Why the Wall Street-Washington door revolves

January 14, 2011

As President Barack Obama’s new lieutenants settle into their offices in the White House, talk has turned again to the revolving door between Washington and Wall Street: William Daley, the president’s chief of staff, arrives from JPMorgan Chase, where he earned millions; Gene Sperling, the new top economic adviser, collected $887,727 from Goldman Sachs for advice on a charity project on a recent hiatus from government.

There’s nothing new about this tradition – indeed there was a time not so long ago when it seemed as if actually running Goldman Sachs was a prerequisite for serving as Secretary of the Treasury. But the triple whammy of the financial crisis, the trillion-dollar government bailout and the return of lavish bonuses to many on Wall Street while unemployment in the United States is stuck above 9 percent has cast the intimacy between political and business elites in a new, often more jaundiced light.

To many U.S. business people, and to centrists in both parties, the concern that Mr. Obama’s White House is too close to business sounds absurd. Far from being a dangerous example of an overly intimate relationship between business and politics, Mr. Obama’s recent appointments, particularly of Mr. Daley, are seen as a welcome sign that the White House will work harder to bring business onto its side.

“We have a private, market economy. We don’t believe in the government being the source of economic growth. The whole thing depends on business,” said Laura Tyson, a business school professor at the University of California, Berkeley, and head of the Council of Economic Advisers under president Bill Clinton. “Starting from the view that business is a vested interest is not a healthy place to begin. Here’s the irony – you sit in a boardroom and you talk about making a company profitable, and then in the press there is a criticism that ‘these guys are simply maximizing profits,’ ” said Ms. Tyson, who is on the board of Morgan Stanley. “There’s this ideological inconsistency. We want business to succeed, but we also don’t want business to succeed. The point is that we don’t have an alternative economic system.”

Mark Gallogly, co-founder of the private equity firm Centerbridge, one of the President’s early supporters on Wall Street and a member of his economic recovery advisory board, said the fiercely competitive global economy made it more important than ever for government policy to be focused on making the United States an attractive place to do business.

“The goal is to provide incentives to create jobs here and not someplace else,” Mr. Gallogly said. “There are a lot of other markets where companies can invest.” All of which sounds obvious and unobjectionable, especially in a country where “socialist” is a term of derision, not a mainstream political party. So why are Mr. Daley’s and Mr. Sperling’s Wall Street paychecks a point of contention rather than a source of pride?

Raghuram Rajan, a professor at the Booth School of Business at the University of Chicago and a former chief economist at the International Monetary Fund, said one reason for popular suspicion of the ties between policy makers and financiers was the 2008 bank rescue.

With hindsight, he believes Washington should have demanded a higher price for saving Wall Street: “They should have put far more restrictions on the banks. They should not have let them pay dividends, for example.” Close ties between Washington policy makers and Wall Street banks are relevant to those decisions, Mr. Rajan argued, because of the human instinct to worry most about those we know the best.

“We have had growing inequality for 25 years,” Ms. Tyson said. “It is not just that the top has gone up; everyone else has gone down. And we are going to see even more inequality coming out of the crisis.” Mr. Gallogly, who welcomes what he sees as a more explicitly business-friendly tone from the White House, argues that “this president gets the equation that if business is successful, America will be successful.” The problem for Mr. Obama, and a source of the suspicion of policy makers with business ties, is that for many Americans, that equation has broken down.

“Is the anger simply because the elite has been found to be incompetent?” Mr. Rajan asked. “Part of the job of the elite was to keep everybody happy. By all means accumulate your stuff, but keep me growing at 3 per cent.” That may be the heart of the tension between America’s elites and everyone else. After all, rule by a moneyed, mutually connected establishment is nothing new. But to stay in charge, those insiders need a way to deliver to the whole country, not just the narrow sliver smart and lucky enough to shuffle between the C-suite and the Oval Office.


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Mr. Gallogly’s statement that success for business means success for America naively assumes these things to be coterminous. For the last quarter century American businesses have shifted jobs overseas and, in doing so, seen record profits as a result of reduced labor costs. Meanwhile, wages for US workers stagnate, benefits vanish, and unemployment lingers above 9%. As a 33 year old middle-class civil servant, my desire to see business succeed ends when that success becomes harmful to me. Ms. Tyson needs to understand that there’s a difference between being profitable and maximizing profits. I want business to win, as long as I don’t have to lose.

Posted by wbratko | Report as abusive

On the Bill Maher you reminded James Carville that deregulation started under Bill Clinton.
While some of the deregulation occurred under Bill Clinton, the harmful effects of deregulation occurred almost a decade after Bill Clinton left office.
However if the economy turned sour while Bill Clinton was president he would taken steps to correct the problem-because he had an activist approach to the economy. He would not have sat around and done nothing while the economy was tanking and going to hell the way Bush did. Remember the GOP does not believe in government regulation of the economy.
This is the Bill Clinton economic legacy:
Cutting the unemployment rate in half. When Clinton left office the unemployment rate was 4%.
Tripling of the stock market.
Eliminating the deficit and creating surpluses as far as the eye can see.
Eliminating the national debt by 2015.
An economy so strong that all Americans benefited not just the wealthy

Posted by rebashimansky | Report as abusive

If Obama is so concern about jobs and manufacturing why he didn’t hire manufacturing leaders. These wall street guys are just paper deal makers, nothing real comes out for society. Cero benefits for the American economy. What we need is productive activities, the ones that put people to work on real things.

Posted by axiom321 | Report as abusive

2008 may be the year we remember for pulling back the curtain on the protected class in America. The idea that nobody wins until they win is difficult to take considering America’s penchant for self-made Horatio Alger types. The whole bailout scenario (while perhaps protecting the economy from further failures) is proof of this. We need to get rid of the idea that what’s good for Wall Street is good for the rest of the US because its just untrue at this point. The banks got full access to billions of dollars of taxpayer money & what did we get? I would say that what we got is a concrete example of why we should not lay the entire economy at the feet of the moneyed elite and say, “Do with it as you may.” Which may be worth the present turmoil when the next one comes.

Posted by Aaronk | Report as abusive

The problem with today’s business is that there is no limit to their greed. I used to believe that if you could help a company with new technology and to get huge pie of funding, they would be glad to share a small slice for the assistance. However, after working to help a number of large and small businesses, it has become clear that the company wants the WHOLE pie and not to share any. Further, many of these high priced “managers” get there not because they are smart, but rather are clever and cunning. A hungry coyote isn’t brilliant, but knows how to attack, kill and feed. The consequences to others are unimportant. But when hasn’t business been this way?

Enough said.

Posted by Saturn | Report as abusive

Mindless propaganda! Nobody objects to business to be represented in government. The problem is that it is just Wall Street represented there… When was the last time we saw anyone from manufacturing there? As a result, we have “QE forever” and all jobs shifted overseas.

Posted by tk2 | Report as abusive

Let me get this straight. The taxpayers bail out the bums on Wall Street and they turn around and kick in the teeth of the retirees, the elderly and sick on fixed income. I know who my enemy is and his first name is Ben.

I’m with the following authors –

http://www.marketwatch.com/story/wall-st reet-wins-main-street-pays-again-2010-12 -21
http://www.marketwatch.com/story/obama-i s-a-hostage-but-not-to-the-gop-2010-12-1 4?pagenumber=1

Posted by delta-dude | Report as abusive

There should be a policy where if the company is HQ’d in this country and pays corp. tax in this country, then there should be a cap on the number of jobs that can be rellocated offshore. That is, at most a 5% or 10% offshore workforce. This would be a fair deal considering the benefits of listing here and having access to deep, liquid markets for capital raisings etc.
Although, having said that, companies themselves will more than likely rellocate their domicility for obvious reasons such as Americans are no longer projecting long term growth in consumption demand. Wall Street firms understand this and are eager to get a foothold in EM’s.

Posted by plubber | Report as abusive

wbratko..what you need to understand it that all the issues you cite that you say ultimately affect you are in reality a joint effort of the common people, business and the federal government. For example, the Housing crash that is the catalyst for most our current economic woes was caused by a seed planted by Bill Clinton (make more housing loans available), regulators insuring that lenders complied, relaxed staandards so more people could get a home loan, average people taking out loans they couldn’t afford to begin with, bankers packaging and selling those loans, etc etc. Same for profitability of companies and taking jobs overseas. Like millions of Americans I have a 401k investment that I hope will allow me to comfortably retire someday. That 401k is made up of businesses that in order for me to retire comfortably need to be successful. If one of those businesses, for example, expands in another country (opens job there) and is sucessful, then I am sucessful as my 401k grows in value.

The issue of wages, benefits and employment are not the culprit of some fantasy group of business men or in the government trying to oppress the middle class. It’s much bigger than that, it’s the cause and effect of the interaction between all the parties. If you, like you say don’t want to lose…then quit whining, get up off your duff and do something to improve your position rather than standing around waiting on the government or big business to do it for you.

Posted by xyz2055 | Report as abusive

The only “Change” that’s happened…is the new puppet in the White House.

Posted by gruven137 | Report as abusive

xyz2055, Did Clinton write the Gramm–Leach–Bliley Act? Did he promoted it? No and no. But it came to his desk with a veto proof Senate majority and he signed it so it is of course completely his fault. Never mind that it was written and sponsored by republicans. Never mind that not a single republican voted against it. It is still entirely his fault. I continually hear the meme that Bill Clinton wanted to increase home ownership and this is why we had a bubble. But what did Clinton actually do that lead to the bubble? Can you be a bit more specific? Was it Fanny and Freddy who were massively loosing market share to unregulated private banks and mortgage companies for the first have of the last decade? Dose it matter to you that almost none of those private banks and mortgage companies were in any way influenced by the CRA? If you imagine they were can you give even one specific concrete example to demonstrate what effect there was and its actual magnitude? Of course you can’t. There is nothing to show. It’s just a red herring. If you believe what you say your beliefs are built on nothing but propaganda.

Posted by Anon_Nymouse | Report as abusive