Monday, April 26, 2010

Goldman et al short the Democrats

"It is hard to bite the hands that feed you, especially when you are competing for food."
That's Robert Reich, writing in today's FT.  Context:
Even as Congress debates legislation to tame it, Wall Street is conducting a bidding war between the parties for its continued beneficence. More than 60 per cent of the $34m given by the financial industry to fund the 2010 elections has so far gone to Democrats, but since January it has switched to the Republican camp. In January and February,  Citigroup, Goldman, JP Morgan Chase and Morgan Stanley donated twice as much to Republicans as to Democrats.
If "perfect storms" push in one direction (toward disaster), what's the metaphor when well-matched countervailing forces collide?  Popular rage at Wall Street, fueled (fortuitously or no) by the SEC suit against Goldman, is running smack into a lobbyist orgy as financial reform hits the floor.  So far it looks, remarkably, as if disgust with Wall Street -- and genuine fear of another crash -- may win the day, long enough at least to get a relatively tough bill through Congress (to Jonathan Chait's astonishment).

Nevertheless, the long-term problem of corporate money largely controlling U.S. politics is very much with us, exacerbated, as Reich highlights in conclusion, by the recent Supreme Court decision enabling corporations to spend unlimited cash in issue advertising.  Reich warned in Supercapitalism (2007) that lobbying -- driven more by corporate Darwinianism that conscious policy decisions (since global competition drives corporations to compete as fiercely for legislative advantage as for any other kind) was overwhelming democracy.  Today he continues the warning:
Politicians cannot continue to have it both ways. The close nexus between Washington and Wall Street is eroding trust in government. This has already helped spawn the so-called “Tea Party movement” of disaffected Republicans and many Democrats are no less cynical. 
Reich offers no real solutions in Supercapitalism -- or now -- except a Utopian one, or let's say a very long-term goal, on a political par with abolishing nuclear weapons:

If Washington knew what was good for it and the nation, it would sever its financial connections with Wall Street. Better yet, it would enact legislation seeking to limit the impact of private and corporate money in politics.
There is one long-range thinker -- and planner -- who has also highlighted this problem, though he moves too slowly and partially on it to satisfy many of his allies on the left.  That would be a certain Barack Obama, who throughout the endless 07-08 campaign made process reform a centerpiece:
we need to do more than turn the page on the failed Bush-Cheney policies; we have to turn the page on the politics that helped make those policies possible.

Lobbyists setting an agenda in Washington that feeds the inequality, insecurity, and instability in our economy (Denver, CO, Jan. 30, 2008).
Throughout the campaign, Obama cast lobbying reform as part and parcel with defusing partisan rancor and reconstituting bipartisanship.  Both George Packer's long retrospective  Obama's Lost Year and David Remnick's new biography of Obama show that for Obama, his ability to win over any adversary has been an article of personal faith, not to say hubris. Did the long health care reform fight beat that hubris out of him, or are we still in chapter 1?  Let's see if we get some bipartisan cooperation on financial reform, and where we are at the end of Obama's two terms, if he gets them.

There is reason to believe for all the craziness of the HCR battle, all the politically motivated demonizing of ordinary horse trading, the endless process also created new standards of (can I say this without irony? -- swallow hard) legislative probity.  In a debriefing on the eve of passage, SEIU president Andy Stern told Ezra Klein

people have to decide whether people in the same party will use procedural tricks to trip up their teammates. Or whether parties, particularly the Democratic Party, appreciates that the special deals and earmarks that might traditionally have been part of the process no longer work. Politicians used to bring kickbacks home to their district, but now people think the system is corrupt.

Governing honestly and openly and voting based on what's good for the country rather than for your election actually means something right now. It's really dangerous right now to be seen being corrupt in a corrupt system. Ben Nelson used to look like an honorable person in a corrupt system. Then he flipped to looking like one of the corruptors.

Something similar may be happening as the FinReg bill moves forward.  As Noam Scheiber pointed out several weeks ago, the administration was gearing up to shine the spotlight deeper into the bill's innards than is customary for a complex piece of legislation:

“Derivatives is the tail on this dog,” the lawyer continued. “It’s not what’s going to drive the bill through Congress. Nor is it the filibuster point. Other stuff makes a lot more noise.” The bottom line, this person concluded, is that voters just aren’t very invested in the details of derivatives reform, and so it’s hard to believe the Democrats will be, too: “Words on the page are not that critical to the public. … The public just wants to see something done here. … To some extent, passing a bill [whatever the details] will be marketed as a success.”

Put this proposition to administration officials, however, and they do some bristling of their own. One official told me it was a case of Wall Street talking its own book: “They want to say it’s inevitable that things will be weaker” so as to make this outcome more likely. The flaw in the banks’ logic, this official explained, is that the importance of once- obscure issues like derivatives actually can be brought home in concrete terms. “I think it’ll be very straightforward to represent the choices to the American people: Keep going with the system that brought you the collapse of AIG and contributed mightily to the financial crisis,” or pass a tough-minded reform package.
 That forecast (of political strategy if not end result) was borne out last week:
At his briefing, Mr. Geithner urged reporters to draw attention to the derivatives issue to help expose efforts “to weaken, to exempt, to carve people out of those basic protections.”
Perhaps this is the central front in the long-term Obama drama: whether new countervailing forces against lobbyist power can be found, and whether ultimately the country will be primed for the kind of legislation Reich dreams of.


  1. I won't take on the general point, but two things on what you quoted here:

    Anytime anyone says that "X is eroding trust in government," I suspect you can ignore the rest of what they're saying.

    Also, anytime anyone says that "X helped spawn the Tea Parties" and X isn't "a Democrat being elected president" I suspect you can ignore the rest of what they're saying.

    Yeah, that's harsh, but I'm pretty sure it's correct.

  2. Wow, Jonathan, I had to think about these cryptic dicta for a while. Can I unpack?

    1. "Trust in government" is 90+% driven by economic conditions, especially unemployment.

    2. The tea parties were spawned by the right wing rage that is always with us (see Clinton, Bill, Presidency).

    Re point 1: Agreed, more or less, when it comes to short-term and mid-range fluctuations in "trust" numbers. But if the growth of lobbying dollars, personnel and influence over the last twenty years hasn't eroded trust in government, it should have. Or do you have a long view of cycles of corruption and reform that indicate otherwise?

  3. I think the problem with "trust in government" is that we want it to be something that it isn't.

    I'm being cryptic again, aren't I...OK. When we ask people whether they trust their government or not, what gets picked up in the answer doesn't seem to have anything to do with lobbying or campaign finance or corruption; what gets picked up is basically whether they think the president is doing a good job or not (which in turn is heavily about the economy, although there are other things). If you look around the Monkey Cage, John Sides is more of an expert on this stuff than I am, plus he has any rate, it just doesn't map out on the things that people think it maps out on.

    (I'm also not convinced that there's more "corruption" now than forty or whatever years ago, but either way that's not going to show up in the trust in government data).