Every since Chuck Schumer told the hedge funds to quit being such recluses and start lobbying Washington, I've been wondering how this might change the nature of K Street.
Most business lobbying involves businesses lobbying to protect their business model — from competition, from regulation, from innovation — and win handouts. But when hedge funds play on K Street, they are trying to aid not their business model, but their investments.
Bill Ackman is an investor who took a major short position on health-product maker Herbalife. (That is, he can profit if the stock falls hugely, and he can lose if the stock doesn't come down in time.) He argues that Herbalife is a pyramid scheme. He has tried to convince Wall Street that it's a pyramid scheme. If this works, the company collapses, the stock collapses, and boom — Ackman cashes out.
Now, as the Washington Post's Lydia DePillis told in a very good recent article, some big money has lined up against Ackman. Investor Carl Icahn and politically connected billionaire George Soros have piled on against Ackman.
Ackman, unable so far to win over the market, is turning to a more aggressive means of competition: government. Ackman is trying to sic the Federal Trade Commission on Herbalife, and he's investing in Washington to secure a friendly result.
But Soros is dialed into the Democratic party. Icahn has his Republican buddies. Do we think they're not lobbying either?
The amount of money in hedge funds is huge. The range of issues where they could invest and lobby is endless. If this trend continues, K Street could turn into something of a Wild West.
Imagine someone shorting Boeing and then lobbying to abolish export subsidies. Somebody shorts RJ Reynolds, and then lobbies for more cigarette regulation to protect Philip Morris. It could get interesting.