Think Again: Wall Street Wins (and Whines)
SOURCE: AP/Mark Lennihan
Close readers of The New York Times will have noticed a disagreement among its reporters on whether Wall Street bankers are pleased or peeved with the treatment they’ve received from the Obama administration. The initial sparks flew when, on the occasion of a fancy fundraiser at the French restaurant Daniel, the paper’s Nicholas Confessore gave the floor to a group of bankers who did little but kvetch about their hurt feelings. They did not like, according to the reports, being termed “fat cats” and then being asked to pony up $35,800 a person to dine with the president. And so according to the article’s author, many of them were deciding to stay away.
Not long afterward, however, the paper’s Dealbook reporter, Andrew Ross Sorkin, responded with a pitch for the opposing team. Here, we were told “Wall Street’s absence may be more about optics—the way things appear— than reality. Behind the scenes, it seems that many bankers are not running away from the president as quickly as some might suspect.” It turns out the president’s people are just as worried about being photographed with some of his old supporters—say for instance Goldman Sachs’s Lloyd Blankfein—as some of the more conservative bankers are about appearing to support the socialist, Kenyan, anticolonial, economy-taking-over Obama. In fact, one unnamed banker who did not attend the dinner admitted, “Obama hasn’t been too bad to banks. He could have been worse.”
I don’t have any sources on where big-time Wall Street donors plan to put their money. But every time I read one of these stories I can’t get over the degree of entitlement these guys feel, despite having tanked the economy.
Think back to President Barack Obama’s first televised primetime press conference from early 2009. The key moment came when CNN’s Ed Henry tried to stir up some trouble. Here’s his question:
Thank you, Mr. President. You spoke again at the top about your anger about AIG. You’ve been saying that for days now. But why is it that it seems Andrew Cuomo seems to be, in New York, getting more actual action on it? And when you and Secretary Geithner first learned about this, 10 days, two weeks ago, you didn’t go public immediately with that outrage. You waited a few days, and then you went public after you realized Secretary Geithner really had no legal avenue to stop it.
Got that? After the federal government committed $85 billion to bail out the insurance behemoth, AIG, its executives headed for a weeklong retreat at a luxury resort and spa, paying nearly half a million taxpayer-supplied dollars for a week of rubdowns and daiquiris. Henry, who recently moved to Fox (propaganda) News where he always belonged, was demanding to know why the president wasn’t acting angrier.
It was a remarkably stupid question, and President Obama put him in his place on the follow-up, saying that he preferred to “know what he’s talking about” before going off half-cocked. (And speaking of optics, let’s not forget how great it would look for a brand-new black president to be seen screaming at wealthy white (and often Jewish) bankers.)
But ultimately the proof was in the pudding, and if I were one of these bailed-out rich guys, I like to think I’d have the good sense to keep my mouth shut and marvel at my good fortune. President Obama said in his 2010 State of the Union address that bailing out the banks had been “about as popular as a root canal.” During the fight over the financial reform legislation, his administration resisted congressional efforts to place any limits on executive pay as the Europeans had done, even for companies saved by the taxpayers.
This at a moment when not only was unemployment skyrocketing but also in which executive compensation at America’s biggest companies had quadrupled in real terms since the 1970s, even as pay for 90 percent of America remained flat or even declined. The share of the wealthiest 0.1 percent of Americans had quadrupled in this period to more than 10 percent of the nation’s income. These people now enjoyed an average income of $27 million a year.
And yet these were the very people feasting on government largesse. In 2008, the year of the big bailout, Americans were treated to stories like the one about Andrew Hall of the Phibro Energy Trading Unit—a company that TARP participant Citigroup sold to Occidental Petroleum—who took home a one-year, tax-subsidized payday of $100 million. The years 2009 and 2010 turned out to be record breakers on Wall Street, as total compensation and benefits at the top New York banks, investment banks, hedge funds, money-management firms, and securities exchanges hit $128 billion and $135 billion, respectively.
Without getting into the details, it’s rather difficult to argue that the administration took a tough position against the banks during the negotiations over the financial reform bill. And if you look at the results, well, it’s hard to credit the whining. The banks that caused the 2008 crisis have significantly increased their share of global assets, ensuring that the next time around, whatever crisis would be even worse.
This week we learned Bank of America is about to agree to an $8.5 billion deal with investors whom the bank screwed with its crappy mortgage-backed securities sales. What’s more, the world’s banking oversight organization—the Basel Committee on Banking Supervision—has now issued its long-awaited Basel III capital standards and is demanding from the banks what Congress and the president did not: higher standards of capital relative to obligation for the so-called “too big to fail” banks. These banks will now need to keep a reserve of “high-quality capital” on top of the minimum level of capital required for other all banks, currently set at 7 percent of assets. The committee is also asking for a special surcharge on big banks that “engage in risky activities that would ‘increase materially’ the threat they pose to the financial system.”
Like the cap on executive pay, these are exactly the kind of reforms Wall Street managed to crush in Congress. This was true despite the fact that voices like the two Nobel laureate economists, Joseph Stiglitz and Paul Krugman, together with former Federal Reserve chiefs Paul Volker and Alan Greenspan, were calling for much tougher measures. But so too was Thomas Hoenig, currently president of the Federal Reserve Bank of Kansas City.
In a speech this week, Hoenig said, “So long as the concept of a Sifi [Systemically Important Financial Institution] exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril.”
One thing you can bet on, however, is that when the next crisis hits, Wall Street bankers are sure to figure out a way to make even more money on it—and then whine to reporters about how hurt their feelings are as they shovel up our cash.
Eric Alterman is a Senior Fellow at the Center for American Progress and a distinguished professor of English at Brooklyn College and the CUNY Graduate School of Journalism. He is also a columnist for The Nation, The Forward, and The Daily Beast. His newest book is Kabuki Democracy: The System vs. Barack Obama. This column won the 2011 Mirror Award for Best Digital Commentary.
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