I see that former Clinton Secretary of Labor Robert Reich is on the anti-big bank bandwagon:
A larger explanation, I am afraid, is the grip Wall Street has over the American political process. The Street is where the money is and money buys campaign commercials on television. Wall Street firms and executives have been uniquely generous to both parties, emerging as one of the largest benefactors of the Democrats. Between November 2008 and November 2009, Wall Street doled out $42m to lawmakers, mostly to members of the House and Senate banking committees and House and Senate leaders. In the first three quarters of 2009, the industry spent $344m on lobbying – making the Street one of the major powerhouses in the nation’s capital.
Money is powerful. Talk is cheap. Mr Obama recently called the top bankers “fat catsâ€, and the bankers insisted they were shocked – shocked! – to learn how intransigent their lobbyists had been in opposing financial reform. The bankers even claimed a “disconnect†between their intentions and their lobbyists’ actions. This was all for the cameras, of course.
Why be so oblique? Let’s just consider a few of the bigger fish in the Obama Administration:
- Treasury Secretary Tim Geithner is a fairly young guy and the Obama Administration won’t last forever. He’s unlikely to return to plowing his field in 2012 or 2016 (heck, he might not even make it through 2010). In all likelihood he’ll get a job with one of those Wall Street banks that he was supposed to be regulating as head of the New York Fed and rake in a few of the millions of the billions that he’s helped the banks to, uh, earn.
- Chief of Staff Rahm Emanuel didn’t make a fortune by inventing a better widget. He is first and foremost a Democratic Party fundraiser who got big bucks, er, working for
Fannie MaeSalomon Brothers. He’s another prime candidate for a cushy job at a Wall Street bank. Based on his sterling experience atFannie MaeSalomon Brothers, of course. - Steve Rattner, President Obama’s Auto Czar, never toiled in the vineyards of industry. He’s a Democratic Party fundraiser who parleyed political connections into a position as a financier. He could remain in private equity or he’s poised nicely for a job with a Wall Street bank.
Need I go on? This isn’t unique to the Obama Administration. Henry Paulson, Treasury Secretary in the Bush Administration, was CEO of Goldman Sachs. Robert Rubin went from being Bill Clinton’s Treasury Secretary to the board of Citigroup. The list is long, broad, and deep. The number of people in the current administration or the past administration or the one before that who take jobs with the big banks, come from the big banks, or lobby for the big banks is so large a blog could be devoted to nothing but exploring the complex web of relationships among the political parties, government, the big banks, and lobbying firms.
How likely is anything effective to be done about this? Shhh. Don’t kill the goose that lays the golden eggs.
In fact, Rhambo did a stint, and made alot of money, at the old Saloman Bros. IB.
>>>>>>>>>>>>>>
I don’t know what to do about money and politics but bemoan it. The issue has hit me square recently. I support a candidate for IL Gov. who has positioned himself as a reform Republican as opposed to a machine Republican like Dillard.
I have hosted and attended fundraisers. I’ve given him money. Yet he is way, way behind in the polls. And when you pull out that checkbook it hits you: if the big money falls for another candidate, you are writing a check into the ether. The guy has no chance. But that’s how it works.
The very reason I support this guy is that I don’t want another machine pol; I don’t want to buy anything with my contribution, other than good, fiscally sound government. And yet, you would be awfully naive to think that other money interests aren’t expecting favorable returns for their campaign contributions to their preferred candidates. A reform guy has an inherent problem.
The machine guys are trading contributions for favors. The reformers have to appeal to a philosophy. Guess who wins.
Its an awful state of affairs. Damned if I know what to do about it.
Dave,
How the Hell can you forget Larry Summers.
-Worked 1 day a week (or so) and was paid millions by a Wall Street firm.
-Did speaking gigs at various ginormous banks (possibly even with TARP money).
-Now one of Obama’s top economic advisers.
Drew,
Well part of the answer is right there. “state” That is part of the problem. And the solution is to limit it. Now, how you go about doing so is the real problem.
The people in the State who benefit the most from the relationships Dave and you have described are, coincidentally I’m sure, the people who have control over lots of peopel with pistols, body armor, pepper spray, armored personnel carriers, assault rifles, paramilitary training, databases with you, Dave, me and everyone else in it, and courts willing to look the other way. So I don’t think they are going to take kindly to anyone wanting to cut them off from their income and great life styles.
And going the peaceful route and electing “the right guy” is just not going to work. Because you have to put that guy into that machine you don’t like. Once you do that then the machine goes to work corrupting your “right guy” and turning him into the “wrong guy”. Lets not forget Lord Acton’s comment on this,
Once you elect the “right guy” he is no longer the “right guy” because we’ve granted so much authority to the political class. Crispin Sartwell sums it up well I think,
We like it this way. Consider this question form when Clinton, Bush and Perot were running for President,
Our President isn’t just in charge of executing the laws as passed by Congress. No, he is our symbolic father. He is to make sure we are housed, feed, clothed, and taken care of.
There is nothing you can do Drew. Stop writing the checks. You aren’t writing them into the ether, you are legitimizing the very machine you don’t like.
Dave, I think this is a great argument for more lawyers in administrations. And by lawyers, I mean people who work in private law firms, representing clients before an independent judiciary or advising clients on compliance with legal and regulatory matters. These type of people wouldn’t be revolving back to regulated industry.
That said, I take what I believe is the Madisonian position that you can’t take the “interest” out of politics. I’d rather assume interested bias of our political class than craft a regime in which the perfect politician can be found. And in some sense, the politicians are taking hits for their cozy relationship, see Dodd, Christopher. I’m not sure a day goes by without me hearing a complaint about compensation in the banks and references to former bankers in the Obama administration.
My concern is that interest is so tightly focused in a very few areas. If, as was clearly the founders’ intent, farmers, representatives of finance, trade, the (in Madison’s words) “learned professions”), and so on were distributed through the executive and legislative branches, I think we’d see a very different outcome.
But government and finance, interwoven into a single self-serving entity, are the only interest being served. Serving in Congress has become a life’s work rather than a role one plays. That’s the basic corruption.
Steve V –
Thanks for the cheery comment. I think I’m going to go open a bottle of Scotch……. 😉
Always a wise move.
Let me add another of Lord Acton’s sayings, one that libertarians ignore.
“Liberty is not the power of doing what we like, but the right to do what we ought.â€
While Steve sees no freedom, I see a certain class of people, encouraged by our past 20 years of supply side economics, who care not a whit about what they ought to do, just the power to do what they like. As these people make huge amounts of money and destroy the economy for the rest of us, people continue to insist that we not regulate or limit their activities in any way. We just need to pay to clean up their mess.
Steve
I keep a whole page of his sayings at my blog. Interesting guy. Kind of an early libertarian, but with morals.
Steve
You do realize that supply side economics died pretty much 20+ years ago, right? Oh sure, its not uncommon for Republicans to pay lip service to it and try to invoke Reagan and claim his mantle, but overall, its dead.
Our problems with business making bad decisions is at least partially rooted in the gov’t bailing out large businesses. The precedent was set with events like Chrysler, the S&L industry, and others. When you make the benefits private and the costs public you get a really bad incentive structure. Add on the executive compensation that is focused on the short term profits vs. long term sustainability, and the incestuous relationship between DC and Wall Street and you have a recipe for disaster.
This is a result of activist government…the kind of government liberals/progressives prefer. Of course, they condition it on having “just the right man” which I’ve argued is a myth.
And what meaningful reform have we had? What meaningful reform has been proposed. I argue part of the problem is the incestuous relationship between DC and Wall Street, do you see anyone in the Obama Administration talking about this? No. Why the heck should they. At least half of them are hoping to go work on Wall Street and make lots of money .
“You do realize that supply side economics died pretty much 20+ years ago, right? Oh sure, its not uncommon for Republicans to pay lip service to it and try to invoke Reagan and claim his mantle, but overall, its dead.”
I wish. Spend a day listening to CNBC. They think it is still alive. It explains much of the rationale behind the Bush tax cuts.
“When you make the benefits private and the costs public you get a really bad incentive structure.”
Yes, I say this all the time. We differ on why or how this happened. You blame it on activist government. I believe it is government that has been bought, financially and ideologically, by the financial elite. It is at the intersection of the private sector and government that we have our biggest problems. It was a failure of government to perform its functions that enabled this economic crisis. Imagine banks with no limits on leverage. As Stiglitz said, it was banks having the rules rewritten, then blaming those rules when things collapsed. You are faulting government. I place more emphasis on those controlling the people in government.
http://motherjones.com/politics/2010/01/joseph-stiglitz-wall-street-morals
Steve
Uhhhmmm no. I don’t think there was any serious statements that the tax cuts would pay for themselves. There is almost no reasonable evidence that lowering taxes from their current levels will generate more revnue than is lost.
It is the same thing. By having an activist government you make it possible to buy it. People have a vested interest will have incentives to try and get any activist government to be active in way that enhances their interests. And it isn’t ideological. Robert Rubin, Democrat–Goldman Sachs alum. Larry Summers–Wall Street paid him millions to work 1 day a week. Henry Paulson–Goldman Sachs Alum. Rahm Emmanuel was on the board of directors at Fannie Mae. Timothy Geithner head of the New York Fed and his role in AIG stinks. It is both sides.
See this is nothing more than the “just the right man (men)” argument. You think that an activist government with “just the right men” in charge and things will be fine. Problem is that the very same special interests that corrupted that last bunch of assholes…are going to go to work corrupting your “just right” guys and they’ll become the new batch of assholes.
Its insane really when you get right down to it. You keep trying to do the samething over and over and expecting different results. You don’t realize the entire system is corrupt.
By the way, from the article you linked,
Stiglitz is a smart guy, but that was just a stupid, stupid thing to write. Yeah it was just markets. Which is why he later writes,
Behind this is the view that we need philosopher kings (probably with Stiglitz as one of these benign dictators) to make sure things don’t get out of hand. Problem is once you create a form of government where the government monkeys around in the market and you have elected officials this outcome becomes inevitable. Go back, look at the list I just mentioned:
Summers,
Ruben,
Paulson,
and on and on….
All have vested interests in Wall Street/the financial sector. Many of the younger guys in the Obama Administration who don’t might be thinking about going to work on Wall Street like some of the above names. The money is good while you wait for the next Administration that will bring you back to DC. Do it enough times and you can earn millions as your rolodex in both DC and Wall Street grows.
And you can’t even take cover with the philosopher kings–i.e. people unaccountable to the electorate. That was the basis for Kydland and Prescott’s Nobel Prize–Dynamic Time Inconsistency. They showed that even with a benevolent social dictator obtaining the optimal outcome (e.g. low inflation) is not possible when there is discretionary policy.
The economics profession thought they might have had an answer to Kydland and Prescott with reputations. Appoint a central banker who had a reputation for being an inflation hawk (much of the literature focused on monetary economics, but the result applies to just about any policy). They showed how it could result in better outcomes. We had Volcker and Greenspan where the argument could be made that this what government did. But now…now many people look at Greenspan and blame him, and Bernanke as well, for setting the whole ball bouncing with ultra-low interest rates.
Did they do it to enrich themselves? No. They did it probably becuase they wanted the economy to grow, people to be prosperous, be better off. The guys who were supposed to be ruthless in stamping out inflation and not worry about that kind of thing succumbed to desire to make things better for people. So even there it does not work.
Stiglitz also writes,
Yes, we have. We have done this by electing people to do this in our names. It isn’t a failure of individuals its a failure of the system. We have a politico-economic system where it is possible for special interests to get legislation passed that benefits their interests. We aren’t going to change that until we change that system.
Kydland and Prescott offered such a solution. Rules. Rules rather than discretion was their argument. Problem is two fold as I see it.
1. By setting up rules you remove the ability of politicians to bring home the bacon, so to speak. You limit their ability to engage in pork barrel politics.
2. You have to design the rules before you can implement them and the very same forces at work on discretionary policy can be applied to the rule making process.
If you have good rules in place, then yeah it might work better. But getting there will be likely be impossible, IMO. As I noted above, our ruling elites do not want to give up the power that they have managed to aquire.
Oh, and ask yourself this…what exactly is Obama doing to break up these too big to fail banks? Why is he propping up other failed institutions like Government Motors? Seems to me he is pretty much doubling down on Bush’s policies. If this really is ideological…why aren’t you wondering what the Hell Obama is doing?
And just to be clear here. I am not making a partisan argument. If you go and look at alot of my posts at OTB on Bush they are usually not very nice to his policies.
Thanks for the response. Too late for a long response and it is deep in the comments section. I have been disappointed in Obama’s responses for the most part, but then I think he is an overly cautious centrist. he wont make big changes he can avoid. I think he also probably suffers from some deep capture.
My general idea would be to limit interactions as much as possible between government and business. Eliminate the corporate business tax. Put time limits on how soon you can go work in business after a govt. job. I would prefer smaller banks with very few, but very rigid rules/regs. No rescues. We also need to acknowledge the downside to having too much wealth in the hands of very few. We need to keep the estate tax.
Steve