Bought and Paid For (28 page)

W
ith the election of Barack Obama, Wall Street thought it had everything it could want in a president, and the results rolled in with profits and paychecks. Meanwhile, the middle-class Americans who had voted for Obama were facing increased unemployment and higher taxes. The college students and young adults who had served as a driving constituency in Obama's campaign were facing one of the worst job markets in decades. For these Americans, Obama had failed to deliver on his promises of hope and change, and they were demanding answers.

As the anger continued into late 2009, Obama and his hand-picked team of Wall Street-supported advisers (Robert Rubin, Larry Summers, Tim Geithner) and those with strong Wall Street connections (Rahm Emanuel, Valerie Jarrett, and others) woke up and realized that unless the president somehow addressed the public's outrage, it would be more than just those annoying Tea Party activists who would be voting against him and his buddies in Congress when the midterm elections came around the following year. And so Barack Obama, who had sounded so moderate, so reasoned, to Larry Fink, Jamie Dimon, and Tom Nides, all of a sudden began sounding like the guy who'd palled around with Bill Ayers and Reverend Wright for all those years back in Chicago. Instead of trying to work with them as promised, the president started using the bankers who had put him in office as his whipping boys the minute he needed them to advance his faltering political agenda.

The real change occurred in late 2009, around the same time the White House conducted a poll that showed Obama's approval ratings were slipping. The same poll found that nearly 90 percent of the people surveyed, on both the far left and far right, had a negative opinion of Wall Street, much higher than the president's number.

The polling came as Obama had been holding frequent meetings with Dimon over the state of the economy. In those private meetings, Obama sounded like a man from the Robert Rubin school of Wall Street-friendly economics: The best way to help the economy flourish is to help Wall Street banks succeed. The two met so frequently that the speculation about whether the president was considering appointing Dimon to replace current Treasury secretary Tim Geithner began to feel like a done deal in Washington and on Wall Street. Despite the rumors, the president has unswervingly supported Geithner, and his political adviser David Axelrod has even dismissed talk of a Dimon appointment by chalking the relationship up to nothing more than mutual admiration. “Don't these people realize,” he said of the rumormongers, “they [Dimon and Obama] have a man crush on each other?”

Robert Rubin had been meeting with Obama as well, and the worst thing he could say about the new president wasn't that he seemed to hate Wall Street. Quite the contrary: He seemed to appreciate what a strong banking system could do, namely advance the liberal agenda by packaging mortgages into bonds so the government could grant home loans to people who couldn't afford them.

No, the worst thing Rubin thought about Obama was that he relied too heavily on advice from relative neophytes when it came to economic and financial matters. Among those people was Valerie Jarrett, a longtime Chicago attorney and lobbyist and friend of Obama's who was now ensconced inside the White House and influencing many of Obama's economic decisions.

At least that's what Rubin learned one afternoon when he cautioned Obama that despite his talent for politics, he was relatively unsophisticated when it came to economic matters.

“That's why I have Valerie,” Obama shot back.

Larry Fink was coming to the same conclusion. BlackRock, his massive money-management concern, had benefited enormously, much to the envy of the rest of the Street, from the various postcrisis bailout payments, including $45.3 million to manage the assets of the Bear Stearns following its collapse and government bailout, $33 million to manage the assets that the Fed purchased from AIG, and $12 million to value the assets on Citigroup's troubled balance sheets, as well as other business opportunities too numerous to quantify. Of course, those fees are relatively small. The real value in managing the government's money is much greater: “Being in the flow of information—pricing information, knowing who's buying and selling, will ultimately be more important than actual fees,” analyst Charles Peabody told Bloomberg News. Except for Goldman, no one had better knowledge of the markets than Larry Fink's BlackRock.

Critics would point to Fink's early and unabashed support of Obama for his success at winning government contracts, while others with a more nuanced view would point to Fink's financial acumen; he was a perfect choice to manage the Fed's portfolio of bad debt from bailout victims like Bear Stearns because he'd been trading in these securities for years.

But by late 2009, Fink was worried, and not just about the populism that had begun sweeping the country. According to friends and associates (Fink declined to comment), Larry Fink was having second thoughts about his support for Obama. The same guy who had promised moderation now promised an endless array of entitlements—from a government-run healthcare system and hundreds of billions of dollars more in stimulus to supplement the failed one Obama had pushed earlier in the year, had Fink concerned.

“How are we going to pay for all of this?” Fink began asking friends. Fink knows a lot about how the government pays for stuff because he made his fortune as a bond trader. But he also knows that in order to spend so much, the government needs to borrow more, and there's only so much borrowing our creditors, most prominently China, will allow before they start demanding concessions over and beyond much higher interest rates.

All those promised entitlements demonstrated how few people inside Obama's inner circle had real business experience. To be sure, Summers and Emanuel had spent some time on Wall Street to make a few bucks before they went back to government, but that was about it.

“It's really shocking,” Fink remarked, before reminding himself that as bad as Obama might be, the McCain/Palin ticket would have been worse.

Past presidents like Bill Clinton, George W. Bush, and, of course, Ronald Reagan had run large states before ascending to the presidency, so they knew how to balance a budget and otherwise govern; George H. W. Bush went into the oil business, becoming a millionaire by the age of forty before becoming vice president and president. His son George W. Bush had been both the governor of Texas and a businessman before his election.

Barack Obama, in contrast, had been a politician for a relatively short period of time and had never before held an executive position. He was a legislator first and foremost, and his work outside of politics had been as a community organizer, where he fought against businesses rather than working with them.

Yet as absurd as it may be for Valerie Jarrett—a political fixer from Chicago—to be determining how best to run the U.S. economy, she wouldn't be the first or the last lobbyist to hold sway in the Oval Office. In fact, Jarrett may have never run a real business or started a company from scratch, but in reality neither had Bob Rubin or the other Wall Streeters who found themselves in positions of power as aides to various presidents, Republican and Democrat alike. She was simply doing what Bob Rubin, Hank Paulson, et al. had done for years: straddle the line between Big Government and Big Business. Not unlike Rubin and Paulson, she knew how the game was played because she had seen legions of politically connected bankers doing the same thing for years.

And so, apparently, did Obama, as he plotted his vast expansion of government predicated on the notion that his economic policies were beginning to take hold. In March 2009, the Dow Jones Industrial Average reached its low point and began a steady climb that would total more than four thousand points by the end of the year. Wall Street was getting beaten up in the court of public opinion, but it was also feasting off Obama's policies and making money as if the financial crisis had never occurred. Prosperity, according to the president, appeared to be right around the corner, and Obama had big plans that began to solidify as 2010 approached: a massive expansion of the welfare state, free health care, cap-and-trade energy limits, and who knows what else.

The president even sounded giddy at times. At one point, he urged Americans to start buying stocks because, given all the stimulus he had pumped into the economy, they looked cheap—an unprecedented move in the eyes of some on Wall Street, who couldn't believe a president was making investing recommendations to the American public. He touted the marginal increases in economic growth as if they were proof positive of the vision of his policies, even as unemployment remained alarmingly high through the year.

And the press bought the spin as the nation's GDP began mimicking the stock market, rising quarter after quarter through the end of the year.

Even the great conservative TV economist Larry Kudlow proclaimed a
“V-
shaped
”
recovery to be in the works, meaning that after a sharp decline, all the cheap money and pent-up demand for business would sooner or later lead to massive economic growth and hiring once again. These optimists were more worried about inflation than anything else.

And yet the upward part of the
V
in the recovery never came, at least for the millions of people out of work. During the course of 2009, the GDP did begin to improve and the recession was officially over. But Peter Sidoti's research had held up better than the predictions of the president's economic team. Obama's stimulus package had failed to simulate private-sector employment, even if Wall Street was making money again.

Small business continued to cut costs and cut jobs. Construction remained in a depression. Even states that had kept their workforces fat and happy began to cut, particularly places like New Jersey and Virginia, where Republicans tapped into the voters' growing discontent with Obama's policies and were able to defeat Democratic incumbents for governor by vowing to rein in runaway state spending.

The president, reading from his teleprompter, assured the country that jobs would return—he would make sure of that—while reminding Americans of the mess he had been left by the previous administration. But by the end of 2009 and into early 2010, the blame game had become tiresome to most Americans and Obama's once-lofty poll numbers began to fall.

Obama had now been in office for nearly a full year, and even though his voters were beginning to reconsider their support, Obama still had the backing of the Democrat-controlled Congress. With its help, he had rammed through a stimulus package that didn't work. And now he was vowing to ram through health-care reform that polls showed most people either didn't want or didn't understand well enough to have an opinion about. That's because average Americans understood what the president couldn't or wouldn't: Both measures did little to help Middle America recover from the worst economic disaster since the Great Depression, and the Big Government programs only ensured a huge increase in the nation's already massive deficit.

A growing majority of the American people were coming to realize that the president, for all his political savvy, knew very little about how the economy works. Why nationalize health care when getting a job means getting health insurance? Why stimulate the economy through massive amounts of government spending when businesses usually begin to hire workers when government cuts their costs through lower taxes?

They also realized something else: While they were still suffering, Wall Street was living it up again. If you came to New York and hung around the city's swankiest bars, you could see it happening: twentysomething traders once again ordering bottles of Cristal and bragging to their friends about the killing they made in the markets. In the executive suites of Goldman Sachs they were partying as well; senior Goldman executives weren't bluffing when they promised bankers and traders that 2009 would be a very good year for them if they stuck around through all the political noise as the firm began doling out bonus money to its senior executives.

Blankfein, despite his humble beginning, saw nothing wrong with the subsidized paychecks.

But many Americans saw it differently, and now they were looking for blood.