When Wall Street captures Washington

By Felix Salmon
March 16, 2012
book is the idea that professional technocrats have a tendency to take at face value much of what they're told by Wall Street.

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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.


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This is a remarkably information-free post from you, Felix. It has a Friday afternoon I’m-on-my-way-outta-here feel. The weather isn’t that great yet; you can still work a full Friday like the rest of us.

Still, I’ll venture the opinion that the Republicans aren’t so pro-Wall Street as they are anti_Obama. And what that means is that there remains a race to become Wall Street’s best friend, even today.

Posted by Curmudgeon | Report as abusive

Look I am a biased in my own way but let us at least entertain the idea that an ex-PE guy like Romney might at least cut a better deal than the Obama compromises and triangulations for no reason when he had majorities. There is no hope that Obama is going to get people who are real progressives given he was neck deep in DLC operatives from the outset. Romney knows how to cut a mean deal and if his campaign needs to push back on his riches and business acumen this will be the best way to do it. He can spend months showing how poorly Obama led and how bad the deals were from many metrics. The early back and forth over the Auto bailout might be framing for Romney to make it a solid plank of his campaign. Of course Bush II was the MBA President and nothing much came of that, but at this point a technocrat is about what this country deserves given how poorly Obama has acted as a leader. A technocrat who actually might dig into the numbers and make a hard but wise choice being a bad thing just because he may bias his views of the street as an important and beneficial element from his PE days? I would not stake my views around that given how well that “hope and change” thing worked out last go around. Making a story about a candidate is fun for an ad man but poorly indicative of what their leadership and policy choices will be in office, we can say some definitive things about Obama though and few of them good.

Posted by OmnibusOmnia | Report as abusive

I think things will get worse before they get better. We need Washington to give the Banks some more new powers and wait for yet another negative result and even more public anger to counter 25 years of legislative action that shifted the power to wall street at the expense of main street.

Posted by Sechel | Report as abusive

OK, I’ll overlook the blame George Bush for anything that moves argument but don’t you refute your own thesis that Romney would be pro-Wall Street. You say, “And interestingly, the more experience that a policymaker has had in and around Wall Street, the tougher that policymaker is likely to be.” If true then why do you suggest that Obama will be tougher than Romney with respect to regulating the financial community? It seems like the logical conclusion of your assertion is that Romney would be the preferred choice if increased oversight is one’s preferred outcome.

Posted by TomLindmark | Report as abusive

@TomLindmark- uh, has Romney spent even one day working on Wall Street? Romney’s “experience in and around Wall Street” is zero.

Posted by johnhhaskell | Report as abusive

Larry Summers and the whole “Free Market” Friedman economists are for sale,Ivy League technocrats that were bought by Wall Street and stayed bought when they went to Washington. When that gang of thieves wasn’t accepting money from some financial interests for their rubber stamp, they were hiding or resigning en masse during the financial meltdown of 08. These economists are no more than highly educated, well paid shills for corporate America, especially Wall Street.

Posted by mkr1953 | Report as abusive

Ironically if we’re talking Wall Street capturing Washington we should be supporting Ron Paul, as the Fed is the most captured of all political institutions and libertarians believe in property rights, something the Obama administration has not supported as witnessed by the Mortgage foreclosure settlement. George Bush jr wasn’t any better with the Bankruptcy reform act, and Clinton gave us the repeat of Glass Stegal and the deregulation of credit default swaps.

Posted by Sechel | Report as abusive

Sechel, so your definition of “property rights” is to let people who borrowed to buy a house and collateralised that loan with a house and then didn’t pay the loan keep the house. Pretty sure that is not the OED definition… Must be an americanism.

Posted by Danny_Black | Report as abusive

My definition of property rights, means that banks have to show up in a court room with the ducks lined up. There’s no comparison between (forging and robo signing documents) and a dead beat home owner. Why should a bank that can’t prove title and lien be allowed to foreclose?

Posted by Sechel | Report as abusive

I think Felix is being fair here. Wall Street has captured both parties, but one (especially a Romney lead version) is clearly of worse stench than the other, but that’s far more of an reflection on former than a compliment to the latter. Though the only non-captured official we’ve really had over the last decade has been Sheila Bair, (though she’s a nominal R!)

Posted by EconMaverick | Report as abusive

As the weather has twisters , we have entered into the financial twister that is the greatest depression in history , the rate of devaluation is so great that the markets are confusing it with capitalization.

Posted by Mr.Sakli | Report as abusive