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Goldman Sachs Is Bullish on Bipartisanship
By Duff Wilson, New York Times - August 28, 2009
What's good for insurance, pharmaceutical and hospital investors is bad for the American people - You Choose
Does the stock market want bipartisan health care legislation, or a Democrats-only version?
Analyses by the financial colossus Goldman Sachs conclude that a bipartisan compromise in Washington would be very good indeed for the health care business and investors.
And compromise is looking more and more likely, according to Goldman’s latest assessment. The report predicts that it is now “more than 50 percent likely” that Congress will pass a “sharply scaled back” health care plan — one that covers less than 20 million of the uninsured and that contains no public option or insurance cooperative. Goldman cited “lack of political consensus for key elements of a more comprehensive reform plan.”
The market winners in that case, according to Goldman, will be big pharmaceutical companies and possibly managed care companies, depending on what Congress does with insurance reform — and possibly hospitals, depending on the extent of Medicare cuts.
A separate Goldman Sachs report, “A Road Map to the Final Outcome for Health Reform,” released to the firm’s brokerage clients in late June, offers a guide to the route ahead if a Democratic-driven overhaul ensues — something that Goldman would consider much worse for business and investors.
Here’s what the June Goldman Sachs report had to say about the possible routes a Senate bill might take:
“If the Senate can reach a 60+ vote deal, we believe President Obama will press House Democratic leaders to accept something close to the Senate version of the legislation, consistent with his expressed preference for a ‘bipartisan’ deal,” it said. “This outcome would be positive for most health care stocks.”
Goldman Sachs continued, “If the Senate cannot reach 60 votes, House Democratic leaders may have the upper hand as ‘budget reconciliation’ (needing only 51 Senate votes) would be invoked to pass the legislation.”
In fact, the ‘budget reconciliation’ gambit is one that Senator Charles E. Schumer, Democrat of New York, has been promoting during the August Congressional recess. See various accounts here, here, here, here and here.
The budget reconciliation process was created by a 1974 law related to tax and spending measures. Threats of its use have been brandished in various ways over the years, most recently on a climate change law. Under the 1974 law, senators wanting to wield the procedure would have to show that a health proposal would change federal spending or revenue in ways that are not “merely incidental” to the legislation. Republicans and some Democrats have warned that it would be a potential abuse of the Senate process.
But the idea would be to use the procedure to pass a Senate health care bill without needing Republican votes. If it worked, the legislation could slip through with only 51 Senate votes, instead of the 60 votes that would ordinarily be needed to overcome a filibuster.
Mr. Schumer, a member of the powerful Senate Finance Committee that is taking a lead on the legislation, has argued that such a noncollegial tactic may be the only way to pass a Senate health bill over entrenched Republican opposition.
For Goldman Sachs, though, Mr. Schumer’s success would be a defeat for investors: “This would be negative for most health care stocks,” the June report said, “but with high volatility as budget reconciliation may entail a higher risk that the push for legislation fails altogether.”
In other words, a Democratic push to pass health care legislation without Republicans, while potentially bad for business, would also cause such political “volatility” that the whole endeavor could blow up. Or so says Goldman Sachs.
And then? For the stock market, at least, Goldman Sachs advised investors that a stalemate in Washington would be “very positive” news.
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