Why has it has become so excessively dominated by relatively few very large companies? What damage can it do to the rest of us? What reasonable policy changes could bring global megabanks more nearly under control? And why is this unlikely to happen?
If any of these questions interest you – or keep you awake at night – you should take another look at the last time we had this debate at the national level, and reflect on the work of Ted Kaufman, the former Democratic senator from Delaware, who was far ahead of almost everyone in recognizing the problem and thinking about what to do.
Senator Kaufman represented Delaware in 2009 and 2010, and Jeff Connaughton – his chief of staff – has a new book that puts you in the room. In “The Payoff: Why Wall Street Always Wins,” we see Senator Kaufman as chairman of oversight hearings on the Justice Department and the F.B.I.’s pursuit of financial fraud, pushing the Securities and Exchange Commission on the dangerous rise of computerized trading and working with Senator Sherrod Brown, Democratic of Ohio, on the legislative fight to impose a hard cap on the size and debts of our largest banks. (I wrote many pieces supporting the work of Senator Kaufman at the time, including in this space, but I never worked for him.)
Mr. Kaufman was unique in ways that should give us pause. He was appointed to his seat (after Joe Biden became vice president) and immediately said he wouldn’t run in the next election. So he never had to raise any money to reach the Senate or stay there longer. His experience gives us a glimpse of what we would get if we could really remove the money from politics.
Mr. Connaughton is a fascinating witness and raconteur because he’s been through the revolving door several times: in between work in the Senate and the Clinton White House, he spent 12 years in one of Washington’s top lobbying firms. This author has really lived in and understood the Wall Street-Washington corridor. The book is partly about his education – and ultimate disappointment, most of all with the Obama administration but definitely with both parties.
The system is rotten, to be sure, but this president came to office promising change – and that is exactly what we did not get on most crucial dimensions related to the financial sector. The failure depicted on this front is political and ultimately about money – and all the power that Wall Street can buy, one way or another.
The book is also about the details – the legislative and bureaucratic regulatory process through which your future prosperity is sold down the river. If you don’t follow the details, you’ll never really understand what happened to this country. Mr. Connaughton has done us a great service in laying all bare.
But be warned; while fascinating, much of what is in this book will turn your stomach. Mr. Connaughton is now out of politics, and I very much doubt that he will ever return. Hence the complete honesty missing in most political memoirs; no bridge is left unburned.
The Justice Department declines to prosecute financial fraud, the S.E.C. fails to protect average investors, and the Senate refuses to stand up to the Treasury and Federal Reserve technocrats aiming to keep too-big-to-fail in place.
Wall Street is manifestly too powerful and showers too much money on former and future public servants in Washington. Our political system could not respond meaningfully even to a devastating financial crisis that brought the country to its knees. While this book is about the past, the implications for the future are clear.
The apathy on the part of public officials during this administration is pervasive and frequently appalling. As Mr. Connaughton puts it,
“For me, what is deplorable is not the Justice Department’s failure to bring charges, but its failure to be adequately dedicated and organized either to make the cases or reach a fully informed judgment that no case could be made.”
The administration apparently thought that any kind of legal action against major players in the financial sector would slow the recovery; this point of view seems to have come from the very top, in the White House and at the Treasury. As a result, then and now, Mr. Connaughton writes, “Too-big-to-fail banks continue to act lawlessly, teeter on the brink and destabilize the global economy.”
On the Dodd-Frank financial reform legislative debate in early 2010, “the Treasury Department was taking a tougher line in negotiations than the Republican senators whose votes were in play,” the author tells us, meaning that Treasury was more on the side of big banks.
And, in case you previously did not get the memo about how all this really works,
“The Blob (it’s really called that) refers to the government entities that regulate the finance industry – like the banking committee, Treasury Department and S.E.C. – and the army of Wall Street representatives and lobbyists that continuously surrounds and permeates them. The Blob moves together. Its members are in constant contact by e-mail and phone. They dine, drink and take vacations together. Not surprisingly, they frequently intermarry.”
Could we change all of this in the world’s greatest democracy? Mr. Connaughton exhorts us: “Every voter who wants to break Wall Street’s hold on Washington should put congressional and presidential candidates to the test,” demanding that they shun lobbyists’ contributions and asking, “Will you agree not to take campaign contributions from too-big-to-fail banks and non-banks?”
Will it happen? This seems unlikely within our existing party system. It would take a broader citizens’ movement, a groundswell of educated opinion focused on breaking the political power of Wall Street and ending the enormous, nontransparent and dangerous subsidies currently received by very large financial institutions.
Intellectually, the right and the left can unite on this issue. But where are the political leadership and organization needed? We had a huge crisis and elected a president who promised change – and that didn’t make much difference. The biggest Wall Street firms are larger and probably now more powerful than they were in the run-up to 2008.
Read Mr. Connaughton’s account and think about what real change would involve.
This post was originally published at Baseline Scenario, cross-posted from the NYT’s Economix blog, and is reproduced here with permission.