The New Financial Elite, Rubinites and the Democratic Party

There’s been a series of back-and-forths about the rumored short-list of the National Economic Council spots, and the ties between those on the list and Wall Street. Brad Delong notes that he has been a Rubinite for 18 years and that “you want to draw your White House staff from successful managers…and that there are only three groups of successful managers who are Democrats: Hollywood studio executives and their ilk, people who have made careers in government and academia, and executives who have worked for traditionally-Jewish investment banks. If you want managers in a Democratic administration, that’s where they have to come from. ” Felix Salmon responds here and here.

Brad’s point seems to restate the issue, which is: why is there such an overlap between Wall Street and the Democratic Party, and what consequences does that have?  Finance is a big sector, and Democrats could be picking from any number of places within it (or elsewhere), yet they go for the large investment banks.

I’d point out a few reasons why this has consequences. The first is that as Tim Duy noted, “What I find curious is that DeLong neglects to mention what I believe was a central element of the Rubin agenda, and an element that was in fact the most disastrous in the long run – the strong Dollar policy.” More:

The strong Dollar policy takes shape in 1995. At that point, Rubin made it clear that the rest of the world was free to manipulate the value of the US Dollar to pursue their own mercantilist interests. This should have been more obvious at the time given that China was last named a currency manipulator in 1994, but the immensity of that decision was lost as the tech boom engulfed America.

Moreover, Rubin adds insult to injury in the Asian Financial Crisis, by using the IMF as a club to enact far reaching reforms on nations seeking aid. The lesson learned – never, ever run a current account deficit. Accumulating massive reserves is the absolute only way to guarantee you can always tell the nice men from the IMF and the US Treasury to get off your front porch.

It’s also very likely that the Rubinites and Wall Streeters in the administration are the ones pushing for deficit reduction coming out of the worst downtown since the Great Depression and also are the ones who are likely emphasizing a “structural” nature of unemployment, particularly generated by believed uncertainty of budget deficits – Rubin himself has pushed in these direction recently. These two claims are disastrous for the Democrats, and the worry from many on the outside, myself included, is that these are the voices most strongly heard on economic policy.

A larger problem than whether or not Rubin himself is associated with any Democratic insider is that the mentality of the new financial elite could take over policy and ideological thinking within the party that is supposed to represent the interests of working people. From Chrystia Freeland’s fantastic new Atlantic Monthly  article The Rise of the New Global Elite:

The good news—and the bad news—for America is that the nation’s own super-elite is rapidly adjusting to this more global perspective. The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.

I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.”…

When I asked one of Wall Street’s most successful investment-bank CEOs if he felt guilty for his firm’s role in creating the financial crisis, he told me with evident sincerity that he did not. The real culprit, he explained, was his feckless cousin, who owned three cars and a home he could not afford. One of America’s top hedge-fund managers made a near-identical case to me—though this time the offenders were his in-laws and their subprime mortgage. And a private-equity baron who divides his time between New York and Palm Beach pinned blame for the collapse on a favorite golf caddy in Arizona, who had bought three condos as investment properties at the height of the bubble.

It is this not-our-fault mentality that accounts for the plutocrats’ profound sense of victimization in the Obama era…Yet many of America’s financial giants consider themselves under siege from the Obama administration—in some cases almost literally. Last summer, for example, Blackstone’s Schwarzman caused an uproar when he said an Obama proposal to raise taxes on private-equity-firm compensation—by treating “carried interest” as ordinary income—was “like when Hitler invaded Poland in 1939.”….

A Wall Street investor who is a passionate Democrat recounted to me his bitter exchange with a Democratic leader in Congress who is involved in the tax-reform effort. “Screw you,” he told the lawmaker. “Even if you change the legislation, the government won’t get a single penny more from me in taxes. I’ll put my money into my foundation and spend it on good causes. My money isn’t going to be wasted in your deficit sinkhole.”

He is not alone in his fury. In a much-quoted newsletter to investors last summer, the hedge-fund manager—and 2008 Obama fund-raiser—Dan Loeb fumed, “So long as our leaders tell us that we must trust them to regulate and redistribute our way back to prosperity, we will not break out of this economic quagmire.” Two other former Obama backers on Wall Street—both claim to have been on Rahm Emanuel’s speed-dial list—told me that the president is “anti-business”; one went so far as to worry that Obama is “a socialist.”

Really, just read the whole thing.  Instead of a soul-searching for why the financial crisis happened, there’s an incrimination of middle-class Americans. Instead of looking at the latest research finding that securitization and Wall Street intermediation increased the supply of credit, and supply always finds its demand, they blame average Americans for demanding too much credit.

And the most worrisome thing is that the obvious solutions for where we are at – a short period of higher inflation, massive credit writedowns, and a larger government deficit paid for with higher taxes on the rich and the largest banks – are all things this new financial elite hate. And the current debates about “structural unemployment” or a lack of interest in jobs provide cover for an obvious priority with this elite – the American middle-class was an anomaly of history, an artifact of the Cold War and the post WWII era. Regular Americans are going to have to take a massive cut in wages and lifestyle in order to recover. This was the argument in the age of Keynes and the Great Depression, and it is the argument now. No wonder the Democratic party looks paralyzed from the outside.

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15 Responses to The New Financial Elite, Rubinites and the Democratic Party

  1. I respectfully disagree about massive credit write downs. The key is to eliminate the interest payment, or significantly reduce the interest rate on consumer credit card debt as long as the consumer can pay down their debt each month.

    The key to this working is some of the paydown principle can be reused each month on new purchases as long as the overall debt continues to diminish.

    All mortgages should be re-racked to 4% for 30 years, 3.5 years for 20 years, 3.0 for 15 years, WITHOUT ANY CREDIT REVIEWS. Since when do we review peoples credit to LOWER their interest rate. The whole point is, they will either default, or not. The idea is reduce the number of people defaulting while keeping them as a reliable customer.

    I totally agree that the banksters don’t want consumer debt reduction to happen, and that is one of the things that galls me most about Barack Obama and his administration. (yes, there are more than one things that gall me most about the Obama administration).

  2. AR says:

    “My money isn’t going to be wasted in your deficit sinkhole.”

    ?? Didn’t his cohort borrow us into this deficit sinkhole by refusing to pay their fair share to begin with? Didn’t ‘his money’ come out of the Treasury bailing him and his cronies out of their reckless folly (with other people’s money)?? Didn’t the taxpayer-funded infrastructure and faith and credit of the US, not to mention the military, provide the means that enabled him to ‘earn’ his money? Did he build his own house with his own hands? Does he test his food personally before eating it, lest it be tainted?

    This is the same delusion that spews out of AM radios, designed to pacify the masses of dupes. He actually believes his own propaganda.

  3. lark says:

    My one question for these global transnational elites is: what do you think a military is for?

    If you don’t rely on the American military in one form or another – and never will, then you truly are a new sort of beast. You’ve risen about the mere citizen and the nation state, and become an independent new entity.

    You don’t need the long arm of the American military to enforce any security of any form in any place under any conditions. Yay for you.

    If that doesn’t hold, pay your taxes and shut up, dude.

  4. Jacob Davies says:

    [[A Wall Street investor who is a passionate Democrat recounted to me his bitter exchange with a Democratic leader in Congress who is involved in the tax-reform effort. “Screw you,” he told the lawmaker. “Even if you change the legislation, the government won’t get a single penny more from me in taxes.]]

    I think this guy is unclear on the concept of “Democrat”. Or maybe I am.

  5. ZeroInMyOnes says:

    This reminds me of a comment someone hurled at a union auto worker during the onset of the US auto industry crisis: His pay has risen to $85,000 so now he believes he is worth it.

    Well, I am sure that auto worker eventually did have to take his pay cut, and so should this rich WS dude. He has come to believe he is worth it. But he is not.

  6. Josh says:

    The late and lamented Ann Richards said of George H.W. Bush, “…he was born on third base and thought he hit a triple.”

    All these wall streeters seem to believe that they hit triples. Sure, they’ve worked hard, but not harder than anyone with a mortgage or kids or parents, etc.

    Isn’t there some way to reintroduce them to the reality based world? Perhaps a deck of pre-existing conditions?

    In the meantime, the progressives/liberals/whatever need to keep working on our noise machine to counter the grover norquists of the world. To me, anyway, it seems the most promising course.

    • JCD says:

      Sticking with this analogy – arguably, the American middle class was born on second but some are too busy wishing they were born on third to realize how many never even get the chance to bat.

      I think there is a tension between liberal ideology which likely recognizes increasing opportunities for destitute individuals as an equal good regardless of the nationality of such individuals, and political ideology which often has a more nationalistic focus.

  7. Chris of Stumptown says:

    “A larger problem… is that the mentality of the new financial elite could take over policy and ideological thinking within the party that is supposed to represent the interests of working people.”

    Seeing as how the revolution really wasn’t televised, some people missed it. The Rubinites own the Democratic party. It’s fait accompli.

  8. Mike says:

    Are there really no successful Democrat managers in the non-finance private sector? How about some tech CEO? Anyone but another Wall Street guy.

  9. Ed says:

    The discussion of the relative merits of people like Rubin and Sperling always proceeds from two faulty assumptions:

    A. If their advocates fail to mention that their primary effect on the Democratic Party has been to move it to the right, the rest of us will look at isolated examples (like “He made the tax system more progressive”) and assume that they are the good guys

    B. That any significant portion of the Democratic Party wants something other than (A).

    The core of the power structure of the Democratic Party is the kind of person quoted by Freeland; they identify themselves as Democrats, they’re socially liberal, and on economic issues they’re largely indistinguishable from their political opposition.

    The DLC people have been in charge for 20 years and their only economic policy goal seems to be to put a shinier coat of paint (and some prettier, more liberal sounding language) on the same pro-globalization, pro-austerity, pro-inequality agenda as the other party.

  10. Red Bubba says:

    “Regular Americans are going to have to take a massive cut in wages and lifestyle in order to recover. This was the argument in the age of Keynes and the Great Depression, and it is the argument now.”

    Just making sure I understand your position: You, personally, send any compensation you receive in excess of the minimum wage to the US Treasury, right?

  11. Bill Murray says:

    “I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.”…”

    So can this CEO show that he produces whatever percent greater his compensation is than his prototypical middle class person?

  12. robk says:

    This guy went to HARVARD…what did you ever do?

  13. Pingback: Billionaire self-pity and the Koch brothers « The Fifth Column

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