Wall Street Shifts Funding to Republicans

Many people who complain about how Wall Street is being bailed out by Obama and spending huge sums getting the financial system back in shape will now turn to the Republicans after Obama makes threatening noises about regulation which has thrown a scare into the Street. During the campaign Obama received lots of donations from Wall Street but now Wall Street is trying to take advantage of the backlash against Obama and will go back to feeding their traditional favorites the Republicans.

Wall Street shifting political contributions to Republicans

By Dan Eggen and Tomoeh Murakami Tse
Washington Post Staff Writer



Commercial banks and high-flying investment firms have shifted their political contributions toward Republicans in recent months amid harsh rhetoric from Democrats about fat bank profits, generous bonuses and stingy lending policies on Wall Street.

The wealthy securities and investment industry, for example, went from giving 2 to 1 to Democrats at the start of 2009 to providing almost half of its donations to Republicans by the end of the year, according to new data compiled for The Washington Post by the Center for Responsive Politics.

Commercial banks and their employees also returned to their traditional tilt in favor of the GOP after a brief dalliance with Democrats, giving nearly twice as much to Republicans during the last three months of 2009, the data show. At the same time, total political donations by the major banks and investment houses alike dropped in the waning months of that year.

The nascent shift came even before the White House announced proposals for a new tax on banks and a curb on some of their riskiest trading activities.

The proposals, offered last month, particularly alarmed Wall Street and have triggered renewed industry efforts to work with Democrats as well as Republicans on regulatory reform legislation that the bankers can live with, according to industry and government officials. Wall Street executives would prefer to engage with Democratic leaders now rather than face prolonged uncertainty about the rules to govern the industry, the sources said.

The new campaign contributions data underscore the political quandary facing Democrats, who want Wall Street donations to help fend off a GOP resurgence in congressional elections this fall but hope to distance themselves from an industry vilified by the public as greedy and ungrateful. President Obama has sought to strike a balance, calling outsize Wall Street bonuses "shameful" and "obscene" while also assuring business executives that he does not "begrudge people success or wealth."

Republicans, meanwhile, are soliciting Wall Street for donations with the argument that Democratic proposals would hurt the bottom lines of major financial institutions. House Minority Leader John A. Boehner (R-Ohio) told reporters this month that he was urging Wall Street executives to "help our team" oppose the "bizarre policies" coming out of the Obama administration.

One senior Republican staff member on Capitol Hill, who discussed contributions on the condition of anonymity, said: "Democrats in Washington are clearly trying to move legislation that would be very damaging to that industry. It was almost like there was a free ride time. But now they're starting to see the real negative impact of Democratic proposals."

Obama had unusually strong backing from Wall Street for a Democratic presidential candidate. He raised more than $18 million from bank and brokerage employees, for example, compared with rival John McCain's $10 million. (Obama did not accept money from PACs.) Prominent among Obama's bundlers -- individuals who raised at least $50,000 -- were private equity executives and hedge fund titans, including billionaire Kenneth C. Griffin of Citadel Investment Group, who had previously backed Republicans.

But Obama soon encountered stiff opposition from the financial industry -- and some fellow Democrats -- over proposals to curb executive pay, tighten rules on financial derivatives and create an agency to protect consumers of mortgages, credit cards and other financial products. Financial executives have also bristled at the president's increasingly populist tone over the past year, including his quip in December that he did not run for office to help "fat-cat bankers on Wall Street."

The industry has responded with its own change in attitude, according to contribution data and interviews. For some prominent executives, the final straw came in January, when Obama proposed a fee on big banks to recoup losses from the government's $700 billion program to bail out financial firms. When the president followed up a few days later with another plan to restrict the growth of large banks, some on Wall Street said they regretted their earlier support. "I'm not voting for him again," one said.

Still, others said they would not switch alliances just yet. "I understand people are not happy about this. Wall Street did pour a lot of money into the campaign, some of which I solicited," said one Wall Street executive and Democratic bundler, who spoke on the condition of anonymity because of the sensitivity of the topic. "Having said that, we're kind of responsible for a lot of what went down."

One Democratic-leaning firm that has signaled particular displeasure with the administration's direction is J.P. Morgan Chase, which is headed by Obama supporter James Dimon and features several other prominent Democrats in its upper ranks. The bank and its employees, who doled out nearly $500,000 in federal contributions last year, went from giving 76 percent of the money to Democrats in the first quarter to giving 73 percent to Republicans in the fourth.

In a pointed break with recent practice, the company's political action committee also contributed $30,000 to GOP congressional campaign committees in 2009 while giving nothing to their Democratic equivalents. According to one source familiar with its donation strategy, the bank did not want to offer blanket support for the Democratic committees, which could then use the money to support anti-Wall Street hopefuls.

Yet the bank and its executives are still ready to support specific Democratic candidates considered friendly to the financial sector. Last Wednesday, Jes Staley, the head of J.P. Morgan's investment bank, held a 50-person fundraiser at his home for Sen. Kirsten Gillibrand (N.Y.), who is trying to fend off a primary challenge by Harold E. Ford Jr., a former congressman who holds a senior position at Bank of America's investment bank. Ford has his own support in the financial sector.

The move toward the GOP is most evident among commercial banks, a buttoned-down sector that has historically favored Republicans to a greater degree than their swashbuckling counterparts in the investment banks. Bank of America, Citigroup and Wells Fargo all favored the GOP in combined individual and PAC contributions last year, according to the quarterly data compiled by CRP.

But analysts note that Democrats still came out ahead in gathering money from Wall Street in 2009 and said it is too early to tell whether the move toward the Republicans will continue. Many Democrats also declined contributions last year from banks that received federal bailout money, possibly accounting for some of the shift.

"There could be some changes at the margins," said Scott E. Talbott, chief lobbyist with the Financial Services Roundtable, which represents the largest financial institutions. The anger toward Washington, he added, "doesn't always translate to changes in political giving. The environment changes quickly and constantly. No one issue drives political donations."

Steve Hildebrand, a Democratic strategist who served as Obama's deputy national campaign director, argues that the party needs to swear off Wall Street money altogether.

"I think Democrats ought to be leaders in renouncing all money from special-interest groups, whether it's banks or trial lawyers or unions," he said. "But let's not kid ourselves; they're all doing it. Democrats are still fighting for the same money as Republicans. They're just not crowing about it."

Democrats in Washington have seized on GOP fundraising efforts in an attempt to link the party to unpopular Wall Street financiers. "Republicans have sent a clear message to the American people that Wall Street matters more than middle-class families and small businesses that are hurting on Main Street," Rep. Chris Van Hollen (D-Md.) said in a recent statement.

One GOP strategist said the party expects to face attacks on the issue no matter what. "We'd rather have the whacks and the money than the whacks and no money," he said.

Tse reported from New York. Staff writer David Cho contributed to this report.

Nomi Prins: Wall Street's 10 Greatest Lies of 2009

A fascinating romp through some of the media myths continually playing to show the system is recovering. The myths are beginning to sound like ads that have played so long they have lost any effect except to annoy listeners.


Wall Street's 10 Greatest Lies of 2009
By Nomi Prins, AlterNet
Posted on December 28, 2009, Printed on January 4, 2010


On December 13, President Obama declared that he was not elected to help the “fat cats." But the cats got another version of that memo. A day later, 10 of them were supposed to partake in some White House face-time to talk about their responsibilities to the rest of the country, but only seven could make it. No-shows for the "very serious discussion" -- due to inclement New York weather or being too busy with internal bonus discussions to bother with the President -- were Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack and Citigroup Chairman Richard Parsons.

Yes, Obama inherited a big financial mess from the Bush administration – which inherited its set-up from the Clinton administration (financial recklessness, it turns out, is non-partisan) -- but he and his appointees have spent the year talking about fighting risk and excess on Wall Street, while both have grown.

Treasury Secretary Tim Geithner patted himself on the back for making the "difficult and necessary” decisions of fronting Wall Street boatloads of money to cover its losses and capital crunch last fall. Federal Reserve Chairman Ben Bernanke (a Bush-Obama favorite) was named Time Magazine’s Person of the Year for saving the free world as we know it. And Congress is talking "sweeping reform" about a bill that leaves the banking landscape intact, save for some minor alterations. For starters, it doesn’t resurrect the Glass-Steagall Act of 1933, which separated risk-taking (once non-government-backed) investment banks from consumer oriented (government-supported) commercial banks.

Meanwhile, Wall Street is restructuring (the financial equivalent of re-gifting) old toxic assets into new ones, finding fresh ways to profit from credit derivatives trading, and paying itself record bonuses -- on our dime. Despite recent TARP payback enthusiasm, the industry still floats on trillions of dollars of non-TARP subsidies and certain players wouldn’t even exist today without our help.

Wall Street’s return to robustness and Main Street’s continued deterioration are the main takeaways for 2009 that stemmed from the 2008 choices to flush the financial system with capital and leave the real economy to fend for itself. Lies that exacerbate this divide only perpetuate its growth. With that, here is my top 10 list of lies. Please consider adding your own, and let’s all hope for a more honest New Year.

1) The economy has improved.

Earlier this month, Bernanke declared, “Having faced the most serious financial crisis and the worst recession since the Great Depression, our economy has made important progress during the past year. Although the economic stress faced by many families and businesses remains intense, with job openings scarce and credit still hard to come by, the financial system and the economy have moved back from the brink of collapse."

Sure, the economy is better -- if you work at Goldman Sachs or had an affair with Tiger Woods. But while Bernanke, former Treasury Secretary Hank Paulson and Geithner turned the Federal Reserve into a national hedge fund (cheap money backing toxic assets in secrecy), and the Treasury Department into a bank insurance policy, the rest of the real economy took hit after hit -- starting with jobs.

The national unemployment rate remains at double digits. Despite Washington’s bizarre euphoria about unemployment rates last month being better (they edged down in November to 10 percent from 10.2 percent in October), the number of Americans filing for initial unemployment insurance rose during the second week of December. After all the temporary holiday hires, that number will probably increase again. Plus, unemployment rates in 372 metropolitan areas are higher than they were last year.

2) If you give banks capital, they will lend it out.

On Jan. 13, 2009 Bernanke concluded that "More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.” He said that "Our economic system is critically dependent on the free flow of credit." He was referring to the big banks. Not the little people.

Ten months later, though, he admitted that, "Access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses” and that “bank lending has contracted sharply this year."

In other words, big banks don’t share their good fortunes. Shocking. And as a result, bankruptcies are rapidly rising for businesses and individuals – a direct result of lack of credit coupled with other economic hardships like job losses.

Total bankruptcy filings for the first nine months of 2009 were up 35 percent to 1,100,035 vs. the same period in 2008. The number of business bankruptcies during the first three quarters of 2009 eclipsed all of 2008. Individual consumer filings totaled 373,308 during the third quarter of 2009 and were up 33 percent vs. the same period of 2008. Tell those people about the free flow of credit, Ben.

3) Taxpayers are being repaid.

On December 17, the Treasury Department announced: ”As a result of our efforts under EESA (the Emergency Economic Stabilization Act that spawned TARP), confidence in our financial system has improved, credit is flowing, and the economy is growing. The government is exiting from its emergency financial policies and taxpayers are being repaid.”

Even as banks rush to repay TARP in order to get the government off their backs before annual bonuses are set, the Treasury Department is helping them out. On December 11, the Internal Revenue Service gave government-subsidized banks a tax exemption that, for instance, allows Citigroup to keep the benefit of $38 billion. Three days later, Citigroup announced its $20 billion repayment of TARP. Get the math? Not exactly a taxpayer windfall.

Additionally, the FDIC gave banks including Citigroup, Bank of America, and JPMorgan Chase a holiday gift -- at least a six-month break from having to raise capital to support the billions of dollars of securities (read: toxic assets – remember those?) that firms are going to have to add to their books in 2010. That will open a whole new can of worms – a glimpse into either insolvency and a replay from the too-big-to-fail scenario, or book-cooking (the Financial Accounting Standards Board, as of last year, has allowed banks to price their own assets if there’s no true market for them – fun times), or both. Meanwhile, banks can use the capital for bonus payments instead.

4) Homeowners are being helped.

Last year’s big lie was that banks would turn around and help their borrowers if they got federal money. Yet, they were under no obligation to do so, and thus, they didn’t.

Since the Obama administration released guidelines for the Home Affordable Modification Program (HAMP) on March 4, 2009, the HAMP permanent loan modification numbers have been anemic.

Separately, by almost every measure, mortgage and credit problems are worse this year than last. There were almost a million new foreclosure fillings in the third quarter of this year, 5 percent more than in the second quarter, and 23 percent more than during the third quarter of 2008.

Plus, foreclosures are not abating. Mortgage delinquencies (borrower 60 or more days overdue) increased for the 11th quarter in a row, reaching a national average record of 6.25 percent for the third quarter of 2009. Delinquencies precede foreclosures. Compared to last year, mortgage borrower delinquencies are up 58 percent. Meanwhile, banks are sitting on properties they acquired to avoid selling them into the market and having to book the resultant loss.

5) Big banks will help small businesses.

On October 24, because a whole year had passed without this happening, Obama declared, “It's time for our banks to stand by creditworthy small businesses and make the loans they need to open their doors, grow their operations and create new jobs."

Small businesses, which employ half of all private sector employees, had received less than $400 million in new loans under government programs, and were granted access to just one program that buys up to $15 billion in securities tied to small business loans. According to the Small Business Administration (SBA) the number of approved loans shrunk from 124,360 in 2007 to 69,764 in 2009 (it was 93,541 in 2008).

Two months later, since that didn’t work, Obama reiterated, “given the difficulty business people are having as lending has declined, and given the exceptional assistance banks received to get them through a difficult time, we expect them to explore every responsible way to help get our economy moving again." He asked the big bank chiefs to take "extraordinary" steps to revive lending for small businesses and homeowners.

Too bad banks don’t gear their business strategy to expectations and suggestions. Still, as a gesture of good faith, Bank of America promised to kick in an extra $5 billion more to small- and medium-sized businesses next year. JP Morgan Chase promised to increase lending by $4 billion. Goldman had already decided to go the pledge route a few weeks earlier, putting up half a billion dollars in small business “charity" to help its deservedly negative image.

To make up for what the banks aren’t doing, the Obama administration is setting aside $30 billion from the financial bailout fund to stimulate lending to small businesses.

6) The Fed values transparency.

On February 10, Bernanke told the Committee on Financial Services that he "firmly believes that central banks should be as transparent as possible. Likewise, the Federal Reserve is committed to keeping the Congress and the public informed about its lending programs and balance sheet."

Yet, on March 5, the Fed refused to comply with a Freedom of Information Act request and lawsuit filed by Bloomberg News to disclose the details of its 11 lending facilities. In front of the Senate Budget Committee, and in response to a question from Senator Bernie Sanders, I-VT, about naming the firms that got money from those facilities, Bernanke said "No" -- such disclosure would be "counterproductive" and risk “stigmatizing banks."

Undaunted by this irony, on May 5, before the Joint Economic Committee, Bernanke reiterated, “The Federal Reserve remains committed to transparency and openness and, in particular, to keeping the Congress and the public informed about its lending programs and balance sheet.” He told PBS NewsHour on July 28 that “We are completely open to providing any information Congress wants.”

To date, the Fed has not disclosed the recipients of its cheap loans for toxic collateral.

7) History will not repeat itself.

In the beginning of the year, Obama said of Wall Street firms, “There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.”

He also said that "part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”

Yeah. Wall Street’s really into restraint....

Nine month later, as banks were racking up record profits and bonuses, Obama said the same thing, in different words, in his September 14 Federal Hall speech. “We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses… the old ways that led to this crisis cannot stand...History cannot be allowed to repeat itself.”

The only problem? History was repeating itself, as he spoke. Big banks took more risk in 2009, and posted more of their profits from trading operations than they had before they nearly collapsed in 2008. Trading profits at the top five banks rose from a $608 million loss in 2008 to $118.5 billion for annualized 2009, and $61.7 billion in 2007.

8) The pay czar will fight against – pay.


Treasury Department pay czar Ken Feinberg was supposedly appointed to keep a lid on excessive compensation for companies sitting on federal bailouts. Two problems with that: first, the Treasury Department continues to ignore the fact that the TARP portion of the bailout was only a tiny portion of the full bailout, and second, Wall Street was pushing back and winning at every turn.

For instance, after announcing he’d cap compensation for the top 25 execs at AIG, on October 23, Feinberg gave three of them a pass. These men were apparently “particularly critical to the company's long-term financial success.” Turning to his other role as Wall Street’s mouthpiece, Feinberg made excuses for AIG. “AIG compensation practices are unique. We took into account independent, very credible opinions of others to come up with a package that we think will help AIG thrive." That’s nice.

But he’s not kidding about thriving – those three employees will receive bonuses of about $4 million, $5 million and $7 million. AIG’s new CEO, Robert Benmosche, who joined AIG in August and got his pay approval out of the way on October 2, is bagging $10.5 million in annual compensation, including $3 million in cash, $4 million in stock options and $3.5 million in annual performance bonuses.

Then, on November 12, Feinberg said he was "very concerned" about scaring away top talent at the seven firms that took the biggest bailouts. Way to keep a lid on it, Ken.

But to be fair, it’s not really Feinberg’s fault. New York Fed and Treasury Department officials have been urging him to dial back restrictions for AIG folks in 2010 as well. Why? Because restricting pay will make it harder for the government to get back its loans to AIG. Right. Somehow paying these people stupid sums of money is the only way to get our money back. Because their "talent" worked out so well going into last year.

Elsewhere on Wall Street, the top six banks are getting set to pay out $150 billion in bonuses ($10 billion more than in 2008). GS is leading the pack in terms of bonus increases; it will dole out a projected $22 billion in compensation in 2009, compared to $11.8 billion in 2008 and $20.2 billion in 2007. JPM put aside $29.1 billion for 2009, compared to $24.6 billion in 2008 and $29.9 billion in 2007. Wells Fargo is spending $26.3 billion this year, compared to $23.1 billion in 2008 and $25.6 billion in 2007.

9) The lobbyists made us do it.

Going back to the big bank love fest at the White House earlier this month, execs promised to do better on regulation matters, citing a "disconnect" between their steadfast support for regulation and the fact that their lobbyists were pushing for as little new regulation as possible.

Really? Because this disconnect cost the financial sector $334 million so far this year for 2,560 lobbyists; a pittance compared to bonuses, but still, hard-taken cash. I’m sure another $334 million is coming to fight for stricter regulation in the New Year. Not.

10) Citigroup is the picture of health and too-big-to-fail is over.

Once the nation’s largest bank, later its largest bailout recipient, the firm exited its TARP obligation on December 14 with CEO Vikram Pandit stating, "Once Citi repays the $20 billion of TARP trust-preferred securities and upon termination of the loss-sharing agreement, it will no longer be deemed to be a beneficiary of ‘exceptional financial assistance’ under TARP beginning in 2010." (Read: I don’t want to hear about compensation caps anymore!)

He went on to say that, "By any measure of financial strength, Citi is among the strongest banks in the industry, and we are in a position to support the economic recovery."

Shareholders didn’t feel the same way. Citigroup shares already trading well below those of its main competitors have fallen 13.5 percent since that announcement. One of their key clients, the Abu Dhabi Investment Authority, accused the firm of misleading them over a $7.5 billion investment. Plus, in order to come up with the money to pay back the government, they had to raise it in the markets, thus diluting their stock – all to keep their petulant star employees happy at bonus time.

The Citigroup story should be examined for the other big banks. They may talk tough about paying back the government, but underneath they are hurting. And their pain will become our cost again – because nothing fundamental has changed this year, and that means – floating on our public money, these banks are actually still ticking time bombs.

Bonus Lie: Goldman Sachs is sorry.

On November 17, Lloyd C. Blankfein said he was sorry about his firm’s role in the financial crisis. "We participated in things that were clearly wrong and have reason to regret, we apologize." He didn’t say he was sorry the firm is still floated on $43 billion of total subsidies including FDIC guarantees for debt it raised, that were logically supposed to aid consumer oriented banks, and the $12.9 billion it got through the AIG bailout.

Yet the firm has the highest percentage of trading revenue of all the banks that got assistance; in other words, the revenue most linked to risk-taking, at 79 percent, or $38 billion out of $47 billion for annualized 2009. This is up from 41 percent, or $9 billion in 2008, and 68 percent in 2007 and 2006. And as noted before, Goldman leads the bonus sweepstakes for 2009. The firm is probably not very sorry about all of that.

Maybe I’m being too hard on everyone. Maybe all those toxic assets we all forgot about have value now. Maybe bank profits are based on something real. Maybe the increasing reserves against increasing credit losses aren’t happening. Maybe those foreclosures aren’t really happening. Maybe banks aren’t sitting on homes because they don’t want to dump them into the market and ruin the fantasy that prices have hit bottom. Maybe eight million jobs are waiting on the other side of 2010. Maybe I should just send a holiday card to Goldman saying thanks for everything. I’m sorry I ever quit. Maybe Lloyd Blankfein really is God.

Or maybe, the next mammoth pillage will be the one that makes a difference. But I truly don’t want us to have to find out. May 2010 be the start of a more insightful decade.


Nomi Prins is a senior fellow at the public policy center Demos and author of It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.


© 2010 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/144776/

Wall St. reduces giving to Obama

Perhaps the cutting of executive pay by the Obama administration is souring relations with Wall St. even though it may be popular with the public. Still as the article shows the Democrats have been given a lot more by Wall St firms than the Republicans. It may help that the Democrats are in power!

October 20, 2009
Wall St. Giants Giving Little to Obama Party Fund-Raiser
By DAVID D. KIRKPATRICKNew York TimesWASHINGTON —
The Wall Street giants that received a financial lifeline fromWashington may have no compunction about paying big bonuses to theirdealmakers and traders. But their willingness to deliver “thank you” giftsto President Obama and the Democrats is another question altogether.Mr. Obama will fly to New York on Tuesday for a lavish Democratic Partyfund-raising dinner at the Mandarin Oriental Hotel for about 200 big donors.Each donor is paying the legal maximum of $30,400 and is allowed to take adate. Four of the seven “co-chairs” listed on the invitation work infinance, and Democratic Party organizers say they expect that about a thirdof the attendees will come from the industry.But from the financial giants like Goldman Sachs, JPMorgan Chase andCitigroup that received federal bailout money — and whose bankers raisedmillions of dollars for Mr. Obama’s election — only a half-dozen or fewerare expected to attend (estimated total contribution: $91,200).Part of the reason, several Democratic fund-raisers and executives said, isa fear of getting caught in the public rage over the perception that WallStreet titans profiting from their government bailout may use their winningsto give back to Washington in return. And the timing of the event, as theindustry lobbies against proposals for tighter regulations to address theunderlying causes of last year’s meltdown on Wall Street, has only added tothe worry over public appearances.“There are sensitivities there,” said Scott Talbot, a lobbyist for theindustry’s Financial Services Roundtable. Political contributions “can makea donor a target,” Mr. Talbot said. Many involved, though, say the lowattendance from those Wall Street giants also reflected a broaderdisenchantment with Mr. Obama over the angry language emanating from theWhite House over the million-dollar bonuses and anti-regulatory lobbying.“There is some failure in the finance industry to appreciate the level ofpublic antagonism toward whatever Wall Street symbolizes,” said Orin Kramer,a partner in an investment firm who is a Democratic fund-raiser and one ofthe event’s chairmen. “But in order to save the capitalist system, theadministration has to be responsive to the public mood, and that is a nuancewhich can get lost on Wall Street.”Dr. Daniel E. Fass, another chairman of the event who lives surrounded byfinanciers in Greenwich, Conn., said: “The investment community feels veryput-upon. They feel there is no reason why they shouldn’t earn $1 million to$200 million a year, and they don’t want to be held responsible for theglobal financial meltdown.” Dr. Fass added, “How much that will be reflectedin their support for the president remains to be seen.”Mr. Obama remains a potent fund-raising draw. Plunging into the 2010 midtermcampaigns last week, he raised more than $3 million in one night in SanFrancisco, speaking at a similar $30,400-a-couple dinner and a larger rallywith tickets at $1,000 and under.In addition to the big-ticket dinner on Tuesday, Mr. Obama will also addressa more small-d democratic event at New York’s Hammerstein Ballroom, whereroughly 2,500 donors paying $1,000 or less will also make cellphone calls topromote his health care overhaul. Over the next five days he will appear atfund-raisers for Bill Owens, a candidate for a House seat in New York; Gov.Jon Corzine of New Jersey (himself a former Goldman Sachs banker); Gov.Deval Patrick of Massachusetts; and Senator Christopher J. Dodd ofConnecticut.Democratic fund-raisers say the economic slump has dampened fund-raisingacross every industry. Wall Street has lost Bear Stearns, Merrill Lynch andLehman Brothers to consolidation in last year’s credit crunch. Some formerObama fund-raisers on Wall Street have ascended to jobs in theadministration, like Michael Froman, a former top Citigroup executive who isnow an adviser on economics and national security.Current Democratic fund-raisers say their 2008 take from Wall Street mayalso have benefited from the personal connections of the party’s chieffund-raiser that year, Philip D. Murphy, a former top executive at GoldmanSachs. (He is now ambassador to Germany). And as in recent years, Democratsare raising far more from Wall Street executives than Republicans, accordingto campaign finance data sorted by the Center for Responsive Politics.The Democrats, including House and Senate party committees and the partyitself, raised about $5.4 million in the first eight months of the year,while the Republicans took in just $2.7 million.So far in the current election cycle, though, Wall Street accounts for lessthan half as much of the Democratic Party’s fund-raising as it did in 2008:3 percent, or about $1.5 million out of a total $53.6 million in theeight-month period, compared with about 6 percent, or $15.3 million out of$260.1 million during the last election. (Republicans relied more heavily ontheir party to support their presidential candidate in 2008, and the party’sWall Street fund-raising has fallen even further.)Fund-raisers say smaller but lucrative businesses like hedge funds andprivate equity firms now account for more of Wall Street’s politicalcontributions than the big banks that received bailout money, with thepossible exception of the famously generous executives of Goldman Sachs.Employees associated with the financial firms that received bailout moneyfrom the federal government contributed almost $70,000 to the DemocraticParty in the first half of this year. Most of that, $60,800, came from onecouple who each contributed the legal limit. At the time of the donation,the husband, John M. Noel, had recently retired as head of a unit of theinsurance giant AIG called AIG Travel Guard.Mr. Obama, though, still has the loyalty of other powerful friends on WallStreet. Among the other chairmen of the Tuesday dinner in New York is RobertWolf, head of the American investment banking division of the Swiss giantUBS Group. Mr. Wolf raised more than $500,000 for Mr. Obama’s campaign andsits on a White House panel of outside economic advisers.Mr. Wolf does not have to worry about the same appearance problems as WallStreet rivals, however. His firm was bailed out by the government ofSwitzerland, not the United States.

Krugman: Wall Street Voodoo

No one seems to advocate the permanent nationalisation of banks. Even Krugman is recommending a form of hospitalisation. After the government invests enough money to cure or carry the banks through the crisis while nationalised the bank is then sold back to the private sector. If the government is lucky it gets its money back but more likely a private investor gets a deal and the taxpayer loses some money. What the ruling class fears is that with nationalisation people might get the idea that the financial system can operate without having to provide profit for private owners of those institutions. The private sector certainly does not want people to get the idea that anything can be run efficiently by government and return savings to the people directly. This is why the standard ideological chant is that the government is inefficient. However, if this is so it is strange that government has to come to the rescue of these efficient private financial institutions operating in a free market. As the true believers would say this makes little logical sense and the government should stand aside and let the free market destruction of these losers take its wonderful course!

http://www.nytimes.com/2009/01/19/opinion/19krugman.html The New York Times January 19, 2009 Op-Ed Columnist Wall Street Voodoo
By PAUL KRUGMAN Old-fashioned voodoo economics -- the belief in tax-cut magic -- has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans. But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking. To explain the issue, let me describe the position of a hypothetical bank that I'll call Gothamgroup, or Gotham for short. On paper, Gotham has $2 trillion in assets and $1.9 trillion in liabilities, so that it has a net worth of $100 billion. But a substantial fraction of its assets -- say, $400 billion worth -- are mortgage-backed securities and other toxic waste. If the bank tried to sell these assets, it would get no more than $200 billion. So Gotham is a zombie bank: it's still operating, but the reality is that it has already gone bust. Its stock isn't totally worthless -- it still has a market capitalization of $20 billion -- but that value is entirely based on the hope that shareholders will be rescued by a government bailout. Why would the government bail Gotham out? Because it plays a central role in the financial system. When Lehman was allowed to fail, financial markets froze, and for a few weeks the world economy teetered on the edge of collapse. Since we don't want a repeat performance, Gotham has to be kept functioning. But how can that be done? Well, the government could simply give Gotham a couple of hundred billion dollars, enough to make it solvent again. But this would, of course, be a huge gift to Gotham's current shareholders -- and it would also encourage excessive risk-taking in the future. Still, the possibility of such a gift is what's now supporting Gotham's stock price. A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, the Resolution Trust Corporation; paid off enough of the banks' debts to make them solvent; and sold the fixed-up banks to new owners. The current buzz suggests, however, that policy makers aren't willing to take either of these approaches. Instead, they're reportedly gravitating toward a compromise approach: moving toxic waste from private banks' balance sheets to a publicly owned "bad bank" or "aggregator bank" that would resemble the Resolution Trust Corporation, but without seizing the banks first. Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, recently tried to describe how this would work: "The aggregator bank would buy the assets at fair value." But what does "fair value" mean? In my example, Gothamgroup is insolvent because the alleged $400 billion of toxic waste on its books is actually worth only $200 billion. The only way a government purchase of that toxic waste can make Gotham solvent again is if the government pays much more than private buyers are willing to offer. Now, maybe private buyers aren't willing to pay what toxic waste is really worth: "We don't have really any rational pricing right now for some of these asset categories," Ms. Bair says. But should the government be in the business of declaring that it knows better than the market what assets are worth? And is it really likely that paying "fair value," whatever that means, would be enough to make Gotham solvent again? What I suspect is that policy makers -- possibly without realizing it -- are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as "fair value" purchases of toxic assets. Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word -- nationalization. The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks. Unfortunately, the price of this retreat into superstition may be high. I hope I'm wrong, but I suspect that taxpayers are about to get another raw deal -- and that we're about to get another financial rescue plan that fails to do the job.

Senator Schumer and Wall Street.

This is from the NYtimes.
The same people who plumped for deregulation are now steering through the bailout. It is no wonder that there are so few strings attached to the Wall Street bailout. It seems the Wall Street Lobby is far more powerful than that of the ailing Big Three automakers. Of course in the case of the auto bailout there is an opportunity to attack labor that is lacking in the Wall Street bailout. This article goes into considerable detail about the machinations of democrats in first pushing deregulation and now pushing a bailout that favors Wall Street and fosters more takeovers.

December 14, 2008
The Reckoning
A Champion of Wall Street Reaps Benefits
By ERIC LIPTON and RAYMOND HERNANDEZ
“We are not going to rest until we change the rules, change the laws and make sure New York remains No. 1 for decades on into the future.”— Senator Charles E. Schumer, referring to financial regulations, Jan. 22, 2007
WASHINGTON — As the financial crisis jolted the nation in September, Senator Charles E. Schumer was consumed. He traded telephone calls with bankers, then became one of the first officials to promote a Wall Street bailout. He spent hours in closed-door briefings and a weekend helping Congressional leaders nail down details of the $700 billion rescue package.
The next day, Mr. Schumer appeared at a breakfast fund-raiser in Midtown Manhattan for Senate Democrats. Addressing Henry R. Kravis, the buyout billionaire, and about 20 other finance industry executives, he warned that a bailout would be a hard sell on Capitol Hill. Then he offered some reassurance: The businessmen could count on the Democrats to help steer the nation through the financial turmoil.
“We are not going to be a bunch of crazy, anti-business liberals,” one executive said, summarizing Mr. Schumer’s remarks. “We are going to be effective, moderate advocates for sound economic policies, good responsible stewards you can trust.”
The message clearly resonated. The next week, executives at firms represented at the breakfast sent in more than $135,000 in campaign donations.
Senator Schumer plays an unrivaled role in Washington as beneficiary, advocate and overseer of an industry that is his hometown’s most important business.
An exceptional fund raiser — a “jackhammer,” someone who knows him says, for whom “ ‘no’ is the first step to ‘yes,’ ” — Mr. Schumer led the Democratic Senatorial Campaign Committee for the last four years, raising a record $240 million while increasing donations from Wall Street by 50 percent. That money helped the Democrats gain power in Congress, elevated Mr. Schumer’s standing in his party and increased the industry’s clout in the capital.
But in building support, he has embraced the industry’s free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing some measures now blamed for contributing to the financial crisis.
Other lawmakers took the lead on efforts like deregulating the complicated financial instruments called derivatives, which are widely seen as catalysts to the crisis.
But Mr. Schumer, a member of the Banking and Finance Committees, repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees.
He succeeded in limiting efforts to regulate credit-rating agencies, for example, sponsored legislation that cut fees paid by Wall Street firms to finance government oversight, pushed to allow banks to have lower capital reserves and called for the revision of regulations to make corporations’ balance sheets more transparent.
“Since the financial meltdown, people have been asking, ‘Where was Congress? Why didn’t they see this coming? Why didn’t they provide better oversight?’ ” said Barbara Roper, director of investor protection for the Consumer Federation of America. “And the answer for some, including Senator Schumer, is that they were actually too busy pursuing a deregulatory agenda. Their focus was on how we have to lighten up regulation on Wall Street.”
In recent weeks, Mr. Schumer has worked closely with the Bush administration to try to mitigate the damage to New York’s financial institutions. And as members of Congress and President-elect Barack Obama have called for new regulations to prevent future upheavals, Mr. Schumer has endorsed the need for reforms while still trying to make them palatable for Wall Street.
Calling himself “an almost obsessive defender of New York jobs,” Mr. Schumer has often talked of the need to avoid excessive regulation of an industry that is increasingly threatened by global competition. At the same time, Mr. Schumer has cast himself as a populist who looks out for the middle class.
In an interview, Mr. Schumer said that until the recent market turmoil, he did not fully appreciate how much risk Wall Street had assumed and how much damage its practices could inflict on ordinary Americans. “It is a learning process, no question about it, an evolution,” he said, adding that he now believed that investors and homeowners must be better protected.
But he defended his record. “Wall Street and Main Street are tied together,” he said. “Often times, they are not in conflict. When they are in conflict, I tend to side with Main Street.”
While Mr. Schumer has taken some pro-consumer stances, his critics fault him for tilting too far toward Wall Street in balancing his responsibilities.
“He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public,” said John C. Bogle, the founder and former chairman of the Vanguard Group, the giant mutual fund house. “It has hurt the American investor first and the average American taxpayer.”
Navigating the Street
Brash and brainy (perfect SATs and double Harvard degrees), Chuck Schumer, now 58, learned early in his career how to talk to the financiers and chief executives who would become a vital constituency for him. Though he did not grow up in that world — his father owned a small exterminating business in Brooklyn — he quickly showed a keen grasp of complex financial issues.
And, recognizing how central Wall Street is to the city’s economy, he committed himself to keeping it strong.
“So much of what happens in this town is because we are the world financial center,” Mr. Schumer said at City Hall in January 2007. “It helps support our museums, it provides the tax base for schools and health care. If we lose being the financial center, the rest goes down the drain.”
Soon after arriving in Congress in 1981, Mr. Schumer snared a seat on the Financial Services Committee, which he viewed as the best way to help New York. While reliably liberal on many social issues, he established himself as a pragmatic Democrat willing to align with powerful business interests.
Mr. Schumer’s political rise — he moved in 1999 to the Senate, where he now has a party leadership post — paralleled Wall Street’s growing influence in Washington. As more Americans invested in the markets and financial institutions had a greater global reach, the industry came to rival the manufacturing sector as a driving force of the United States economy.
And in the 1990s, Democratic officials developed close links to a new generation of Wall Street leaders — labeled “New Moneycrats” by one author — who shared a free-market agenda.
Mr. Schumer became a magnet for campaign donations from wealthy industry executives, including Jamie Dimon, now the chief executive of JPMorgan Chase; John J. Mack, the chief executive at Morgan Stanley; and Charles O. Prince III, the former chief executive of Citigroup. And he was not at all reluctant to ask them for more.
Donors describe the Schumer pitch as unusually aggressive: He calls repeatedly to suggest breakfast or dinner, coffee or cocktails. He enlists intermediaries to invite prospects to events and recruits several senators to tag along. And he presses for the maximum contribution — “I need you to max out,” he is known to say — then follows up by asking that a donor’s spouse and four or five friends write checks, too.
“He was probably the kid that sold the most candy in grade school,” said Julie Domenick, a Democratic lobbyist who has given to the senatorial campaign committee. “He is not shy.”
Mr. Schumer, in the interview, acknowledged his full-speed-ahead approach. “Any job I do, I work hard at and I try to succeed at,” he said.
As a result, he has collected over his career more in campaign contributions from the securities and investment industry than any of his peers in Congress, with the exception of Senator John F. Kerry of Massachusetts, the Democratic nominee for president in 2004, according to the Center for Responsive Politics, which analyzed federal data. (By 2005, Mr. Schumer had so much cash in reserve that he shut down his fund-raising efforts.)
In the last two-year election cycle, he helped raise more than $120 million for the Democrats’ Senate campaign committee, drawing nearly four times as much money from Wall Street as the National Republican Senatorial Committee. Donors often mention his “pro-business message” and record of addressing their concerns. John A. Kanas, the former chief executive of North Fork Bank, said: “He would solicit my opinion, listen to my advice and he appeared to take it into consideration.”
Lee A. Pickard, a lawyer representing clients including the Bank of New York, whose employees have been significant donors to Mr. Schumer and other Senate Democrats, turned to Mr. Schumer last year to successfully beat back a regulatory initiative by the Securities and Exchange Commission. “If you get Chuck Schumer on your side, you are O.K.,” he said.
That may help explain why some of the wealthiest financiers in Manhattan attended the Sept. 22 breakfast hosted by Mr. Kravis at his office overlooking Central Park. A Republican with long ties to the Bush family, Mr. Kravis spent much of this year trying to help Senator John McCain, the eventual Republican nominee for president.
But last year, Mr. Kravis went to Capitol Hill to oppose a proposal that would have more than doubled taxes for executives at hedge funds and private equity firms like his, costing them up to $25 billion over 10 years.
Mr. Schumer had said publicly he would support the measure only if it also applied to executives at energy, venture capital and real estate partnerships, and he introduced alternative legislation that would do just that. His position was identical to that of lobbyists for a group paid by Mr. Kravis and other finance industry executives.
The Schumer bill, called a “poison pill” by the leading Republican advocate of the tax increase, went nowhere after provoking opposition from an array of industries.
At the breakfast meeting, Mr. Schumer, accompanied by fellow Senate Democrats Kent Conrad of North Dakota and Maria Cantwell of Washington, assessed the political landscape as debate over the bailout was beginning.
“On the right, you have those who view any government intervention as a threat to free markets,” one executive recalled Mr. Schumer explaining. “On the left, you have people who choose to view this as a government handout to the rich. In the middle, you have everyone who knows and takes the Treasury secretary seriously and recognizes that if something is not done here, we could be staring into an abyss.”
Within days, the businessmen sent out checks to the Senate campaign committee.
‘Their Go-To Guy’
To Christopher Cox, the Republican chairman of the Securities and Exchange Commission, the need for action was obvious in the spring of 2006.
His agency, which would later be criticized for a 2004 ruling that let banks pile up debt, had grown deeply concerned about lack of oversight of the nation’s largest credit-rating agencies, like Standard & Poor’s and Moody’s Investors Service. Linchpins of the financial system, their ratings are vital to safeguarding investors by evaluating the risks of bonds and other debt. After the collapse of Enron and WorldCom, which had repeatedly been awarded favorable ratings, the agencies had agreed to meet voluntary standards.
But the S.E.C. concluded that those agreements were inadequate, so Mr. Cox urged Congress to give his agency oversight powers. “Without additional legislative authority, the S.E.C. will not be able to regulate in a thoroughgoing way,” he told the Senate banking committee at an April 2006 hearing.
The plan drew broad, bipartisan support on Capitol Hill. But executives at the credit-rating agencies soon began pressing Mr. Schumer and other allies in Congress to block the proposal or at least limit its reach, according to current and former employees.
“They knew Schumer would support them,” said one former Moody’s executive, who asked not to be named because he still works in the industry. “He was their go-to guy,” the executive said.
While the Manhattan-based agencies were not significant campaign donors to Mr. Schumer or the Senate campaign committee, their lobbyists and many of their clients were.
At that time, revenues for the agencies were skyrocketing. The housing market was robust, and Wall Street investment firms were paying the agencies to rate various mortgage-backed securities after first advising the firms — and also collecting fees — on how to package them to get high credit ratings.
It was an obvious conflict of interest, financial experts now say. Despite their high ratings, many of those securities, based on risky loans, would prove worthless, roiling markets and threatening financial institutions worldwide.
But Mr. Schumer argued that the companies voluntarily met requirements to eliminate such possible conflicts. He suggested that regulators simply encourage competition and disclosure of agencies’ ratings methods. There was perhaps no need for an intrusive new law, he said in the spring of 2006. “They’ve implemented their codes of conduct,” Mr. Schumer told Mr. Cox at a Senate hearing. “They’re making good-faith efforts.”
Mr. Schumer could not stop the legislation from passing, but he managed to get the measure amended so that it explicitly prohibited the S.E.C. from regulating the procedures and methods the agencies use to determine ratings.
Richard Y. Roberts, a former S.E.C. commissioner, said the amendment Mr. Schumer won was troubling, adding that it could block the S.E.C. from punishing a credit-rating agency that consistently issued unreliable ratings.
Sean J. Egan, managing director of a small Pennsylvania agency, Egan-Jones Ratings, and a proponent of the tougher regulations, was more blunt. “The bill was eviscerated,” he said. “You have stripped away basic safeguards for the investors.”
At times in Congress, Mr. Schumer has teamed up with Republicans, like former Senator Phil Gramm of Texas, who aggressively promoted a free-market agenda. Mr. Schumer pushed for the Gramm-Leach-Bliley law, passed in November 1999, which knocked down the walls between investment banks and commercial banks and allowed financial supermarkets to flourish. The law also weakened regulatory oversight by fracturing it among different agencies.
In 2001, Mr. Schumer and Mr. Gramm jointly proposed legislation that would cut fees paid by Wall Street firms and others to the S.E.C. in half, or by $14 billion, over the coming decade. Their proposal included some extra money for salaries of commission employees.
But with trading volumes high, Mr. Schumer argued, the government was collecting far too much money from those fees and using it to subsidize other government operations. “It is a tax, an unintended but very real tax, on all sorts of investors,” he said at the time.
But some Democrats, pointing to the recent corporate accounting scandals, argued that the S.E.C. budget should be doubled or tripled so it could more effectively combat fraud that could lead to a major economic collapse.
“We are making a tragic mistake,” Representative John J. LaFalce, Democrat of New York, warned in arguing for a much smaller reduction in S.E.C. fees.
“We give the industry what it asks for unwittingly.”
Mr. Schumer’s argument prevailed, and the fee cut passed overwhelmingly.
Some consumer advocates laud Mr. Schumer for his stances on consumer finance issues, including combating high interest rates on credit cards, challenging predatory lending practices and advocating legislation to allow bankruptcy courts to force banks to accept lower interest rates so that families facing foreclosure could stay in their homes.
“He is a strong advocate for families and homeowners to make sure they are not taken advantage of,” said Eric Stein, senior vice president at the Center for Responsible Lending, a nonprofit group that combats abusive lending practices.
But those efforts mostly affect commercial banks and mortgage lending operations around the country and in New York, not the securities and investment businesses in Manhattan.
“He built his career in large part based on his ties to Wall Street,” said Christopher Whalen, managing director of Institutional Risk Analytics, which advises investors on the regulatory system. “And he has given the Street what it wanted.”
Mr. Schumer, though, has a surprising defender in Alfonse M. D’Amato, the onetime Republican senator he ousted.
“Don’t take someone to task simply because a group has supported him politically and now he supports legislation that helps them,” Mr. D’Amato said. “The question is, is the legislation good or bad? With Chuck, it is clear he tries to do what is best for the state and city as a whole.”
Doling Out Criticism
For Mr. Schumer, Wall Street’s crisis has been especially painful to watch. “It is horrible, just awful,” he said in the interview. “And it affects everybody.”
And he has already begun identifying those he faults for the devastation. Subprime lenders top the list, but he has lashed out with particular fury at the credit-rating industry, which he once defended but now says misled him and the investing public.
“The work at these ratings firms was severely compromised, and the companies were some of the biggest contributors to the current financial crisis,” Mr. Schumer said earlier this month in response to an S.E.C. move that same day to tighten control over the agencies. “The lesson from this is that the three major firms’ stranglehold on the ratings industry must be loosened.” Mr. Schumer has also blamed the Bush administration for its push to ease rules. “After eight years of deregulatory zeal by the Bush administration, an attitude of ‘the market can do no wrong’ has led it down a short path to economic recession,” Mr. Schumer said on the Senate floor in September.
He has not assigned responsibility to himself or fellow Democrats, saying he had no way of knowing of the misdeeds going on on Wall Street. “I wish I was omniscient,” he said. “I’m not.”
Since the economy began to fall apart, Mr. Schumer has joined others in calling for new regulations to combat abuses. He has proposed tougher rules for credit-rating agencies, even changing the way they are paid so they are compensated by investors, not by the companies they are evaluating. He has said he is open to imposing regulations on hedge funds, which currently operate with limited government oversight.
And while he previously succeeded in limiting consumers’ rights to sue financial institutions, he says he now favors offering that remedy in certain circumstances.
But he is also warning that any new rules must be carefully crafted so they don’t impose excessive burdens.
“You need to provide safety and security to investors in order to attract them to the markets,” Mr. Schumer told Wall Street executives in a speech last month. “On the other hand, you must be sure that regulation does not snuff out the entrepreneurial vigor and financial innovation that drives economic growth and makes financial institutions successful and profitable.”
And he is seeking some regulatory concessions for some Wall Street supporters. He has proposed, for example, that the government lift a cap on how big the giant banks can get, an issue important to institutions like JPMorgan Chase. Lifting the cap would allow the biggest banks to absorb weaker ones, but it would also limit competition and increase the risks to the financial system posed by failure of one of the giants.
Mr. Schumer is also calling for the adoption of European-style regulations that impose far fewer rules and instead require banks to meet certain performance standards, a system institutions generally prefer but some banking experts criticize as not rigorous enough.
In recent weeks, Mr. Schumer has listened to Wall Street leaders for advice on what should come next. At a dinner at Morgan Stanley’s headquarters the night before the presidential election, John Mack, the chief executive, and a dozen top hedge fund officials talked with Mr. Schumer about possible changes affecting their industry.
“People feel like he is going to be fair and reasonable,” said one Morgan Stanley executive, who asked not to be identified because the session was private. “He is mindful that this is a very big part of his constituency — Wall Street.”
Griff Palmer contributed reporting from New York.