And as reported by New York magazine’s John Heilemann, Obama rewarded these generous contributions to his campaign by letting some of these bigwigs, including Dimon and UBS’s Robert Wolf, into his inner circle. It’s worth noting that UBS is under investigation for tax fraud and is one of the biggest purveyors of subprime loans and debt.
The sheer scale of Wall Street’s profits, beginning with the Bush bailouts and continuing with policies advocated by the Obama administration, is mind-boggling: Take just one firm alone, Goldman Sachs. Just over a year after the entire financial system nearly collapsed, Goldman reported profits in excess of $13.4 billion for 2009. Nor is Goldman alone in reaping the benefits of having put Obama into office. The other major firms reported gigantic profits as well. In the first quarter of 2010, Goldman, JPMorgan Chase, and Bank of America all reported that their trading activities didn’t lose money on one single trading day—an extraordinary achievement made possible only by the generous support of the American government and taxpayers.
Once again, the irony of Wall Street’s love affair with Obama is that the conventional wisdom (as put forth in the mainstream media) about the Street’s relationship with the president is so different. If you read the New York Times, you would think that Obama was leading the anti-Wall Street charge that has now targeted Goldman Sachs, which is fighting securities fraud charges brought by the SEC (whose chairman, Mary Schapiro, was appointed by Obama). Or that Obama’s landmark victory was a rejection both of the mindless greed of bankers that led to the market crash and of eight years of Republican rule—a rejection, that is, of everything from the war in Iraq to the business-friendly environment of the Bush administration, which in the media’s portrayal allowed Wall Street to run wild, sowing the seeds of a banking system collapse that could be stopped only by the unprecedented expenditure of hundreds of billions of dollars in bailout money.
During the 2008 presidential campaign, as I pointed out, Wall Street, like the majority of voters, fell in love with Barack Obama and overwhelmingly supported him over John McCain, a politically moderate Republican (with a very immoderate temper) who vowed he would cut taxes rather than raise them, as Obama promised. But paying a few more bucks in taxes never really bothered the men who run the big Wall Street firms. What they look for in a president, or for that matter any elected official, is someone they can work with; someone with an appreciation of what they do and who can help them in times of need. The bankers at the big firms may grouse that Obama has used banker bashing as a political weapon as the 2010 midterm elections approach and Wall Street’s unpopularity with the public grows, but according to a senior executive at Goldman Sachs (the target of much of the abuse) and others, he’s doing it not out of conviction but out of convenience, because he needs to show a legislative victory in the financial reform bill, and attacking Wall Street is the best way to drum up popular support for the initiative, which he has now signed into law. As a senior executive at Goldman recently told me, “Obama couldn’t give a shit about all this anti-Wall Street stuff. He needs to bash us to get his bullshit financial reform through Congress.” (The notion of financial reform being “bullshit” is something we’ll discuss later in this book, but suffice to say, Wall Street is already finding ways to dance around the legislation.)
If you think the facts behind the financial collapse are complicated, the story of why the financial services firms went out of their way to support Obama is really quite simple. Simply put, in Obama they saw an ally, someone who would support them while in McCain they saw someone who at best was noncommittal to thier agenda. The former POW and famously cantankerous senator never had much of a relationship with Wall Street for two reasons: First, he was a senator from Arizona, not exactly a financial services mecca, and for the most part, he couldn’t stand being in the same room with guys who compared trading bonds for a living with warfare. As a man who had survived the brutality of war in the most literal sense, he found their talk unbearable.
And it was an attitude that permeated his staff. “These guys couldn’t give a shit about what we think,” an exasperated Steve Schwarzman snapped at an aide when he came back from a strategy session at McCain campaign headquarters in Washington. As opposed to his former partner Gallogly, Schwarzman was a staunch Republican. But the founder of the private-equity giant Blackstone with a net worth well into the billions of dollars wasn’t used to being told his views didn’t have much merit, even if that was the message he received from McCain’s staffer one afternoon. The actual message delivered to Schwarzman from the McCain aide was actually more polite, primarily because it was delivered by the aide and not by McCain himself. But the meaning was the same. It was as if the old man, who despite his temper can be disarmingly charming, had told Schwarzman to “shut the fuck up,” as he had told so many people during his long political career.
Even so, Schwarzman was one of the few Wall Street executives who continued supporting McCain, and not just because he was a registered Republican. He had actually listened to some of Obama’s plans while other CEOs were busy swooning over the rock star who would be president.
“They didn’t add up,” he remarked at the time. Listen closely, Schwarzman told his friends, most of whom didn’t believe him, and beneath the soothing rhetoric is a radical agenda of spending, spending, and more spending. Schwarzman couldn’t understand why his friends on the Street—and he knew just about everyone of note at every major bank—didn’t understand what they were supporting; they worked on Wall Street, after all, so why couldn’t they add?
It dawned on him after attending a few meetings with both John McCain and his staff. “This guy just doesn’t give a shit about what we think,” he thought, and Obama did. With that Schwarzman also concluded that his own vote and the money he would like to raise for McCain would be overwhelmed by the Wall Street juggernaut lining up behind the community activist turned Wall Street’s best friend.
McCain, it should be noted, did have some other Wall Street supporters, most notably Merrill Lynch CEO John Thain, but the rest of the Street, it appears, abandoned him. Why? In various interviews, some of the Wall Street CEOs and their senior staff told me they didn’t want another four years of what they saw as the failed policies of the Bush administration. Others say they couldn’t bring themselves to vote for a ticket that included Sarah Palin, who they believed was insufficiently educated in foreign affairs or, for that matter, anything else. To the Wall Street elite, as to most of the East Coast intelligentsia, the notion of what they saw as this rube from Alaska being the proverbial heartbeat away from the presidency was unthinkable.
John McCain, meanwhile, never came across as a guy who would go to bat for Wall Street; he didn’t have a close personal relationship with any of the big CEOs, as Obama had with Gallogly, with Bob Wolf of UBS, later with Jamie Dimon of JPMorgan Chase, or with Blankfein’s number two, Gary Cohn, who was an early supporter. In fact, based on his conversations with Treasury secretary Hank Paulson, a former CEO of Goldman (and Blankfein’s ex-boss), it seemed that McCain was so angered by the burgeoning financial crisis and what it had done to his campaign (turned an even race into one that favored Obama) that he seemed like a guy who, if he had his way, would let them all, Goldman included, simply fail.
Another possible reason for the bankers’ support of Obama over McCain was McCain’s natural distrust of their motives.
“Why the fuck would you do that?” snapped McCain into his cell phone, his face turning red and his finger jabbing in the air as if he were pointing right at his target. He wasn’t, of course. The target, Treasury secretary Paulson, was at the White House, where he had just unveiled the latest bailout plan for Wall Street: a multihundred-billion-dollar program to keep Wall Street alive.
The financial crisis had severely wounded the McCain campaign, which made the old fighter pilot even more ornery toward Wall Street types like the Goldman banker turned Treasury secretary. And now McCain felt that the crisis and the government’s solution�
�to just give the banks money to prop them up—would put his campaign on life support.
McCain was huddled with campaign chief Rick Davis and advisers Greg Wendt and Douglas Holtz-Eakin in a conference room in his campaign headquarters in Crystal City, Virginia, overlooking Reagan National Airport.
It was a few weeks after Lehman’s failure, and the financial system was still in shambles, with banks losing money, losing clients, and falling into insolvency. Paulson said the new batch of money—and he recognized it was indeed a lot of money—was needed to save the banking system and the economy. Without massive direct infusions of capital the big banks—nearly every firm, including his old firm—were doomed. And if that happened, no one would lend, no one would borrow. The banking system would shut down. The economy, already in a fragile state, would collapse. Think bread lines and the Great Depression.
McCain wasn’t buying the entire sob story. What little he knew of Wall Street he didn’t like. He considered most of the people who ran the banks spoiled brats and ruthless opportunists. Why wouldn’t they just take the money, wait out the panic, and then begin using the taxpayer funds to pay themselves big bucks, with bonus season quickly approaching?
McCain’s advisers weren’t witness to the whole conversation, just McCain’s blunt responses, bitten lips, and angry gesticulations as he listened to Paulson explain the plan. “Huh? What the fuck?” McCain said at one point. “How the fuck can you trust them?” he screamed at another.
He was, of course, right not to trust Wall Street, which, just weeks after getting its collective ass saved, handed out billions in bonuses to traders and bankers (Goldman doled out $4 billion in bonuses in the bailout year). That was of little consequence to McCain, who reluctantly went on to publicly endorse the Paulson bailouts and lose the election, in large measure because he lost Wall Street support—the millions of dollars in campaign contributions that other Republicans often count on to combat attack ads like those that Barack Obama unleashed in all those battleground states that McCain lost.
“Thank God he’s not our president,” one senior Wall Street executive told me, referring to McCain, the day after Barack Obama made history and became the nation’s first African American president. “Obama is at least smart; he’ll know what to do about the economy. McCain would be a disaster.”
At this point, explaining some of Obama’s blind spots—his liberal voting record, his associations with Ayers and Wright, and his plan to balance the budget while expanding the war on terror to include Afghanistan, creating a new health-care entitlement, and proposing nearly $1 trillion in stimulus spending—could do little to convince any of Obama’s many Wall Street supporters that they had made the mistake of a lifetime. Not only were they thrilled to support a winner and someone who so eloquently articulated their own desires to change the world (as long as they made their millions in the process), but they simply hated McCain because they knew he hated them.
And as the election season wore on, they came to love Obama. In addition to meeting with the bankers at Johnny’s Half Shell, Obama continued to meet with the big Wall Street executives throughout 2007 and 2008 at fund-raisers and private events, where he came across as nothing short of a moderate. If John McCain was sneering and screaming at Paulson about the mess his friends on Wall Street had put his campaign and the country in, Obama calmly asked for advice in fixing the system. Yes, that’s right, advice. He was asking the very men who had created the problem to come up with ways to fix it. He wanted a partnership to spur the economy that would help him do all the great things he wanted to do, from fixing the health-care problem to creating a “green” economy to help save the environment.
“And who could be against that?” Jamie Dimon quipped one afternoon, as he thought back on the reasons he found Obama so refreshing. Dimon, the son of a stockbroker, who had been working on Wall Street ever since he graduated from Harvard Business School, saw so much he admired in Obama that while he didn’t officially support Obama (press aides say that because he was on the Federal Reserve Board he couldn’t overtly support anyone) he let it be known that he wanted his top executives to do what they could to get this breath of fresh air elected. And they did, and they weren’t alone.
They had good reason, because Obama seemed so smart and polished and, most of all, moderate to the Wall Street titans, people like Larry Fink, John Mack of Morgan Stanley, Greg Fleming, and many others. As much as Dimon loved Obama, he couldn’t hold a candle to the love shown by Lloyd Blankfein and Goldman Sachs.
In September 2008, when the financial collapse was at its peak and Wall Street’s world was collapsing, Goldman contributed $596,000 to the Democrats, including then candidate Obama, nearly eight times what it gave the Republicans that month. JPMorgan Chase gave nearly $230,000 to the Democrats, nearly two and a half times what it gave the Republicans.
Obama rewarded the bankers’ expectations and eagerly filled key jobs in the administration with their surrogates, who quickly enacted policies that added to their bottom lines during the next two years and further supported the notion that the big banks must be kept alive at all costs.
Yet with the surge in profits during 2009 and into 2010 came something that not even President Obama saw coming: a surge in outrage. Obama had planned a massive stimulus package to stop the rising unemployment he was saddled with. The plan was simple: Give states money to fund infrastructure projects, and people would be put back to work. That was the theory Obama sold to Congress, which in turn sold it to an increasingly desperate public. The reality was far different. The states hoarded the cash and kept their bloated bureaucracies in place. To be sure, some of those “shovel-ready” jobs were in fact created, but not enough, not even close to spur the economy into hiring, and unemployment skyrocketed. In some industries, like construction, joblessness rose to above 20 percent.
Wall Street’s support for Obama certainly isn’t completely devoid of ideology, but its driving force is without a doubt the opportunity to make money from his Big Government agenda. The Wall Street executives who lined up behind Obama will say they are all committed liberal Democrats who were looking for someone new—a postpartisan president, so to speak, who could shape the country in ways others couldn’t or wouldn’t. “Hope and Change,” Obama’s campaign slogan to millions of new voters, minorities, and young people resonated in Wall Street boardrooms as well, a special irony given that so many of his far-left supporters would have felt sick knowing that the message they were embracing so eagerly was also embraced by the same men they felt embodied the laissez-faire, free-market capitalism that they so detested.
Despite the seeming differences between these two groups, on some level most of today’s Wall Street brass have more in common with Obama’s young, idealistic supporters than meets the eye. The new breed of Wall Street executive is far more progressive, far more liberal, and thus believes to a far greater degree in his or her broader responsibilities to the country, to mankind, than his or her predecessors, who many assumed were myopically focused on their individual net worth and their firms’ bottom lines.
Maybe that’s why it seems Dimon has gotten along so well with Obama for the past year. Both are cut from the same cloth. Obama is the essence of a limousine liberal who distrusts the masses clinging to “their guns and their religion.” Dimon, despite his skills as a chief executive, isn’t far behind. For a CEO who runs a company that does investment banking and safeguards customer deposits in branch offices across the country, Dimon isn’t bashful about spouting the liberal talking points.
He has railed against measures to scale back illegal immigration, likening people who worry about border lawlessness to xenophobes who would have kept his grandparents from immigrating to the United States from Greece; he has called for increased spending on inner-city schools, some of the most free-spending, profligate bureaucracies in the country; he has advocated for increased spending on the country’s infrastructure, despite the fact that the cities and states that do much o
f the road and bridge work can’t afford to go into any more debt to pay for these projects. At work, he tells his staff that “giving back” to society is a necessary ingredient to being a Wall Street executive.
It’s why shortly after taking over at JPMorgan Chase, Dimon began requiring executives to contribute substantially more in health-care premiums to subsidize their lower-wage colleagues. Similarly, Dimon has instituted what Noam Scheiber of the New Republic has described as “nanny-state paternalism” at the company. At a recent health-care conference, Dimon said, “[I]f a JPMorgan Chase employee has diabetes and we don’t see claims for insulin and for eye exams, they get a phone call.”
All this is why his staff says when he retires he’ll most likely become a college professor, a line they used whenever rumors have swirled that Dimon’s close relationship with Obama would lead him to a job in the White House, possibly succeeding Tim Geithner as Treasury secretary.
Dimon isn’t alone among the Wall Street life embracing progressivism. John Mack openly supports health-care reform (he and his wife have created a charity dedicated to promoting health-care reform and alternative medicine), and in 2007 he made waves by announcing that he had switched parties to endorse the Democrats, namely then-candidate Hillary Clinton for the 2008 election because of her record supporting that cause. He also serves as chairman of the board of one of New York’s biggest hospitals (NewYork-Presbyterian).
Hank Paulson was an avowed environmentalist as CEO of Goldman Sachs before he led one of the greatest ever governmental interventions into the free markets as Treasury secretary. In that position he was one of the key architects of the now-infamous Wall Street bailout, which New York Times columnist Gretchen Morgenson estimated in one column well exceeds the already enormous $89 billion the Obama administration says it cost taxpayers.
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