"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.