Bought and Paid For
The ties that bind
By Steven Martinovich
It is taken as gospel that the Republican Party is in the pockets of the wealthy – especially the Masters of the Universe on Wall Street. Like a good many "truths", reality doesn't correspond to that assumption. Over the past few election cycles, high net worth individuals have actually tended to favour with votes and money the Democrats. And among Barack Obama's biggest and earliest supporters, before he even captured the Democratic nomination, were the titans of lower Manhattan. There is a reason, after all, why it seems like half of Obama's administration is made up of former Goldman Sachs' employees.
Charles Gasparino's Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street explores the deep connections between Obama, his administration and the biggest financial services firms on the planet. If only half of what Gasparino chronicled were true, and there's no reason to discount any of his charges, it is an ugly story of how Obama and Wall Street used each other for mutual gain; Obama to become elected president and Wall Street to power themselves through the recession and come out even stronger and more powerful than before. It is crony capitalism that would make China's communist regime look on with pride.
As Gasparino, a reporter for Fox Business Network and columnist for the Huffington Post, relates, Wall Street immediately gravitated to Obama in the belief that he was a moderate who would be friendly to the financial services industry. Sen. John McCain was notorious on Wall Street for his hostility towards them and Hillary Clinton, an early favourite among some, was a symbol of the past. Obama, then still a relatively new senator, cultivated a reputation as someone friendly to Wall Street and would be willing to listen to their concerns. Not surprisingly, the big firms on Wall Street became enthusiastic supporters and donated heavily to his campaign to become president.
Those connections paid off with Obama's election. With the recession in full swing, the White House continued and then surpassed the Bush administration's policies to assist Wall Street. The Obama administration, littered with veterans from Wall Street, bent over backwards to insulate the industry from its own excesses. Tens of billions of dollars recapitalized the big players and many toxic assets were bought by the federal government at generous prices. Wall Street players like JP Morgan Chase CEO Jamie Dimon met regularly with Obama and administration officials, and offered economic advice to a president who had never held a private sector job.
Of course, when one pets a rattlesnake one shouldn't surprised if they get bit. As the public backlash against Wall Street exploded, Obama and Democrats like Charles Schumer, Barney Frank and Chris Dodd – also recipients of generous donations – began to distance themselves from their former friends and began planning legislative action which culminated in a tepid financial industry reform bill which passed in 2010. Where they were once praised by Obama, they were now targeted for their bonuses, compensation and past mistakes.
Regardless of the class warfare that emanated out of the White House, argues Gasparino, Wall Street still made out like bandits. With virtually free money to draw upon, companies like Goldman Sachs were virtually printing money even as America's economy ground to a near halt. Though unemployment exploded to over 10 per cent, Wall Street was hiring brokers seemingly as fast as they had been laid off only a year or two earlier. With the federal government all but guaranteeing that the firms wouldn't be allowed to fail, they continued on as if the recession and their own near collapse had never happened. They exist in a world where profitability is assured, real risk barely exists and they're largely unaccountable for their behaviour. It's good to have friends in high places.
Bought and Paid For is a generally solid effort. Eschewing explanations of how the extraordinarily complicated financial instruments worked – something that even many senior Wall Street executives were in the dark about – he instead concentrates his efforts on how people like Robert Rubin, Rahm Emanuel, Timothy Geithner, Henry Paulson and Lawrence Summers, Wall Street CEOs, among many others, essentially tied the federal government and the financial services industry together. It is they who are the architects of a new system that has redefined the term "moral hazard" with the American taxpayer bearing the cost. Gasparono can be faulted, however, for failing to criticize the Republicans for accepting money from Wall Street – even if with some conditions – after the industry's relationship with the Democrats broke down.
Ayn Rand once warned that among the great dangers to capitalism were businessmen who appealed to government in an attempt avoid competition, using the power of the state to enrich themselves. Indeed, she even argued that "crony capitalism" was a term composed of two mutually exclusive words, that the former couldn't truly exist in a philosophical system that promotes liberty and free exchange. Whatever term one prefers to use, be it "kleptocracy" or "business as usual", it would appear that Bought and Paid For has illustrated that it's the preferred way of business on Wall Street and the people paying the freight live on another street altogether.
Steven Martinovich is the editor in chief of Enter Stage Right.
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