Bought and Paid For

by Charles Gasparino

  Inside the Goldman boardroom or even at Treasury, such a confrontation would constitute fighting words for Paulson, who is known for frequent outbursts and cutting off people who he believes are wasting his time. According to Wall Street executives who spoke to Paulson, the former Treasury secretary believed firmly that McCain was wasting his time, as was his running mate, Sarah Palin, who called him from time to time as well.

  But Paulson’s temper was no match for McCain, who truly appeared disdainful of the former investment banker now leading the bailout of his old firm and the rest of the Street. It’s what seemed to separate Obama from McCain; at least, that’s what Paulson’s remarks about his meetings with McCain and Obama conveyed to Wall Street. Obama treated Paulson and the rest of the Wall Street elite with respect during his meetings and telephone calls around the time of the crisis, as if they were partners and would rise out of the crisis together.

  McCain, on the other hand, barely spoke to the Wall Street elite, unless, of course, he was pissed about the bailouts and what they did to his campaign. It was clear, at least to most of Wall Street’s ruling figures, that McCain seemed to think Wall Street wasn’t a partner but the enemy, the reason why the country was sinking into a near depression, and the reason why after running neck-and-neck with Obama for so long, his own campaign was now losing ground and would ultimately fail.

  So Paulson, as he told his friends on the Street, just took the abuse. He didn’t like being screamed at by McCain, but he wasn’t about to pick a fight with a senator who had survived a couple of jet crashes, years as a North Vietnamese prisoner of war, and thirty years of politics. Especially not when, as he and the rest of the Street hoped, after November, McCain would go back to being the crazy senator he’d always been and Wall Street would breathe a collective sigh of relief that grew louder with each and every appointment by the new president-elect.

  In the late fall of 2008, the heads of the big firms, of course, had seen better days. They were beaten and bruised, though bailed out. John Mack seemed barely alive, in a state of exhaustion after working nonstop for weeks and having barely saved Morgan Stanley, something that would not have happened were it not for a combination of government bailout money and the sale of a chunk of the company to a Japanese bank. Ditto for Goldman; it was a bitter pill for Blankfein to swallow, but with the bailout money from the feds and a cash infusion of around $5 billion from Warren Buffett, as well as the side benefits of the AIG bailout, which will be explained in more detail later, Goldman escaped almost certain death, as had Citigroup, Bank of America, and JPMorgan Chase. Jamie Dimon’s prowess at risk management had kept JPMorgan from immediate implosion, though he, like the rest of them, recognized that without the federal government standing in the way, his firm could have gone down the tubes as well.

  But at least they now had Obama, they all reminded themselves during their fancy lunches at San Pietro and expensive dinners at the Four Seasons in the days and weeks after the election, a man not much different from themselves, a man whom they could do business with.

  Nides himself was giddy with excitement. Morgan Stanley was known for its blue-blood Republican ties, but he had convinced Mack, a former Bush fund-raiser, to jump to the other side. After a year of fund-raisers for Obama, Morgan Stanley was now clearly part of Obama country, and Nides one of the president’s closest allies. And the payback would be grand.

  “So, do you want to come to the administration?” Those were the words Nides heard from his close friend Rahm Emanuel not long after Obama’s victory, according to bankers briefed on the matter. For his hard work during the campaign, for his political skill in laying out to Mack and the top brass at Morgan that 2008 would be a Democratic year, Nides was being offered a reward: a substantial job in the new administration, perhaps a key post at the World Bank or maybe as number two to Tim Geithner at Treasury. Whatever it was, the job would be a prestigious one.

  Nides thought hard. Usually such jobs in government lead to even bigger jobs on Wall Street later, and with the Republican Party in disarray, political talking heads were already speculating about a second Obama term, which meant that Nides’s connections—not just Rahm Emanuel but also those he would make at government on the new job—would be there waiting for him when whatever “private sector opportunity,” as such positions (which often involve lobbying one’s former colleagues in government) are euphemistically labeled, came his way.

  But in the end, Nides declined—at least for the moment. He was making too much money, or to be more precise, was ready to make too much money, at Morgan Stanley now that his pals were running the country. Plus, he hoped the bailouts would have the same effect they had had in the past and Wall Street would soon begin to recover. Just look at the profits it had amassed in 1999, after the 1998 implosion of LTCM. That year, Wall Street had had one of the greatest runs in its long history, and despite the current dismal state of affairs, many on Wall Street believed prosperity was right around the corner once again if Obama, of course, remained a friend and ally as he had promised during the campaign.

  Emanuel, meanwhile, assured Nides he had an open invitation to change his mind and join up with the winning team—to “give back,” as the Wall Streeters who hop between government and finance call their frequent government forays. That made Nides relax a little because having friends in Washington was more important than ever for the remaining Wall Street firms and banks.

  These banks owed their very continued existence to Big Government, and as Nides knew full well, they would owe their profitability and big bonuses to Big Government’s continued largesse as well. Wall Street, if it was to not just survive but thrive once again, would need the key ingredients of the Bush bailouts, the levers provided by Big Government, to remain firmly in place: the guarantee of the banks’ survival known as “too big to fail” and the superlow interest rates granted by the Fed that allowed them to borrow cheaply and earn money simply by investing in something that returned just a little more, not to mention direct capital infusions (a fancy way to avoid using the hated term “bailouts”). All this, controversial as it was, ultimately allowed the banks responsible for one of the worst economic crises in history to make a ton of money while the rest of the country suffered.

  But Nides, like his more powerful Wall Street brethren Lloyd Blankfein, Jamie Dimon, John Thain, Ken Lewis, Vikram Pandit, and the heads of the other banks, didn’t represent the rest of the country; they represented themselves, and they had made an investment in the new administration of “hope and change” to not change things too much.

  Basking in the glow of being Obama’s guy, Nides gave his first speech as the new head of the Wall Street lobbying group SIFMA, in which he laid out his game plan for how Wall Street and Washington would navigate an uncertain future. The event was held at the Marriott Marquis hotel, just a block from Morgan Stanley’s headquarters in Times Square and conveniently located just a short distance from the Midtown Manhattan headquarters of the other big banks, which, with the exception of Goldman, no longer considered the Lower Manhattan financial district home.

  It was a star-studded affair. Among those in attendance was Jamie Dimon, who was basking in his stature as the new king of Wall Street, having navigated J.P. Morgan through the financial crisis better than the rest. There was, of course, a good reason why throughout the campaign, his PR team kept telling reporters that Dimon was avoiding direct involvement in presidential politics because he was on the board of the New York Federal Reserve. After all, Wall Street execs who serve on the board of the New York Fed have a role in the policy making that directly affects their own profits and losses. If that sounds like a conflict of interest, well, it is. What’s more, the board helps elect the New York Fed president; most recently, in 2003, the board had chosen Tim Geithner, who was now going to be Obama’s Treasury secretary.

  In other words, without Jamie Dimon’s raising a dime for Obama (though others inside JPMorgan Chase had raised many, many dimes) the king of Wal
l Street was already close to one of the men who held Wall Street’s purse strings—and now that same man was working for the president. In fact, it wasn’t just Dimon but Wall Street as a whole was thrilled with Geithner’s appointment; upon the news of his selection, the Dow jumped 6.5 percent.

  The reason: Traders viewed Geithner as a familiar, steady hand. “At least he didn’t appoint Bill Ayers,” one trader told me after the announcement. Another reason for the apparently euphoric reaction was that Geithner (who, public myth believed, used to work on Wall Street) was ready to do whatever it took to make the banks profitable again. In reality, he, like the vast majority of Obama’s senior staff, has no real business experience. Geithner is actually a career bureaucrat, albeit one with a soft spot for the banks, as he’s spent pretty much his whole career in Lower Manhattan. New York magazine’s John Heilemann even quoted one hedge fund manager as saying, “No one here would ever hire Tim to run a business, because he doesn’t understand how to run a business. He’s a good guy, a smart guy, with a good heart. But he’s, you know, a regulator.”

  The Street’s somewhat condescending attitude toward Geithner would be reflected in the rapid 382-point drop in the market after Geithner released his half-finished crisis-response plan in early 2009. It came just weeks, of course, after the news that Geithner would be Obama’s Treasury secretary had sent stocks soaring. The problem now was that Wall Street had expected so much from Geithner and he seemed to be delivering so little, at least initially. When Wall Street fully digested the economic plans of Geithner and Obama, stocks would post one of their strongest rallies in decades, rising from six thousand on the Dow Jones Industrial Average to more than ten thousand, even as unemployment remained at great recession levels. Traders began to bet that even if Middle America remained depressed, Wall Street and the banks would prosper, and thus so should the markets.

  As Heilemann observes, “The irony here was rich, of course, since Geithner’s stabilization scheme would turn out be strikingly favorable to Wall Street, as all would eventually see. From the outset, his aim was never to punish the banks. Quite the contrary, it was to save them—by pouring money into them, restoring confidence in them, treating them with kid gloves. . . . ‘His office was there and he was deeply enmeshed in that culture and he had those relationships,’ says one of his best friends.”

  Nides, of course, had his own pull inside the Obama administration in the form of his buddy Rahmbo, which is why he felt confident enough during his speech to the group to promise hope and opportunity, just as his new president might have done, to an industry that was beaten, bruised, and hated by the general public.

  “We are navigating these waters with prudent but deliberate resolve,” Nides said during the speech, with Dimon and the rest of Wall Street listening intently. “We will work with policy makers to fashion meaningful but sensible reforms.”

  Listening to Nides that night, people in the audience seemed to forget, at least for the moment, that the financial collapse had ever happened.

  Others weren’t so sanguine.

  5

  “WE KNOW EACH OTHER FROM CHICAGO”

  While Tom Nides, Jamie Dimon, and others were celebrating the news of Obama’s victory, Joe Perella was digesting that news at his usual corner table in his favorite restaurant, San Pietro, in Midtown Manhattan, where the Wall Street elite gather each afternoon to dine. Perella is no ordinary Wall Street executive—he’s a legend in the arena of investment banking after a forty-year career in which he worked at the top of two large investment banks (First Boston and Morgan Stanley) and launched two “boutique” investment houses, the first one with Bruce Wasserstein (the same bank that Rahm Emanuel would later work for) and a second with a former partner from Morgan Stanley.

  Unlike his friends seated at the other tables, Perella wasn’t giddy with excitement over the Obama presidency and the prospect of tapping into the wealth that Big Government can shower on Big Business. Rather, he was worried about the future, not just for Wall Street but also for the country. Perella is a tall, intense man who loves to eat expensive Italian food and gossip. Despite being among the most connected, respected, and charismatic executives on the Street (his affability is one of the main reasons he has such deep relationships with just about every major CEO in corporate America), he’s known for an occasional outburst of emotion.

  Now was one of those times. “I can’t believe these guys voted for Obama!” he snapped as he sat in San Pietro watching his friends wolf down expensive pastas with what seemed like not a care in the world, just a couple of months after financial Armageddon. Many of Wall Street’s top brass were now bragging about how well they knew the new president, not just how much they liked and admired him. “We knew each other from Chicago,” Jamie Dimon boasted one afternoon. The way Dimon explained it, the two had become acquainted when Dimon was CEO of Bank One, the large Chicago-based bank, and Obama was just a state senator on the rise.

  Dimon always took great pride in his ability to understand the political side of his job as a Wall Street executive; back when he was Sandy Weill’s right hand at Citigroup, he had made sure that his firm hired political advisers across the country, helping the firm meet politicians in charge of municipal bond business. It should thus come as no surprise that under Dimon, Citigroup had become one of Wall Street’s top underwriters of municipal debt, particularly in the Chicago area that gave both Obama and Emanuel their start in politics. That’s because one of those political advisers Dimon hired while he was at Citigroup was the law firm of Daley & George, run by Michael Daley, the brother of Chicago mayor Richard Daley. Now at JPMorgan, Dimon was turning to another Daley brother, Bill, who, like his siblings, is a mover and shaker in Democratic Party circles. He’s built local ties to people like Emanuel and Obama’s chief political adviser, David Axelrod, and, of course, the president himself. On the national level Daley served as secretary of commerce for Clinton and chairman of Al Gore’s failed presidential campaign in 2000. Dimon hired Daley (whose ties to the Obama administration were so close that he was approached about becoming ambassador to China) after deciding that the firm’s government outreach efforts were insufficient (he graded his own contributions in this area as D level).

  Daley, now Dimon’s vice chairman at the bank, was, according to people there, largely responsible for handling political matters, including the biggest political matter now at hand, how to influence the White House, where a Chicago native had just won the presidency. And with Daley on the case, the Dimon-Obama relationship was flourishing even more.

  Like the rest of the Chicago business elite, and indeed the Wall Street elite, Dimon has said he was impressed with Obama’s obvious intellectual gifts and smitten by his charm, so smitten, in fact, that he would later admit he had no idea that in a South Side Chicago church Barack Obama had come to love and admire the radical minister Jeremiah Wright. Perella, on the other hand, had begun researching Wright after hearing on NPR that the minister who had once preached “God damn America” and spewed anti-Semitic bile was also Obama’s “spiritual mentor.”

  Even as far as radical pastors go, Wright pushed the boundaries. He once called Italian Americans “garlic nosed”; blamed “them Jews” for Obama’s leaving his church during the campaign, and honored Nation of Islam leader Louis Farrakhan as a leader who “truly epitomized greatness” while preaching a Marxist religious doctrine known as Liberation theology.

  This is the guy all these jerks voted for? Perella thought, as he heard John Mack’s and Larry Fink’s continued assessments—both before and after the election—of Obama as “moderate.”

  Initially, Perella had just kept shaking his head in disbelief. But now he couldn’t take it any longer. One weekend shortly after the election, Perella was hanging out at a friend’s estate in East Hampton, New York, and the conversation turned to Obama and how lucky the country was to have someone of his skill and intelligence in the White House, particularly after eight years of the “failed”
Bush presidency. Perella soon discovered that he and his wife were the only people there who had voted for John McCain—and he couldn’t take it anymore. As he listened to the dialogue, he realized this group of very rich, very smart New Yorkers, who received most of their information from the left-leaning New York Times, had no idea that Obama was not just a little left of center but was ranked as the most liberal U.S. senator by the prestigious National Journal. They had no idea that during his years as a state senator (a relatively low-level office that nonetheless he had held longer than any other elected position to date) he wasn’t exactly a profile in courage, that rather than take an actual stand by voting “yes” or “no” on important legislation, he frequently merely voted “present” as a way to avoid taking either side. They had never listened closely to all those speeches where he waxed poetic about hope and change while more than hinting at his expansive (and expensive) spending plans like socialized medicine that would certainly lead to massive tax increases. And more than anything else they had no idea about his connections to the radical Reverend Jeremiah Wright, despite the fact that when videos of the reverend’s rantings were made public, Obama and his wife, Michelle, feigned disbelief that their “spiritual mentor,” the man who had baptized their children and served as the family pastor for nearly two decades, actually harbored such thoughts.