Over at the Baseline Scenario, James Kwak takes a look at the Obama administration role in passing the financial reform bill, and the reaction of Wall Street execs to Obama.
Kwak draws heavily on John Heilemann's New York Magazine article "Obama Is From Mars, Wall Street Is From Venus,Psychoanalyzing one of America’s most dysfunctional relationships."
His conclusion? They are a bunch of delusional whackos
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First of all, both articles (Heilmann's piece and Kwak's reaction) are worth reading in their entirety. I'll try to hit a few highlights.
Heilman traces the history of Obama's relation with the bankers back to his initial meeting in December 2006
In one sense, Obama’s performance was underwhelming, seriously lacking polish. But in another, this worked to his advantage. “He was allergic to sound bites and canned responses,” recalls Orin Kramer, a prominent hedge-fund manager and Democratic buckraker. “On a human level, I think that’s a quality people found extremely attractive.”
But the relationship started to sour as Geithner introduced is plan to stop the banking crisis of Feb 2009
The first reaction was the market’s: It plummeted 382 points. The second was that of the market’s movers and shakers: They started baying for his head.
The irony here was rich, of course, since Geithner’s stabilization scheme would turn out be strikingly favorable to Wall Street. From the outset, his aim was never to punish the banks. Quite the contrary, it was to save them—by pouring money into them, restoring confidence in them, treating them with kid gloves. Nor was his goal to restructure the financial system. It was to prevent the existing system from collapsing and then strengthen the rules governing its operation.
But the disconnect between the political realities faced by the administration and the perception of the bankers grew bigger
For Obama, Wall Street’s cluelessness is a source of intense frustration—“He’s like, ‘What the fuck, you guys?’ ” says a White House official—and its ire toward him one of the cruelest paradoxes of his presidency. Rather than bowing to bailout rage or indulging the yearning for what Geithner calls “Old Testament justice,” Obama believes, justifiably, that he has taken a moderate approach to dealing with the financial system. On arriving in office, he chose to shore up the banks, not nationalize them. The regulations he has advocated aren’t punitive or radical. Despite the occasional burst of opprobrium, his stance has been one he summed up pithily at a meeting with the heads of the largest banks: “My administration is the only thing between you and the pitchforks.”
Yet now Obama stands accused by Wall Street of leading the pitchfork brigade, even as the soldiers in that battalion assail him for being in Wall Street’s pocket. Having labored to strike a delicate balance, he has managed to incur the wrath of both hoi polloi and the lords of finance.
We saw this most clearly during the run up to the Senate passage of the financial reform bill.
Geithner’s team spent much of its time during the debate over the Senate bill helping Senate Banking Committee chair Chris Dodd kill off or modify amendments being offered by more-progressive Democrats. A good example was Bernie Sanders’s measure to audit the Fed, which the administration played a key role in getting the senator from Vermont to tone down. Another was the Brown-Kaufman Amendment, which became a cause célèbre among lefty reformer such as former IMF economist Simon Johnson. “If enacted, Brown-Kaufman would have broken up the six biggest banks in America,” says the senior Treasury official. “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”
The banker's reaction?
Today, it’s hard to find anyone on Wall Street who doesn’t speak of Obama as if he were an unholy hybrid of Bernie Sanders and Eldridge Cleaver. One night not long ago, over dinner with ten executives in the finance industry, I heard the president described as “hostile to business,” “anti-wealth,” and “anti-capitalism”; as a “redistributionist,” a “vilifier,” and a “thug.” A few days later, I recounted this experience to the same Wall Street CEO who’d called the Volcker Rule a testicular blow, and mentioned I’d been told that one of the most prominent megabank chiefs, who once boasted to friends of voting for Obama, now refers to him privately as a “Chicago mob guy.” Do all your brethren feel this way? I asked. “Oh, not everybody—just most of them,” he replied. “Jamie [Dimon]? Lloyd [Blankfein]? They might not say Obama’s a socialist, but they come pretty close.”
As Kwak puts it
This is wingnut, Tea Party, willful blindness to reality kind of stuff. Forget the whole issue of whether they should be grateful to Obama for first saving their banks from collapse and then toning down the reform bill so it (a) doesn’t break up their banks, (b) doesn’t meaningfully prevent them from engaging in proprietary trading, (c) says nothing of substance about compensation, (d) doesn’t set any hard capital requirements, (e) . . . The fact that they can see the policies this administration is pursuing and somehow think they are “anti-wealth” or “anti-capitalist” is as close to proof as you will find that they are deeply stupid, blinded by their self-interest, or both.
Kwak's bottom line
Wall Street CEOs like to think they are the adults, the big men in the room, the ones who know how the world works. Well, you know what? They screwed up their own banks, the financial system, and the economy like a bunch of two-year-olds. Every single major bank would have failed in late 2008 without massive government intervention — because of wounds that were entirely self-inflicted. (Citigroup: holding onto hundreds of billions of dollars of its own toxic waste. Bank of America: paying $50 billion for an investment bank that would have failed within three days. Morgan Stanley and Goldman Sachs: levering up without a stable source of funding. Etc.) The financial crisis should have put to rest for a generation the idea that the big boys on Wall Street know what they’re doing and the politicians in Washington are a bunch of amateurs. Yet somehow the bankers came out of it with the same unshakable belief in their own perfection that they had in 2005. The only plausible explanation is some kind of powerful personality disorder.