mr. Cameron's speech is a start. But left out is the question of what is uniquely British in his vision for Britain. Should the U.K. be just another responsible member of the "international community," and sometimes America's junior partner in this or that military intervention? It's so . . . depressing. And not quite worthy of a country that still retains a sense of its own larger purpose.
It seems to me there's a reason why films about the British monarchy—not just "The King's Speech," but also "The Queen" and "Mrs. Brown"—always seem to capture our imaginations. It isn't simply that they part the veil on the privileges of royalty, or that they humanize their subjects. Mainly, they're about people who have been asked to personify a vaguely defined—but deeply felt—idea of national identity through the performance of tedious duties they have no serious option to forgo. These aren't celebrities, but servants. And the "events" in which they participate aren't "pseudo." They are the thin line between Britain and anarchy.
Normal people understand what that's like. Great countries make monarchs of those who provide fitting examples. For that, Kate and Will deserve our respect—and even a toast.
4)The Arab Spring and The Palestine Distraction
Arab peoples aren't obsessed with anti-Americanism and anti-Zionism. It's their rulers who are.
By JOSEF JOFFE
In politics, shoddy theories never die. In the Middle East, one of the oldest is that Palestine is the "core" regional issue. This zombie should have been interred at the beginning of the Arab Spring, which has highlighted the real core conflict: the oppressed vs. their oppressors. But the dead keep walking.
"The plight of the Palestinians has been a root cause of unrest and conflict in the region," insisted Turkish President Abdullah Gul in the New York Times last week. "Whether these [recent] uprisings lead to democracy and peace or to tyranny and conflict will depend on forging a lasting Israeli-Palestinian peace." Naturally, "the U.S. has a long overdue responsibility" to forge that peace.
Writing in the Financial Times, former U.S. National Security Adviser Brent Scowcroft intoned: "The nature of the new Middle East cannot be known until the festering sore of the occupied territories is removed." Read: The fate of democracy hinges on Palestine.
So do "Iran's hegemonic ambitions," he insinuated. This is why Tehran reaches for the bomb? Syria, too, will remain a threat "as long as there is no regional peace agreement." The Assad regime is slaughtering its own people for the sake of Palestine? And unless Riyadh "saw the U.S. as moving in a serious manner" on Palestine, Mr. Scowcroft warned, the Saudis might really sour on their great protector from across the sea. So when they sent troops into Bahrain, were they heading for Jerusalem by way of Manama?
Shoddy political theories—ideologies, really—never die because they are immune to the facts. The most glaring is this: These revolutions have unfolded without the usual anti-American and anti-Israeli screaming. It's not that the demonstrators had run out of Stars and Stripes to trample, or were too concerned about the environment to burn Benjamin Netanyahu in effigy. It's that their targets were Hosni Mubarak, Zine el Abidine Ben-Ali, Moammar Gadhafi and the others—no stooges of Zionism they. In Benghazi, the slogan was: "America is our friend!"
The men and women of the Arab Spring are not risking their lives for a "core" issue, but for the freedom of Egypt, Tunisia, Libya and Syria. And of Iran, as the Green revolutionaries did in Tehran in 2009.
Every "Palestine-first" doctrine in the end comes down to that fiendish "Arab Street": The restless monster must be fed with Israeli concessions lest he rise and sweep away our good friends—all those dictators and despots who pretended to stand between us and Armageddon. Free Palestine, the dogma goes, and even Iran and Syria will turn from rabid to responsible. The truth is that the American and Israeli flags were handed out for burning by those regimes themselves.
This is how our good friends have stayed in power: Divert attention and energy from oppression and misery at home by rousing the masses against the enemy abroad. How can we have free elections, runs a classic line, as long as they despoil our sacred Islamic lands? This is why anti-Americanism and anti-Semitism are as rampant among our Saudi and Egyptian allies as among the hostile leaders of Iran and Syria.
The Palestinians do deserve their own state. But the Palestine-first strategy reverses cause and effect. It is not the core conflict that feeds the despotism; it is the despots who fan the conflict, even as they fondle their U.S.-made F-16s and quietly work with Israel. Their peoples are the victims of this power ploy, not its drivers. This is what the demonstrators of Tahrir Square and the rebels of Benghazi have told us with their silence on the Palestine issue.
So Palestine has nothing to do with it? It does, though not in the ways insisted by Messrs. Gul and Scowcroft. The sounds of silence carry a different message: "It's democracy, stupid!" Freedom does not need the enemy at the gate. Despots do, which is why they happily let the Palestinian sore fester for generations.
Israel, which has reacted in utter confusion to the fall of Mubarak, might listen up as well. If democracies don't have to "busy giddy minds with foreign quarrels," as Shakespeare has it in Henry IV, then Israel's reformed neighbors might at last be ready for real, not just cold peace. Mr. Mubarak was not. Nor is Mr. Assad of Syria, who has refused every Israeli offer to hand back the Golan Heights. If you rule at the head of a tiny Alawite minority, why take the Heights and give away a conflict that keeps you in power? Peace at home—justice, jobs and consent—makes for peace abroad.
Still, don't hold your breath. Yes, democracy is where history is going, but it is a long, perilous journey even from Tunis to Tripoli, let alone all the way to Tehran.
Mr. Joffe is senior fellow at the Freeman-Spogli Institute for International Studies and a fellow at the Hoover Institution, both at Stanford.
5)Financiers Switch to GOP
Hedge-Fund Titans Who Backed Democrats Open Their Wallets for Republicans.
By BRODY MULLINS, SUSAN PULLIAM and STEVE EDER
Hedge-fund managers made a big bet on Barack Obama and other Democrats in 2008. Now, with the 2012 contest gearing up, some prominent fund managers have turned their backs on the party and are actively supporting Republicans.
Daniel Loeb, founder of Third Point LLC, was one of the biggest Obama fund-raisers in 2008, rounding up $200,000 for him, according to campaign-finance records. In the decade prior, Mr. Loeb and his wife donated $250,000 to Democrats and less than $10,000 to Republicans.
"I am sure, if we are really nice and stay quiet, everything will be alright and the president will become more centrist and that all his tough talk is just words," Mr. Loeb wrote in an email about four months ago expressing frustration with the president's posture toward Wall Street. "I mean, he really loves us and when he beats us, he doesn't mean it." The email, sent to eight friends, was widely circulated on Wall Street.
Mr. Loeb is part of a shift in political allegiance within the world of hedge funds that also includes such big names as Steven Cohen's SAC Capital Advisors and Kenneth Griffin's Citadel Investment Group. Managers and employees of hedge funds directed a majority of their contributions to the GOP in the 2009-2010 election season, a pattern not seen since 1996, when the industry was much smaller.
.Managers of hedge funds—private investment partnerships that cater to institutions and wealthy people—are reacting to what some criticize as Mr. Obama's populist attacks on Wall Street, as well as to Democrat-led efforts to raise their tax bills. They had hoped to be protected from such a tax move by their relationships with prominent Democratic members of Congress. "Hedge funds bankrolled the Democrats in the 2006 and 2008 elections, and the very people they helped put in power turned around and screwed them," said Sam Geduldig, a former Republican congressional staffer who is a Wall Street lobbyist.
A spokesman for the Democratic National Committee, Hari Sevugan, said Mr. Obama "campaigned on and took action to reform the industry because he knew it was the right thing to do...which is why he enjoyed broad support in 2008 and continues to do so today."
The shift toward Republicans is by no means universal. "I'm still a huge supporter" of Mr. Obama and planning to raise money for him, said Marc Lasry, CEO of Avenue Capital Group. He said one reason some of his peers are moving away from Mr. Obama is that they "disagree with his philosophy regarding the deficit," but "the president...is going to try to reduce the deficit." Mr. Lasry added: "When you really break it down, he has actually done a pretty good job."
Wall Street ranks alongside the legal profession and Hollywood as a plank in almost any presidential candidate's fund-raising. After lawyers, the investment sector was the largest source of donations for Mr. Obama's 2008 presidential campaign among industry sectors tracked by the Center for Responsive Politics. And hedge-fund money is the fastest-growing segment of contributions from that industry, more than doubling every four years. Investors are pouring money into hedge funds again, after souring on them during the financial crisis.
Mr. Obama blew away the field in presidential fund-raising in 2008, setting a record by collecting $750 million in contributions, with most of the donations small ones. Some political strategists speculate he could top $1 billion for his re-election bid.
The defection by some hedge-fund managers is among forces that could make that lofty figure hard to attain. Mr. Obama has also disheartened some labor unions, environmentalists and liberal activists by not moving as aggressively as they would like on their priorities. For the 2012 presidential race, it is too early to gauge with any precision how he or potential GOP candidates are doing in fund-raising.
Overall in the 2008 congressional and presidential elections, Democrats outdrew Republicans, $1.9 billion to $1.3 billion, according to the Center for Responsive Politics.
Democrats received the biggest share of donations from hedge-fund managers for most of the past two decades. From 1990 through 2008, according to data from the nonpartisan Center for Responsive Politics, fund managers and their employees contributed about $40 million to candidates for Congress and the presidency. About two-thirds went to Democrats.
But 53% went to Republicans in the 2010 election cycle, when hedge-fund managers' and employees' donations totaled $11 million. GOP strategists credit a core group of fund managers for helping Republicans win control of the House, make inroads in the Senate and drive Mr. Obama toward the political center.
A half-dozen fund managers donated a total of $6 million to the Republican Governors Association in the weeks before the 2010 election and spent millions more to finance a blitz of ads for Republicans running for Congress.
The shift started near the end of the 2008 campaign, when Mr. Obama began blaming hedge funds for some of the country's economic problems.
In April 2009, when talks about saving Chrysler through a bankruptcy filing bogged down, the president faulted bond-holding hedge funds for the delay. "They were hoping that everybody else would make sacrifices, and they would have to make none." Mr. Obama said. "I don't stand with them."
That amounted to "bullying," one prominent fund manager, Cliff Asness of AQR Capital Management, wrote on his personal web page.
In the past, Mr. Asness had donated to Republicans, while employees of his fund gave chiefly to Democrats. But in the 2010 midterm campaign, Mr. Asness ramped up his Republican giving, while his employees all but stopped their donating to Democrats. Combined, he and the employees contributed $550,000 to Republicans and only about $3,000 to Democrats. Mr. Asness, like most of the fund managers, declined to comment.
Hedge funds' biggest complaint involved a tax bill. Shortly after Mr. Obama's inauguration, he and some congressional Democrats were pushing a plan to block managers of hedge funds and private-equity funds from paying a low 15% capital-gains tax rate on part of their income.
"No longer should we allow investment managers to have a better tax rate than teachers or doctors or firefighters," said a leading advocate of the change, Montana Democratic Sen. Max Baucus, during Senate debate.
Fund managers largely were willing to accept such a change; most of their share of fund profits didn't qualify for treatment as long-term capital gains anyway, because they traded so rapidly. But they drew the line at another proposed change.
The tax bill's writers worried that hedge-fund managers could avoid the highest tax rates by simply leaving their income in the fund, collecting it only when they eventually sold the fund itself. At that point, it clearly would qualify for the capital-gains rate, as profit on a sale of a long-held business. So, the tax bill's writers added a provision saying any profit from the sale of a hedge fund, a private-equity firm or other investment partnership would be taxed at the higher rates that apply to ordinary income.
Fund managers despised that idea. "If you founded a hedge fund, when you sold it you were treated worse than if you owned a peep-show business," said John Raffaelli, a Democratic fund-raiser and lobbyist for the hedge-fund industry.
Senate Democrats to whom fund managers had ties were hesitant to block the tax initiative, because it meshed with voter anti-Wall Street sentiment. Also, it could also mean as much as $2 billion of annual revenue.
The tax initiative ultimately failed when a broader measure that it was part of didn't pass, and now it is essentially dead because of GOP control of the House. Before it failed, the tax measure won support from New York Democratic Sen. Charles Mr. Schumer, following an amendment he made in it.
Mr. Schumer, who declined to comment, has remained a big recipient of hedge-fund contributions despite his vote, raising $500,000 from fund managers and their employees in the 2010 election cycle.
But the senator got a taste of hedge funds' frustrations with Democrats in February 2009, during a phone conversation with SAC Capital's Mr. Cohen. "I can't support the Democrats," Mr. Cohen said, according to a person familiar with the discussion. "There is no way I can support what they are doing."
Mr. Cohen had previously been a big Democratic supporter, regularly giving the maximum allowable to Democratic legislators in his home state of Connecticut. In 2008, he, his wife and SAC Capital employees donated more than $500,000 to Democrats, triple what they gave Republicans.
Last August, Mr. Cohen invited a small group of fund managers to a strategy session in his 32,000-square-foot Greenwich home. The gathering included Republican stalwarts such as Paul Singer of Elliott Management and Dan Senor of Rosemont Capital, but also some more recent Republican donors such as Bruce Kovner of Caxton Associates. The group decided to direct contributions to GOP campaign coffers and to pro-Republican groups that could raise and spend unlimited amounts.
Campaign reports show Mr. Cohen contributed $1.5 million in 2010 to one such group, the Republican Governors Association. The gifts put him among the top four individual donors to the association in a decade, ahead of mega-Republican donor David Koch of Koch Industries. Mr. Cohen contributed to only one Democrat for the 2010 midterm elections, giving $2,400 to Sen. Ron Wyden of Oregon.
Mr. Cohen's political shift was driven in part by his concern about increases in government spending and deficits, said a person close to him.
Mr. Kovner of Caxton Associates hadn't dabbled very much in politics before the August meeting. In 2008, he gave $4,600 to two Republican candidates. After the meeting, he donated $615,000 to the GOP, including $500,000 to the Republican Governors Association. Mr. Kovner, along with most others at the meeting, declined to comment.
John Paulson and employees of his Paulson & Co., famed for a lucrative bet against the housing market and mortgage bonds before their collapse, had given about equally to the two parties in 2008. But in 2010, he and his employees gave three times as much to the GOP as to Democrats. Mr. Paulson himself gave about $410,000 to Republican campaign causes.
Citadel's Mr. Griffin and his wife, Anne Dias Griffin, who runs her own hedge fund, also had split their donations between the parties in 2008, but in 2010 they donated $1.8 million to Republicans and just $2,400 to Democrats.
A shift was also evident at Renaissance Technologies LLC. In 2008, its manager, Robert Mercer, and employees donated much more heavily to Democrats than to Republicans—$620,000 versus $95,000. In 2010, they gave $527,000 for Democrats but $782,000 to Republicans.
With the 2012 money race under way, Democrats are reaching out to mend fences. Mr. Schumer has held a series of dinners and chats with hedge-fund managers. Mr. Obama traveled to New York in late March for an event with fund-raisers from Wall Street and the fund industry.
Still, about 6,600 donations to the Democratic National Committee in March appear to include only a handful from hedge-fund people—fewer than from veterinarians or librarians.
Democrats say Mr. Obama is making moves to appeal to the fund industry and has time to win it back. "Whatever the numbers show…at the margins there has been a material shift in support for the president," said Orin Kramer, general partner of hedge fund Boston Provident and an Obama supporter.
—Scott Greenberg contributed to this article.
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