What's in President Obama's Portfolio?
Last week, President Obama said that buying stock is a "potentially good deal if you've got a long-term perspective on it." So, the question is, what is the President investing in?
The answer: we don't know.
But then again, neither does he.
The Obamas' investments are held in something called a "blind trust." This type of trust is constructed so that the President and First Lady have no knowledge of what they're actually investing in, thereby eliminating possible conflicts of interest. Prior to his run for the presidency, the then-Senator put all of his family's stock investments in a trust that was overseen by an independent trustee. Once in the trust, the Obamas could make no special buy or sell requests. The trustee/advisor could buy and sell stocks independently, without telling the Obamas the details of the transactions, leaving the President in the dark about his investments.
The purpose of such a trust is pretty obvious.
Would you trust a President to fix healthcare if he had millions of dollars invested in Merck, Pfizer, and Aetna? How about trusting him to oversee an organized bankruptcy of the Big Three while he owned 10,000 shares of GM? One could see inherent conflicts of interest in almost every policy decision.
This isn't a new phenomenon. The first presidential blind trust was established for Lyndon Johnson in 1963. The Johnsons owned a radio and television station in Austin, TX, and were pressured to sell it by advisors to avoid potential conflicts. The President wasn't too keen on selling an asset that he and Lady Bird had held for over 20 years. Instead, he put the ownership of the station in the hands of Sheldon Cohen, a 36-year-old tax attorney.
Cohen had set up the first-ever blind trusts for a few undersecretaries in the Kennedy administration who had some ownership stakes in Latin American companies. The trusts seemed to work, so Sheldon wound up doing the same thing with LBJ's station. Johnson was so pleased in not having to sell the station that he made Cohen the head of the IRS.
Despite this rather successful use of the blind trust, and the adoption of similar trusts by subsequent Presidents, the use of such instruments by the chief executive has never been mandatory. The only laws pertaining to these presidential trusts state that the trustee/advisor must be completely independent of the executive branch, and that the trust must be free of restrictions regarding the sale or transfer of individual assets. So, basically, you can't say, "Here are all my stocks, George, do what you will, but don't sell the Disney stock because the little girls just love that Goofy."
There are some inherent dangers in the blind trust, of course. For example, President Bush and Vice President Cheney had their stock portfolios in blind trusts during one of the steepest stock market dips in decades. Odds are that they both probably received a bit of a shock when they cracked open those accounts on the day after Obama's inauguration. Being blind might be a great asset as a politician, but it's tough when you're an investor.
On the flip side, Hillary Clinton, a little tired of having her investments out of sight and out of mind ever since her White House days, dissolved her and her husband's blind trust in 2007 and converted all the stock investments to cash and treasuries. Estimates put the trust's worth anywhere from $5 million to $25 million. Seeing as how markets have declined over 50% since Hillary's move from stocks to fixed, it's no wonder she's seemed so upbeat lately. You'd be too if you had saved yourself upwards of $10 million in a well-timed market move.
Try This at Home
So, thinking about starting your own blind trust? You're not alone. Polls show that more and more Americans aren't opening their financial account statements when they get them in the mail. So if you've got a pile of statements from your brokerage firm piled up on your hall table, you're already investing the presidential way.