Bought and Paid For (31 page)

He might have been right. It was later revealed that the night before, Eliot Spitzer brought a prostitute to his room in Washington's upscale Mayflower Hotel. A few months later, Spitzer was forced to resign when “Hookergate” became front-page news.

Bachus still chuckles at the antics of Spitzer, now the disgraced former governor trying to make a comeback as a cable news talk show host, as he does over Wall Street's grumblings about the “rattlesnake” known as Barack Obama. Of course, Bachus doesn't really consider Obama a rattlesnake, just a committed liberal who was able to hide his radical agenda during the campaign. That was back when the financial crisis was threatening Wall Street. Bachus initially wasn't in favor of the bailouts—he voted against the initial proposal by Hank Paulson because he believed all the money spent to save Wall Street's bad investments would come out of the pockets of Main Street (as it eventually did). But in the end, the bailout bill passed as the crisis worsened, with Bachus and many other Republicans ultimately supporting the plan once they were convinced the financial system would collapse otherwise.

It was a bitter pill for him to swallow. He's likely to get a primary challenge this fall from a conservative businessman and pastor, Stan Cooke, who has been endorsed by Sarah Palin's brother and who no doubt will attack him on his vote, which Bachus ultimately viewed as necessary to save the banking system. What he doesn't view as necessary was what happened next: the near-zero interest rates and other guarantees that have made Wall Street trading a no-lose proposition and the feckless fiscal policy of the Obama administration, which has increased spending, expanded government, and done little to actually improve the economy.

But as we've seen, even those responsible for these Wall Street-friendly policies changed their tune when they realized these programs were increasingly unpopular.

And with that realization, the Republican “rubes” in Congress, like Bachus, noticed something odd: The sophisticated Wall Street lobbyists and CEOs had suddenly become their friends. Lobbyists who had stopped by once a month now came by once a week. People like Dimon and Blankfein, who didn't have time in between meetings with Rahm, Barney, Nancy (the Wall Streeters always seemed to refer to the Democratic leadership by their first names), and Obama himself, now fit Spencer Bachus and John Boehner into their schedules (though it is unclear if these executives feel comfortable enough to call Bachus by his first name).

Boehner, himself, wasted little time telling Dimon during one Capitol Hill visit that, if he wanted new friends, he better act like a friend and support the Republicans as the midterm elections approached. Jamie Dimon, the king of Wall Street, lifelong Democrat, proud liberal even from the seat of his limousine, suddenly began to feel powerless. It was such an odd feeling for Dimon. He had been able to call the shots through most of the financial crisis. He had been the go-to guy for advice when the president needed some.

Now he was abandoned by the people he had helped elect, who in his mind owed him so much. He couldn't even turn to the New York delegation for help. Senator Chuck Schumer, once one of Wall Street's biggest supporters, had joined the banker bashing, as had Senator Kirsten Gillibrand, who replaced Hillary Clinton when she became Obama's secretary of state.

Gillibrand explained her position this way: “Seventy percent of New Yorkers hate Wall Street.”

Maybe the biggest disappointment was Representative Carolyn Maloney, who represents Manhattan's Upper East Side, also known as the “silk stocking district” for its wealthy residents, including many Goldman Sachs executives who have given to her many campaigns. Yet Maloney had toyed with the idea of holding hearings on how Wall Street and Goldman Sachs in particular had helped Greece hide its massive debt through derivative transactions, setting the stage for the financial collapse of the country in early 2010. She backed off her Goldman focus, but only after Goldman lobbyists begged her to consider the ramifications for the firm of facing yet another congressional investigation.

Dimon was a Democrat, but he was also a pragmatist, and as the Left abandoned the Street, he led the Street in abandoning the Left, and began to write checks to politicians on the right. People close to Dimon say when he returned to JPMorgan Chase headquarters in New York following his meeting with Boehner, the word was out that the Republicans needed money, and fast.

While some Republicans felt giddy about Wall Street's reversal and the campaign contributions it began to produce, Bachus saw it as part of a bigger pattern: Wall Street loves Big Government because it can feast off its programs, make money off its “infrastructure” spending, and earn its fees selling government bonds to finance deficit.

And yet “they always come calling here whenever they feel threatened,” Bachus said.

Aside from banker bashing, health-care reform became the president's other obsession. As Obama used name-calling to prop up his faltering poll numbers, he was also using the notion of deficit reduction to legitimize his plans to socialize health care, which makes up 16 percent of the economy accounted for by health care. If you believe the administration and the Congressional Budget Office, “Obamacare” would cut the deficit by $136 billion over the next decade by reducing costs, particularly the costs of government subsidies already in place.

Most of the mainstream media barely questioned the analysis. On Wall Street, there was a different reaction.

“We have to do something, but not this,” remarked Tom Nides. Unlike most business reporters, Nides understands that even if you buy the CBO's analysis, the $136 billion in savings over ten years comes out to around $13 billion a year, a drop in the bucket given the size of the U.S
.
economy: $14.2
trillion
in 2009, as measured by GDP. Those much-touted promised savings would amount to only about one-tenth of 1 percent of that GDP.

But more than that, in the relative blink of an eye, Obama had created a massive new government entitlement, which, given the history of entitlements, will almost certainly cost more than originally thought.

Others on Wall Street were becoming petrified. Privately, people like Larry Fink, who ran investment funds tied to the bond market, worried about the burgeoning budget deficit and, of course, what that might do to the bond markets, BlackRock's specialty. “When [Obama] was making the rounds in 2007 and 2008, you never heard him talking about new entitlements, just how we need to get costs under control,” Fink commented to a friend about Obama's new health-care initiative.

The word “privately” is important here: Fink's BlackRock investment fund was among the biggest recipients of the administration's postbailout largesse, receiving contracts to manage the bad debt of failed firms like Bear Stearns and AIG and an assortment of other programs. Nor was he alone.

The trillions of dollars in new debt needed to pay for Obamacare, and for everything else the president had and has in store for the nation, barely registered a peep of caution out of Wall Street's biggest players—many of whom, after all, were making money financing Obama's Big Government agenda. (One noticeable exception was Bill Gross, the CEO of mega-fund PIMCO.) Should the clients of Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs, or Morgan Stanley be snapping up Treasury bonds in light of the massive amounts of debt needed to pay for the president's agenda? Not one of Wall Street's most powerful executives would venture a guess. In fact, for all his “concern” over the deficit, Fink proudly declared during a CNBC interview that the Obama administration had done a great job with the economy.

Will the economy take a hit as interest rates rise on bonds to attract buyers, meaning higher interest rates on everything from mortgages to credit cards? Don't ask Jamie Dimon, Vikram Pandit, Brian Moynihan, Lloyd Blankfein, or any of the other members of Wall Street's brain trust.

The smartest, most powerful men in American finance and their firms remained largely silent on the biggest financial issue of the day—the economic impact of Obamacare—even as a national debate was raging on talk radio, cable television, and the editorial pages of the country's biggest newspapers.

The rating agencies, Moody's, Standard & Poor's, and Fitch, after the embarrassment of failing to warn about the housing bubble were almost equally silent, unless, of course, you count their tepid remarks assessing the slightest possibility that the spending of Obamanomics could cause them to downgrade the status of the U.S. government's triple-A rating someday long in the future. After all, who at the rating agencies is going to risk offending the entire U.S. government, not to mention all the agency's clients, the big banks that provide the vast majority of their business while they feast off government handouts?

It's just another example of what “bought and paid for” is all about.

At bottom, the Street knows that the profits it reaps from its relationship with Big Government are worth being called names. Much of the negative populist rhetoric from the general public and from politicians is recognized by Wall Street as just that, rhetoric.

Likewise, the heads of Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup, and Bank of America—the survivors of the 2008 crash—were coming to the conclusion in late 2009 and early 2010, as the broad outlines of the president's Wall Street regulation began to take shape, that they might not like
everything
that appeared in the new financial reform legislation (which, as this book goes to press, was recently signed by the president), but they liked most of it—around “80 percent” of it, according to an executive at JPMorgan
.

Why so much? It's quite simple. The president may want the banks to give a little more back in the form of higher taxes (that they will just pass on to consumers) or better disclose their trades of the complex securities known as derivatives, but the bill all but assures that the mutually beneficial relationship between DC and Lower Manhattan remains largely untouched.

In the end, both Wall Street and Washington are getting what they wanted: Obama counters the public's perception that he's too soft on Wall Street while being careful not to offend his rich banker friends too much, so he can still tap their campaign cash for the 2012 presidential election. And Wall Street suffers a little in the form of tightened regulation, but even the most free-market of Wall Street kingpins acknowledge, at least in private, that
some
bill was going to have to be paid after they nearly brought down the global economy. In the meantime, they've had two years (or more) to reap many tens of billions of dollars in profits (in that sense, the financial crisis has actually been a net positive for Wall Street), while most important, even though some reduction in profit from the financial reform bill will certainly take place, the key mechanisms that have been the drivers of their historic profits (and bonuses) will remain to generate future returns.

For Goldman, JPMorgan Chase, Citigroup, and the rest, that special too-big-to-fail status is tantamount to the power to print money—because they are guaranteed such protection, they can borrow cheaply to make the risky trades that have returned the firms to record profits.

What better way, if you're the president of the United States, to pay off your largest supporters?

For all the press coverage of the administration's attacks against Wall Street, of Obama's call for more new regulations (did the president ever meet a regulation he didn't like?), there is much that Wall Street would like in the bill and a
lot
more that they like in Barack Obama.

And while Wall Streeters like Gary Cohn, with his assault on Harry Reid, and Jamie Dimon, with his increasingly negative feeling toward the Democrats, have made no secret of their distaste for the rhetoric coming from Washington that paints the typical Wall Street executive as a greedy tycoon, they, like the rest of their staff, can fully appreciate what the president is doing: using Wall Street as a whipping boy for an outraged public but doing little to disturb the status quo as he looks for the same support for his 2012 campaign that he received for his 2008 effort. As one senior JPMorgan Chase executive told me as this book goes to press: “He's already cutting back on the name-calling and soon will be looking for money.”