When Wall Street captures Washington
One of the themes running through Noam Scheiber’s new book is the idea that professional technocrats have a tendency to take at face value much of what they’re told by Wall Street. Bankers are very good at capturing/flattering mid-level political operatives, although admittedly they’re less good at it now than they were before the crisis.
And certainly there’s no shortage of bankers who have gone into government and have then proceeded to advance the interests of the financial-services industry: Bob Rubin is the prime example.
As for legislators, it’s probably no surprise that representatives from places like New York or Charlotte or Delaware will be very friendly when it comes to the financial-services industry. But more generally the industry rains all-but-indiscriminate funds on lawmakers on both sides of the aisle, with impressive results.
If Bill Clinton’s economic team set the parameters of what you might call Rubinite economic orthodoxy, then Obama’s team has more or less stayed within those parameters: the few exceptions, from the like of Christy Romer, have had almost no real impact. If you want more heterodox ideas, then you’d actually be better off looking at the Bush years: first the massive, fiscally-disastrous tax cuts, then the equally massive and fiscally-disastrous wars in Afghanistan and Iraq, and finally the highly-interventionist policies of Hank Paulson during the crisis.
It must be emphasized, of course, that Dodd-Frank — pretty much the first and last bill to pass Congress since 1980 which the financial-services industry didn’t love — had a lot of support from Democrats, and very little support from Republicans. And all you need to do is look at George Bush’s nominees to the SEC to see how much appetite the last Republican president had for regulation with teeth. Meanwhile, Mitt Romney is quite open about the fact that he thinks the financial-services industry is just great, and that he’ll do anything he can to help it out.
So if you’re in favor of increased regulation of financial-services companies, then you’ll support Obama over Romney. But this is a lesser-of-two-evils thing, as Scheiber’s book points out. And interestingly, the more experience that a policymaker has had in and around Wall Street, the tougher that policymaker is likely to be. When Larry Summers was Treasury secretary, for instance, he pushed through the Commodities Futures Modernization Act and was basically a hardline deregulator. After he’d spent some time earning lots of money from banks and hedge funds, however, and returned to the Obama administration, he had much less time for what they wanted to do.
The Obama-era Summers stands between tough-on-Wall-Street former bankers like Gary Gensler, at the CFTC, and much easier-on-Wall-Street lifelong technocrats like Peter Orszag, who of course wound up taking a highly lucrative job at Citigroup, and Tim Geithner. To be honest, it’s not a particularly broad spectrum. Wall Street has always been very good at getting what it wants from the government, no matter which party is in power. Scheiber thinks that there’s a chance that Obama will get tougher in his second term; I’ll believe it when I see it. Because in general, if the board of Goldman Sachs has essentially no control over how Goldman behaves, then the SEC and the Federal Reserve have even less.