Finally, Dodd had the White House on his side—he had the president. Connaughton had come back to the Senate imagining that Biden would be their key ally, and he urged Kaufman to pick up the phone and ask his old friend to push Justice about the lack of high-level prosecutions, push Treasury to get serious about financial reform. As always, Kaufman was protective of Biden. Wall Street wasn’t Biden’s issue—it would have taken up half the boat, and the boat was already full with Iraq, the stimulus, and the middle class. Connaughton couldn’t get over the strangeness: their former boss held down the second-highest position in the country, a few steps from the Oval Office, and they couldn’t do a damn thing about Wall Street. The Republicans were a lost cause, so Connaughton saved most of his bitterness for his own team. “You might as well be beholden to the permanent class,” he said, “if you’re going to pull your punches at a moment of national crisis.”
In late April, Kaufman and Sherrod Brown of Ohio introduced an amendment to Dodd’s bill that would limit the nondeposit liabilities of banks to 2 percent of gross domestic product. In effect, Brown-Kaufman would force banks that grew beyond a certain size to be broken up. The two senators took to the floor and went back and forth without a script. Spectacles perched on the end of his nose, Kaufman towered over his desk and chopped the air and his trembling voice declaimed, “In 1933 we made a decision that helped us through three generations. Why are we not passing legislation that’ll work over the next two or three generations? Something that’ll work whether we get a president who believes in the fact that we should have free markets or not? Whether we have a good regulator or a bad regulator? Why should not the Senate of the United States do its job?”
Connaughton was watching on TV in their Russell office, and his mind wandered back down the years and he said to no one in particular, “He’s like Biden.” Later, Connaughton sent Kaufman a note: “There’s nothing more honorable than standing up as the sole dissenting voice on a matter of principle.”
Those weeks in the winter and spring of 2010 were the most intense of Connaughton’s working life. He would get into the office by seven-thirty and keep going even after he returned home at night, opening his laptop and reading till midnight. He spent one whole weekend devouring the two-thousand-page Lehman bankruptcy examiner’s report and then drafting Kaufman’s speech on it. It was as if an old idea of politics that somewhere along the way had eluded him now returned—the years of drift and frustration, the fundraising breakfasts and happy hours, the slow immersion in compromise, all of it faded away and he was back where he had started in Tuscaloosa, dedicating himself to the noblest calling of all.
But that had been three decades ago: years in which Washington was captured—captured—by the money power. He had been captured as well, and until now he hadn’t fully grasped how much the “influence industry”—the lobbying, the media campaigns, the grasstops, the revolving door—had transformed Washington. “When you go back into government, you realize how dramatically asymmetrical it has become with the public interest. Virtually no one walks in your door trying to educate you about the public’s argument.” He had come to see himself as Jack Burden, the narrator of All the King’s Men—tainted and disillusioned by politics. Human nature remained constant, but when the money got so blown out of proportion, it corrupted human behavior in a thousand little ways. “Washington changed me,” he said. “And if it changed me, it must have changed a lot of other people, too.”
There were three thousand lobbyists swarming Capitol Hill, urging Congress not to do anything fundamental about the wreckage the banks had made. Who stood on the other side? An angry but distracted public that didn’t know how to use the levers of power. A handful of bloggers with influence among the persuaded. Back in the eighties, a coalition of labor unions and trial lawyers and consumer advocates could put up a fight, but by 2010 they were largely spent. An organization called Americans for Financial Reform was pushing for a new consumer agency, but Connaughton had to call them and say, “Where are you guys? I don’t feel your presence on the Hill.” If the Brown-Kaufman amendment had been a boon to corporate America, Connaughton would have been working with a team of lobbyists, strategists, and industry leaders to build massive pressure on the Hill. Instead, he was practically on his own.
* * *
Kaufman and Connaughton decided to address the fragility of the stock market. Though it hadn’t caused the financial crisis, the market remained the point of entry for millions of Americans into the world of finance, and it had taken their investments down with it. Like credit, stocks were no longer what they had been when Connaughton was in business school and on Wall Street. Instead of a few exchanges where men in blue coats waved trade orders and shouted to be heard on the floor, the stock market had become a computerized casino, with more than fifty venues around the country, dominated by high-frequency traders—the sharks at the poker table—using advanced algorithms to make thousands of trades a second and profit from tiny fluctuations in stock prices. Connaughton spent months researching these new markets and was stunned by the opacity of the electronic labyrinth. He was a pretty sophisticated investor, but he could no longer say what happened to the trade orders he placed—and none of the insiders seemed able to explain it, either. The ordinary investor was at an immense disadvantage, the market vulnerable to extreme volatility, and the SEC years behind in monitoring it.
Kaufman began pushing the SEC to improve its oversight of high-frequency trading, and at first Connaughton thought they were getting somewhere. Mary Schapiro, Obama’s choice to lead the commission, said that she shared Kaufman’s concerns and the SEC would review the structure of equity markets. At one meeting, an official at the commission told Connaughton, “Wow, it’s great to hear from someone who isn’t from the industry.” No one walked through the commission’s doors on F Street, next to Union Station, other than finance people with a gripe about a regulation. But as Wall Street aggressively fought any but the smallest changes, inertia set in at the SEC, and, once again, nothing happened.
May 6, 2010, was the day when Connaughton’s second life in government began to end. In the early afternoon, the stock market suddenly plummeted seven hundred points in eight minutes before reversing itself, with the momentary disappearance of almost a trillion dollars in wealth. The flash crash, as it came to be called, was caused by the kind of automated trading that Kaufman had warned about. A few hours later, Kaufman was sitting in the presiding officer’s chair when Mark Warner, the Virginia Democrat, explained to the Senate what had just happened. “I have become a believer,” he said, and invited Kaufman to come down to the floor and essentially say to the world, “I told you so”—which Kaufman did. Then he spoke up one more time for his amendment, for a return to the rules and limits of the Glass-Steagall era.
The same afternoon, Chris Dodd, after refusing for weeks to allow Brown-Kaufman to come up, suddenly cleared the way for a snap vote that night. The amendment had been picking up momentum in the press and on Capitol Hill, with even a few Republican senators announcing their support, including Richard Shelby of Alabama, the ranking member of the Banking Committee. It was time to head off Brown-Kaufman.
Shortly before the vote, Dianne Feinstein of California, one of the wealthiest members of the Senate, asked Richard Durbin of Illinois, “What’s this amendment about?”
“Breaking up the banks.”
Feinstein was taken aback. “This is still America, isn’t it?”
Just after nine in the evening, the amendment went down, 61–33.
After the result was announced, Dodd took the floor and told the Senate that it was Richard Shelby’s birthday. Around four in the afternoon, Dodd said, the Banking Committee had brought out a cake and shared it. “So we celebrated in the midst of the debate. It’s important that people in the country know we can have very strong differences, but we also can work together. While we disagree with one another on substantive issues, we can enjoy each other’s company on a personal level,
a civil level.” And Senator Dodd wished Senator Shelby a very happy birthday.
Later that night, Kaufman returned to his office in Russell. Connaughton asked him what he should put into a press release. Kaufman could muster only three words: “I am disappointed.” They had known it was doomed, but the size of their defeat was devastating. In the span of a few hours, they had been vindicated by the flash crash, then thoroughly whipped on too big to fail. The southerner in Connaughton, the romantic believer in lost causes, told the staff, “Some things are worth fighting for.”
* * *
On May 21, the Dodd bill passed the Senate, and on July 21, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. The Volcker Rule was now a ghost of itself, with the details left to regulators. Kaufman at one point decided that the bill was too weak to earn his support, but in the end he voted with his party.
The main lobbying group in favor of a strong bill, Americans for Financial Reform, threw a party and invited Kaufman’s staff to celebrate. The new law, after all, had created a federal agency called the Consumer Financial Protection Bureau—a place at the table for the American public—which was the piece of Dodd-Frank that Connaughton also liked. The event was held in a shabby rented theater far from downtown, and the spread included white bread, baloney, and Doritos. Connaughton thought back to all the corporate events he’d attended in plush downtown conference rooms, with shrimp and roast beef. He was happy to be here.
There were four months left in Kaufman’s abbreviated Senate term, but the big fights were over. Most of them had been lost, or left in a limbo that was worse than losing. For his part, Connaughton would have tossed away all of Dodd-Frank, the Volcker Rule, and everything else for the simple act of enforcing the law. One fastball at Wall Street’s chin, a few top executives going to jail, would have had more effect than all the new regulations combined.
Kaufman, who was going to take over from Elizabeth Warren as the head of the congressional panel overseeing the bailout fund, asked Connaughton what he wanted to do next. Find a job in the administration? Lead a Washington nonprofit for financial reform?
Connaughton imagined himself as an employee of the Interior Department, taking his lunch break out on C Street SW and going up to the hot dog vendor: “You got any sauerkraut today, Harvey?” The idea of joining a nonprofit was just as dismal. It would be one thing if the Republicans were in power, but the guys in the White House were supposed to be on his team. If he was going to take on the establishment, he didn’t see the point of doing it in Obama-Biden’s Washington. One day in late August, he was channel flipping when Glenn Beck came on, telling an immense crowd on the Mall that change didn’t come from Washington, it came from real people in real places around the country. Beck was an asshole, but Arianna Huffington wrote the same thing in a column two days later. They were right. Connaughton felt a sneaking sympathy with the Tea Party.
He could always go back to Quinn Gillespie, but if he spent another day there it was going to be on his tombstone. Instead, the years with Kaufman, the proudest of his life, could be the final stamp on his Washington career. He was approaching fifty-one, and he was tired of being someone’s number two. If he stuck around, doing no matter what, he would have to maintain the fiction that he was a Biden guy and perhaps again be humiliated by the man to whom he’d been loyal for a quarter century. “Honestly and painfully,” Connaughton said, “with Biden as vice president I was tired of being a fraud. I don’t care how much money it means, I don’t care how many people want to buy me drinks, I’m just not going to do it. It would have been a look-in-the-mirror kind of thing.” The more he thought about it, the more it made sense: the only thing to do was leave Washington.
He sold his Georgetown townhouse in a single September day, and closed on November 1. The next day was Election Day. The Republicans retook the House, and whatever chance of holding the banks and the bankers accountable for the last crisis and so preventing the next one was gone. That morning, Connaughton took the train to New York. He had been asked to fill in for another Senate aide on a panel at the New York Federal Reserve Bank, in lower Manhattan. His topic was “Financial Crisis and Financial Crimes.” There were three hundred people in the sixth-floor auditorium—Wall Street executives, regulators, lawyers from the district attorney’s office. He tried to distill two years of work into fifteen minutes.
“First, was there fraud at the heart of the financial crisis?” Connaughton began. “Second, has the law enforcement response so far achieved effective levels of deterrence against financial fraud? Third, are federal law enforcement agencies sufficiently capable of detecting fraud and manipulation, particularly in markets that are increasingly complex? And finally, should Wall Street itself care about all this?”
He paused.
“In short, my answers would be yes, no, no, and yes.”
He reviewed the Justice Department’s failure to bring any high-level prosecutions, in spite of voluminous evidence turned up by the Lehman bankruptcy examiner and the Senate’s Permanent Subcommittee on Investigations. He talked about the SEC’s paralysis in the face of manipulation of the stock market by high-frequency traders. The auditorium was silent, the audience paying attention.
“Senator Kaufman’s term, and my time as a Senate staffer, ends in twelve days,” he said in conclusion, “but this is not a fight for one senator to wage. These are questions that go to the foundations of the rule of law and America’s future economic success. For the common good, I hope you answer them well.”
Outside, he stood at the corner of Nassau and Wall Streets, exhilarated. He had just blown himself up in the heart of American finance. He would never again be a member of the permanent class.
Connaughton’s Senate job ended on November 15. He flew to Costa Rica and immediately went out for an eight-hour hike. When he came back to his hotel room, he turned on the shower and got in without taking off his clothes, standing under the stream and letting it soak him and soak him until he felt clean.
2010
INCOME GAP WIDENS … TEA PARTY LIGHTS FUSE FOR REBELLION ON RIGHT … EXCLUSIVE DETAILS: SNOOKI DUMPED EMILIO—BELIEVES HE WAS USING HER TO GET FAMOUS … @SenJohnMcCain: @Sn00ki u r right, I would never tax your tanning bed! Pres Obama’s tax/spend policy is quite The Situation. But I do rec wearing sunscreen!… If you don’t have money, you cling to your freedoms all the more angrily. Even if smoking kills you, even if you can’t afford to feed your kids, even if your kids are getting shot down by maniacs with assault rifles. You may be poor, but the one thing nobody can take away from you is the freedom to fuck up your life.… IT’S THE LAW OF THE LAND: HEALTH OVERHAUL SIGNED … BANKS PREPARE FOR BIG BONUSES, AND PUBLIC WRATH Goldman Sachs is expected to pay its employees an average of about $595,000 apiece for 2009, one of the most profitable years in its 141-year history.… JUSTIN BIEBER FEVER HITS MIAMI … CHINA PASSES JAPAN AS SECOND-LARGEST ECONOMY … BOTH PARTIES SEEK WAYS TO CHANNEL POPULIST IRE … I’m sure there will be times in the months ahead when you’re staying up late cramming for a test, or dragging yourselves out of bed on a rainy morning, and wondering if it’s all worth it. Let me tell you, there is no question about it.… you don’t take the name Barack to identify with America. You take the name Barack to identify with what? Your heritage? The heritage, maybe, of your father in Kenya, who is a radical? Is—really?… 99 WEEKS LATER, JOBLESS HAVE ONLY DESPERATION … I’m not a witch. I’m nothing you’ve heard. I’m you. None of us are perfect, but none of us can be happy with what we see all around us: politicians who.… Khloe Kardashian forgot to get a bikini wax before her husband, Lamar Odom, came to town, so her sister Kourtney—who has been waxing herself for years—offered to do the job. The story ended with a badly burned vagina.… OBAMA SIGNS OVERHAUL OF FINANCIAL SYSTEM … REPUBLICANS WIN HOUSE OF REPRESENTATIVES WITH VICTORIES NATIONWIDE … I never thought about love when I thought about home / I still owe money to the money to the money I owe / The floors are falling out
from everybody I know
CITIZEN JOURNALIST: ANDREW BREITBART
In February 1969—when the CBS Evening News with Walter Cronkite, the most trusted man in America, was watched by twenty million viewers, or one in six households—a three-week-old baby boy of Irish descent was adopted in Los Angeles by a Jewish steakhouse owner and his banker wife, Gerald and Arlene Breitbart, and given the name Andrew.
When Andrew was two, The New York Times and The Washington Post published the Pentagon Papers, defying threats by the Nixon White House. The next year, Bob Woodward and Carl Bernstein were assigned by the Post to cover a break-in at Democratic National Committee headquarters in Washington. Andrew’s toddler years coincided with the golden age of Old Media.
The Breitbarts were upper-middle-class Republicans (four bedrooms, a pool, a canyon view) living in rich, liberal Brentwood. Andrew grew up on American pop culture, British new wave, and Hollywood celebrity. “Which famous people come into the restaurant?” he would ask his father (the Reagans, Broderick Crawford, Shirley Jones and the Cassidy family, lots of other celebs). Andrew took tennis lessons from the top pro in Malibu and once spent fifteen unforgettable minutes looking for the instructor with Farrah Fawcett.
Andrew was eleven when the Cable News Network went on the air in 1980. He was thirteen when The McLaughlin Group and Crossfire introduced yelling heads to news analysis. From early on Andrew was a breaking-news junkie. At the Brentwood School he made up for being neither famous nor rich by cutting up in class and inventing droll quotations for stories in the Brentwood Eagle about high school social life. To keep up with his friends, he had to take a job delivering pizzas and pocketed big tips from the likes of Judge Reinhold. Basically, he was “the ultimate Generation X slacker,” Breitbart later wrote, “not particularly political, and, in retrospect, a default liberal. I thought that going to four movies a week, knowing the network television grid, and spending hours at Tower Records were my American birthright.”
The Unwinding Page 34
