A ticker-tape parade along Wall Street might appear crass in this era of austerity. However, the victorious Republican leadership in the US House of Representatives can expect a warm, heartfelt welcome from the US’ financial elite, who watched last week’s conservative electoral landslide with quiet satisfaction.
In the eyes of top US financiers, US President Barack Obama’s hammering in the midterm elections means the White House’s war on Wall Street is over. They feel, as one hedge fund manager told the president at a town hall meeting in September, like pinatas, constantly whacked with a political stick by Democrats keen to cast them as economic villains.
“Celebration is probably too strong a word, but we’ve stopped the bleeding. It’s been very easy, very popular, to attack large institutions and Wall Street in general. If the Democrats had held the house, that would have continued,” one leading Wall Street lobbyist told me after this week’s election.
For a brief interlude back in 2008, top bankers were willing to be humble, accepting a share of blame for reckless speculation that fueled the worst financial crisis since the 1930s. However, that mood didn’t last long — and they’re tired of apologizing.
Bankers view their industry as the engine-room of the US economy, crucial in powering the nation into recovery. They resent Obama’s focus on their pay packets, hate references to derivatives as “toxic” and were dismayed by Congress’ Dodd-Frank package of financial reforms, which, although heavily watered down, still included measures such as the “Volcker rule,” banning banks from speculating with their own capital.
“There’s been increasing dissatisfaction at what was perceived as an anti-business, anti-bank message being transmitted from Washington,” a source at one top investment bank said. “The message wasn’t resonating with the electorate. Voters were much more focused on what the recession meant for them.”
So are happy days of unfettered money-making back to stay? The new speaker of the House of Representative, John Boehner, has immaculate free-market credentials — he recently described the Dodd-Frank reforms as “killing an ant with a nuclear weapon.”
Even though the 2,300 page bill has been passed by Congress, Boehner should be able to slow down its implementation, which will require more than 100 immensely complicated rules to be drafted. And with legislative gridlock looming between the upper and lower house, the prospects for any further Wall Street reforms are virtually nil.
The Republican campaign war chest contained a healthy dose of Wall Street money — for example, of the US$1.9 million raised by a “Boehner for speaker” fund between July and the end of September, about US$200,000 came from the financial sector, including US$76,000 from employees of the Chicago Mercantile Exchange.
That’s not to say all of Wall Street is dyed-in-the-wool Republican — in 2008, Obama could number JP Morgan’s boss Jamie Dimon and UBS’s Robert Wolf as supporters. And even now, figures compiled by the consultancy Tabb Group suggest Wall Street political donations narrowly favor Democrats over Republicans.
Financiers, for whom pragmatism runs alongside self-interest, may well be queasy about the evangelical fervor of the Tea Party movement, some of whose members have called for the abolition of the US Federal Reserve. However, legislative logjam, unending congressional bickering and stand-offs across the floor of the house will suit them just fine.
The bipartisan Financial Crisis Inquiry Commission, chaired by Democratic Reprentative Phil Angelides, is due to deliver a doorstop-sized report to the president next month on the causes of the credit crunch. Banks have been nervous about what it might say about the feckless conduct of the institutions surrounding Lehman Brothers and Bear Stearns. However, under the present political climate, the chances of Democrats and Republicans on the 10-member panel reaching unanimity are bleak — which will help Wall Street to shrug off the potentially eviscerating findings.
Back in the days when he was a newly minted president, puffed up with hope and the promise of change, Obama had no qualms about blasting “shameful” Wall Street bonuses as “the height of irresponsibility.”
Obama even once threatened to cap payouts at US$500,000 — a suggestion that prompted rapid back-pedaling from risk-averse US Treasury Secretary Timothy Geithner. There was, fleetingly, a window of opportunity when Wall Street could have been forced to change forever. With Republicans controlling part of the legislative agenda, that window has been slammed firmly shut.
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