Lawmakers don’t expect Armageddon

Lawmakers in Washington are increasingly optimistic that the prospect of economic Armageddon is behind them.

Despite rising unemployment and continued dismal news in the housing market, which instigated the financial crisis, there’s been a definite shift in the Beltway’s economic mood.

{mosads}“We’re headed toward the bottom,” said Rep. Paul Hodes (D-N.H.), who expects continued uncertainty in the economy but sees a recovery on the horizon.

“It will be a very slow, gradual recovery,” he said. “But it’s like falling off a cliff. It’s the place where the cliff hits the beach, that kind of end of collapse.”

Federal Reserve Chairman Ben Bernanke gave his most optimistic view of the economy two weeks ago, and said the Fed does not expect unemployment to hit 10 percent. Peter Orszag, President Obama’s budget chief, said Sunday that the economic freefall has stopped.

That’s improved the mood on Capitol Hill, though lawmakers do not see a full recovery happening overnight.

“My own feeling is that we’ll probably go into positive growth numbers in GDP [gross domestic product] by the beginning of next year,” said Sen. Joe Lieberman (I-Conn.), who sees encouraging signs.

“The overall turn-up in the stock market over the last couple of months reflects an optimism that we have probably hit the bottom and we’re beginning to come up, and the question is how quickly we return to real growth.”

“I think [Orszag’s] assessment is — absent some additional shock that no one knows about — that the indications are that the deceleration is slowing, and that’s a very important signal,” said Sen. Kent Conrad (D-N.D.), the chairman of the Senate Budget Committee.

Some investors share the optimistic view, as reflected by gains over the past two months in the stock market. But Brian Gardner of Keefe, Bruyette and Woods financial services said he hears from more investors who see the signs of economic stabilization as a “head fake.”

More pessimistic investors believe the huge levels of debt carried by U.S. consumers, combined with a housing market that continues to depress, means the economy will flat-line for several more years, Gardner said.

Pessimists will find support in data on new home construction released by the Commerce Department on Tuesday. Most expected the Commerce report to show a jump in new housing starts of around 3 percent. Instead, Commerce reported housing starts dropping by 12.8 percent in April.

{mosads}After rallying on Monday, the Dow Jones Industrial Average closed 29 points down on Tuesday.

Gardner said people in New York are particularly pessimistic.

“Folks in Boston and Chicago tend to be more bullish,” he said. There are fewer hedge funds in those two cities than in New York City, where investors can be more focused on short-term goals.

In addition, New York City is in the midst of a housing meltdown that may take some time to recover, and both the city and state, hit hard by the financial sector’s problems, face precarious budget situations.

A new battle

Move over, card-check. Organized labor and big business are poised to start a new battle over shareholder rights.

The impetus for the fight is a bill introduced Tuesday by Sen. Charles Schumer (D-N.Y.), the former chairman of the Senate Democrats’ campaign arm. The bill, among other things, would give shareholders a “say on pay” by requiring a shareholder vote on executive compensation.

But what has big business particularly worried is another provision instructing the Securities and Exchange Commission to issue rules allowing shareholders to nominate directors to the board if they have owned at least 1 percent of a public company’s shares for at least two years.

Business groups like the Chamber of Commerce are concerned that could give too much power to union pension funds wishing to increase their power on corporate boards.

{mosads}“What the Schumer bill does is, it provides a platform for activist investors to fulfill an agenda,” said Tom Quaadman, executive director for the center for capital markets competiveness at the Chamber.

Schumer and co-sponsor Sen. Maria Cantwell (D-Wash.) argued in a press release that the measure would provide long-term shareholders “a real voice in selecting the men and women who sit on the boards of the companies they own.”

The legislation has the support of the big unions, including the public-employees union AFSCME and SEIU, the services workers union that successfully pressed Bank of America shareholders to replace Kenneth Lewis as its chairman.

“This legislation is a solid first step in the overall financial reform package that will help to prohibit future systemic risk rising from excessive managerial power and short-term compensation incentives,” SEIU Secretary-Treasurer Anna Berger said. “It also lays the groundwork for shareholders’ views to be taken seriously by corporate boards, and enables board reform when investor concerns go unheeded.

The Chamber went on the attack Monday, releasing a study that concluded shareholder proposals do not increase a company’s value in the short or long term.

“Certain things you can have a discussion about,” said Quaadman, “but by providing special-interest groups an avenue to inject special interest into the corporate boardroom, we think that’s so important we have to fight it.”

Alexander Bolton and Walter Alarkon contributed to this column.