Ted Cruz's Loan from Goldman Sachs Was a Bullish Bet on the Obama Economy
Ted Cruz is already taking serious flak for failing to disclose a six-figure loan from investment bank Goldman Sachs that he used to buttress his out-gunned—but ultimately successful—bid for Senate in 2012. Under federal law, Cruz was required to report the loan on his public filings with the Federal Elections Commission, raising questions as to whether he hoped to conceal the fact that he was leaning on a notorious financial industry behemoth to prop up his campaign at the very same time he was excoriating the Wall Street bailout.
Cruz will have to face those questions, like it or not, but the New York Times report that brought this story to life also contained another interesting detail that again makes Cruz look like a hypocrite and a phony. Specifically, the article mentions that the Goldman loan was a so-called “margin loan,” which was secured by Cruz’s brokerage account. Usually, notes reporter Mike McIntire, margin loans are used to purchase stocks, but they don’t have to be, and so Cruz used the proceeds to support his campaign.
But here’s the thing about margin loans: They’re always subject to the dreaded “margin call.” Since the loan is backed up by the investments you own, if your portfolio drops below a certain value, your broker can demand you top up your account with more cash—or it can force you to sell your stocks, at a loss of course.
This is a risk every investor who “buys on margin” takes: If the stock market crashes, you’re going to take a beating when that margin call comes in. Unless you’ve taken a contrarian bet, you’re rooting for peace, prosperity, and a bull market when you're buying on margin—or campaigning on margin.
But wait a minute … does that sound anything like Ted Cruz? Would a raging tea partier who’s convinced Barack Obama is doing everything he can to destroy the economy actually place his faith in the market not tanking when he’s got up to half a million bucks riding on the forbearance of the kindly vampire squids at Goldman Sachs?
Yet that appears to be exactly what Cruz did. It’s unlikely he’d been gambling on a collapse in stocks, since the broader markets posted big gains in 2012, but, according to the Times, Cruz was able to pay down his loans by the end of the year. Had he lost a lot of money betting the wrong way, he probably wouldn’t have been able to repay those loans so quickly.
But if that’s indeed the case, then why wasn't he anticipating a major downturn? Why didn’t he put his money where his mouth was—literally? In a speech that same year at the Republican National convention, Cruz declared that President Obama's “economic agenda is perilous indeed”; that the nation was “going broke” and at risk of following “the path of Greece”; and that “the road of the Obama Democrats” would only mean “more and more spending, debt and government control of the economy.”
If you actually believed these kinds of things, you’d follow the advice of Ron Paul and put all your money in gold. You’d also have seen your life savings take an absolute beating lo these past many years, but that doesn’t seem to be what happened to Cruz. From all appearances, at the very same time as he was trashing the Obama economy, he was also prospering from it.
Whenever we attempt to penetrate the conservative mind, we always find ourselves asking whether they truly believe the nonsense they spout, or whether they know they’re full of it. With Ted Cruz, it looks like we just got an answer. Of course, we don't know for sure—but would you bet against it?