"The two-party system remains not because both are
rigid but because both are flexible. The Republican Party when I entered
Congress was big enough to hold, for example, both Robert Taft and Wayne
Morse - and the Democratic side of the Senate in which I now serve can
happily embrace, for example, Harry Byrd and Wayne Morse."
-----John F. Kennedy “Profiles in Courage”
What Kennedy was
describing, in the opening pages of his Pulitzer Prize-winning book, was not
only the ‘flexibility’ of our two major political parties, but the ‘umbrella’
nature of these institutions. He was
alluding to a time when both parties were able to embrace nearly every American
from the usual ‘moss-back’ conservatives to the most ‘enlightened’
liberals. In my youth political figures
from John Eastland, and George Wallace to Hubert Humphrey and the Kennedy’s
found a home under the ‘umbrella’ of the Democratic standard. Likewise leaders ranging from liberals Jacob
Javits, and Charles Percy, to bedrock reactionaries like Strom Thurmond and
Barry Goldwater found equal solace beneath the shadow of the political
pachyderm. Both parties competed for the
‘political center’, producing a civil and stable political consensus. And, yes, each party in turn was moved to
welcome the irascible Wayne Morse of Oregon.
Political parties
serve as the arteries of the Republic, organizing public opinion and guiding it
through the organs of government breathing life to governance as well as
purpose to policies. In my youth the arteries of the republic were, to use
Kennedy’s terminology, ‘flexible’ and supple.
The “hardening” of
these arteries, if you will the Political Stenosis, of American politics
began with the headlong assault on America’s political consensus by Barry
Goldwater in 1964, gathering steam with the ‘white backlash’ in the
congressional elections of 1966, and ending up with the permanent re-alignment
of the major political parties with Nixon’s ‘Southern Strategy’ in 1968. By the
end of the 1970’s and the emergence of Ronald Reagan the process was nearly
complete as the siren song of the political wrong divided the country into two
political camps. The story is a long and
sordid one the details of which don’t concern me here. The point is that the “New Deal” consensus
was destroyed, primarily by a headlong ideological assault based on literary
fiction (1) giving an ‘intellectual’ veneer to racial politics. What has filled the vacuum is a ‘consensus’
of an entirely different order.
In an article
adapted by Andy Kroll and first appearing on the blog TomDispatch, Nomi Pins, a
former Wall Street executive turned author of six books including “All the
President’s Bankers: The Hidden Alliances that Drive American Power”
(Nation Books), details the sordid connections between Wall Street Bankers and
Investment firms and the government that purports to regulate it. What emerges is a portrait of Wall Street
vulture capitalists feeding from the carcasses of both political parties,
organisms already in an advanced state of decomposition.
In 1980, Prins
informs us, a man named Robert Rubin landed a job at Goldman Sachs, serving on
a management committee with another Democat named Jon Corzine. Within a decade Rubin was to join Stephen
Friedman as cochairmen of Golden Sachs.
By 1994 things were getting interesting:
“On January 25, 1993, Clinton appointed him [Rubin] as
assistant to the president for economic policy. Shortly thereafter, the
president created a unique role for his comrade, head of the newly created
National Economic Council. “I asked Bob Rubin to take on a new job,” Clinton
later wrote, “coordinating economic policy in the White House as Chairman of
the National Economic Council, which would operate in much the same way the
National Security Council did, bringing all the relevant agencies together to
formulate and implement policy... [I]f he could balance all of [Goldman Sachs’]
egos and interests, he had a good chance to succeed with the job.” (Ten years
later, President George W. Bush gave the same position to Rubin’s old partner,
Friedman.)
Back
at Goldman, Jon Corzine, co-head of fixed income, and Henry Paulson, co-head of
investment banking, were ascending through the ranks. They became co-CEOs when
Friedman retired at the end of 1994.
Those
two men were the perfect bipartisan duo. Corzine was a staunch Democrat serving
on the International Capital Markets Advisory Committee of the Federal Reserve
Bank of New York (from 1989 to 1999). He would co-chair a presidential
commission for Clinton on capital budgeting between 1997 and 1999, while
serving in a key role on the Borrowing Advisory Committee of the Treasury
Department. Paulson was a well connected Republican and Harvard graduate who
had served on the White House Domestic Council as staff assistant to the
president in the Nixon administration.” (2)
Paulson would
later go on to become Secretary of the Treasury under ‘Ol Two-Cows’ and preside
over the largest financial fiasco since the Great Depression.
With all the
subtleness and ‘flexibility’ of the old political parties, firms like Goldman
Sachs went about the business of staffing the key policy positions of whatever
administration came to power in Washington, lending both ‘expertise’ and money
in what quickly became the new locus of power in the United States. The difference, of course, is that the new
“umbrella” under which political leaders could quail no longer represented the
people. Sanctuary was not found in
numbers, nor votes, but in money that could buy votes, backed by a cadre of
pseudo professionals proclaiming to have all the answers; answers that,
happily, coincided with their own economic interests.
This, by degrees,
leads us back to Clinton. Back in the
run-up to the 1992 election Bill knew he needed money. He had parlayed support from the likes of
Tyson Foods and Sam Walton in his successful efforts to become Governor of
Arkansas, but the presidency—especially against a sitting incumbent who was the
epitome of the Eastern Establishment and all the money that it represents—presented
a challenge of an entirely different order of magnitude. He would need big bucks.
He had already
established some relationships with Wall Street:
“ A consummate fundraiser
in his home state, he cleverly amassed backing and established early alliances
with Wall Street. One of his key supporters would later change American banking
forever. As Clinton put it, he received “invaluable early support” from Ken
Brody, a Goldman Sachs executive seeking to delve into Democratic politics.
Brody took Clinton “to a dinner with high-powered New York businesspeople,
including Bob Rubin, whose tightly reasoned arguments for a new economic
policy,” Clinton later wrote, “made a lasting impression on me.
The
bankers’ alliances remained divided among the candidates at first, as they
considered which man would be best for their own power trajectories, but their
donations were plentiful: mortgage and broker company contributions were $1.2
million; 46% to the GOP and 54% to the Democrats. Commercial banks poured in
$14.8 million to the 1992 campaigns at a near 50-50 split.
Clinton,
like every good Democrat, campaigned publicly against the bankers: “It’s time
to end the greed that consumed Wall Street and ruined our S&Ls [Savings and
Loans] in the last decade,” he said. But equally, he had no qualms about taking
money from the financial sector. In the early months of his campaign, BusinessWeek estimated
that he received $2 million of his initial $8.5 million in contributions from
New York, under the care of Ken Brody.
“If
I had a Ken Brody working for me in every state, I’d be like the Maytag man
with nothing to do,” said Rahm Emanuel, who ran Clinton’s nationwide
fundraising committee and later became Barack Obama’s chief of staff. “
Clinton knew that embracing the bankers would help him get
things done in Washington, and what he wanted to get done dovetailed nicely
with their desires anyway. To facilitate his policies and maintain ties to Wall
Street, he selected a man who had been instrumental to his campaign, Robert
Rubin, as his economic adviser.” (2)
Accordingly, with the election of Bill Clinton, the
bankers “forged ahead”
It is an article of faith among many Clinton supporters
even now that Bill had no choice but to acquiesce to the repeal of the
Glass-Steagall act. Citing the
overwhelming congressional votes to repeal the act, they maintain that a 14th
presidential veto of such legislation was no longer possible and that poor Bill
was simply bowing to the fait
accompli. Nomi Prins tells another
story: the story of Bill the Enabler.
“By May 1995, Rubin was impatiently warning Congress that the
Glass-Steagall Act could “conceivably impede safety and soundness by limiting
revenue diversification.” Banking deregulation was then inching through
Congress. As they had during the previous Bush administration, both the House
and Senate Banking Committees had approved separate versions of legislation to
repeal Glass-Steagall, the 1933 Act passed by the administration of Franklin
Delano Roosevelt that had separated deposit-taking and lending or “commercial”
bank activities from speculative or “investment bank” activities, such as
securities creation and trading. Conference negotiations had fallen apart,
though, and the effort was stalled.” (2)
But by 1999, with Bill nearing the end of his lease, Rubin gave it one
last try. Reconstituted as the
Gramm-Leach-Bliley Act,
“He
said it took “fundamental actions to modernize our financial system by
repealing the Glass-Steagall Act prohibitions on banks affiliating with
securities firms and repealing the Bank Holding Company Act prohibitions on
insurance underwriting.
The Gramm-Leach-Bliley Act Marches Forward
On
February 24, 1999, in more testimony before the Senate Banking Committee, Rubin
pushed for fewer prohibitions on bank affiliates that wanted to perform the
same functions as their larger bank holding company, once the different types
of financial firms could legally merge. That minor distinction would enable
subsidiaries to place all sorts of bets and house all sorts of junk under the
false premise that they had the same capital beneath them as their parent. The
idea that a subsidiary’s problems can’t taint or destroy the host, or bank
holding company, or create “catastrophic” risk, is a myth perpetuated by
bankers and political enablers that continues to this day.
Rubin
had no qualms with mega-consolidations across multiple service lines. His real
problems were those of his banker friends, which lay with the financial modernization
bill’s “prohibition on the use of subsidiaries by larger banks.” The
bankers wanted the right to establish off-book subsidiaries where they could
hide risks, and profits, as needed.
Again,
Rubin decided to use the notion of remaining competitive with foreign banks to
make his point. This technicality was “unacceptable to the administration,” he
said, not least because “foreign banks underwrite and deal in securities
through subsidiaries in the United States, and U.S. banks [already] conduct securities
and merchant banking activities abroad through so-called Edge subsidiaries.”
Rubin got his way. These off-book, risky, and barely regulated subsidiaries
would be at the forefront of the 2008 financial crisis.
On
March 1, 1999, Senator Phil Gramm released a final draft of the Financial
Services Modernization Act of 1999 and scheduled committee consideration for
March 4th. A bevy of excited financial titans who were close to Clinton,
including Travelers CEO Sandy Weill, Bank of America CEO, Hugh McColl, and
American Express CEO Harvey Golub, called for “swift congressional action.”
The Quintessential Revolving-Door Man
The
stock market continued its meteoric rise in anticipation of a banker-friendly
conclusion to the legislation that would deregulate their industry. Rising
consumer confidence reflected the nation’s fondness for the markets and lack of
empathy with the rest of the world’s economic plight. On March 29, 1999, the
Dow Jones Industrial Average closed above 10,000 for the first time. Six weeks later,
on May 6th, the Financial Services Modernization Act passed the Senate.
It legalized, after the fact, the merger that created the nation’s biggest
bank. Citigroup, the marriage of Citibank and Travelers, had been
finalized the previous October.
It
was not until that point that one of Glass-Steagall’s main assassins decided to
leave Washington. Six days after the bill passed the Senate, on May 12, 1999,
Robert Rubin abruptly announced his resignation. As Clinton wrote, “I believed
he had been the best and most important treasury secretary since Alexander
Hamilton... He had played a decisive role in our efforts to restore economic
growth and spread its benefits to more Americans.”
Clinton
named Larry Summers to succeed Rubin. Two weeks later, BusinessWeek reported
signs of trouble in merger paradise -- in the form of a growing rift between
John Reed, the former Chairman of Citibank, and Sandy Weill at the new
Citigroup. As Reed said, “Co-CEOs are hard.” Perhaps to patch their rift, or
simply to take advantage of a political opportunity, the two men enlisted a
third person to join their relationship -- none other than Robert Rubin.
Rubin’s
resignation from Treasury became effective on July 2nd. At that time, he
announced, “This almost six and a half years has been all-consuming, and I
think it is time for me to go home to New York and to do whatever I’m going to
do next.” Rubin became chairman of Citigroup’s executive committee and a member
of the newly created “office of the chairman.” His initial annual compensation
package was worth around $40 million. It was more than worth the “hit” he
took when he left Goldman for the Treasury post.
Three
days after the conference committee endorsed the Gramm-Leach-Bliley bill, Rubin
assumed his Citigroup position, joining the institution destined to dominate
the financial industry. That very same day, Reed and Weill issued a joint
statement praising Washington for “liberating our financial companies from an
antiquated regulatory structure,” stating that “this legislation will unleash
the creativity of our industry and ensure our global competitiveness.”
On
November 4th, the Senate approved the Gramm-Leach-Bliley Act by a vote of 90 to
8. (The House voted 362–57 in favor.) Critics famously referred to it as
the Citigroup Authorization Act.
Mirth
abounded in Clinton’s White House. “Today Congress voted to update the rules
that have governed financial services since the Great Depression and replace
them with a system for the twenty-first century,” Summers said. “This historic
legislation will better enable American companies to compete in the new
economy.”
But
the happiness was misguided. Deregulating the banking industry might have
helped the titans of Wall Street but not people on Main Street. The Clinton era
epitomized the vast difference between appearance and reality, spin and
actuality. As the decade drew to a close, Clinton basked in the glow of a lofty
stock market, a budget surplus, and the passage of this key banking
“modernization.” It would be revealed in the 2000s that many corporate profits
of the 1990s were based on inflated evaluations, manipulation, and fraud. When
Clinton left office, the gap between rich and poor was greater than it had been
in 1992, and yet the Democrats heralded him as some sort of prosperity hero.
When
he resigned in 1997, Robert Reich, Clinton’s labor secretary, said, “America is
prospering, but the prosperity is not being widely shared, certainly not as
widely shared as it once was... We have made progress in growing the economy.
But growing together again must be our central goal in the future.”
Instead, the growth of wealth inequality in the United States
accelerated, as the men yielding the most financial power wielded it with
increasingly less culpability or restriction. By 2015, that wealth or
prosperity gap would stand near historic highs.” (2)
Staffed by a
revolving door of advisors, administrators and assistants, Clinton would
establish a stellar record in service of villains. Heeding the siren song of greed he would, in
due course, sign the 1996 Telecom Act, killing many smaller broadcasting
companies and consolidating the broadcast industry into what today amount to a
half-dozen major corporations. He
deregulated companies that could “transport energy across state lines” (2)
gutting the authority of state commissions and paving the way for the Enron
Debacle. Then, of course, there is the
huge “sucking sound” created by NAFTA and other trade agreements negotiated by
Bill and his Wall Street team of advisors as jobs and capital investment fled
the country. This is the Clinton legacy,
and it is not a “progressive” one.
The concerns
raised by yet another Clinton candidacy are not assuaged by assurances that
this is a New Clinton. Nomi Pins points
out that in her 2008 campaign four of her top ten contributors were among the
top six New York based banks, and the ongoing connections between these
institutions, the people affiliated with them, and the Clinton Foundation
remain problematic. In any case we as a
nation have experience enough of Democratic Administrations speaking like FDR
and JFK and acting like Calvin Coolidge and Herbert Hoover. She may succeed in presenting herself as the
“New Clinton” much the same as Nixon, back in ’68 got the country to buy the
“New Nixon”; but if the country chooses this shopworn merchandise it will find
itself all the poorer for it. In any
case, I suspect that no matter her claim
that she stands for ‘everyday Americans’ she doesn’t see or pay much heed to
the struggles of Charlie Gladden.
But there is
another point and it is that it increasingly doesn’t matter which party wins
the election. Not only do the financiers
hedge their bets by funding both the major contestants, but the American people
will awake to find, after each election, that no matter who wins, be it
Democratic or Republican, the ensuing administration will be staffed by the
same cast of characters, recruited from the same sources, advocating the same
policies, predicting the same outcomes, irrespective of the successes or failures
of previous experience. Meanwhile as
Wall Street moves to spread its umbrella over the entire political landscape Charlie
Gladden will look again in the shadows for a place to lay his weary head.
_____
(1). I am referring here to the works of Ayn Rand,
“Atlas Shrugged”, and “The Fountainhead”, works of literary fiction often
confused by conservatives as political
philosophy. Didactic and pedestrian, like Thoreau’s “Walden”
or Orwell’s “Animal Farm”, these works are simply bad fiction, but
fiction nonetheless.
(2).http://www.tomdispatch.com/post/175993/tomgram%3A_nomi_prins,_hillary,_bill,_and_the_big_six_banks/
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