The following is from page four of John Helleman’s epic piece in New York magazine on the relationship between the Obama administration and Wall Street. It’s really a must read, and I think it vindicates most of what I wrote about the financial crisis last spring. Apparently, the honchos on Wall Street are absolutely livid with Obama and that’s the context of this excerpt.
Considering the lengths to which the administration had just gone to rescue Wall Street from collapse, all this behavior might strike a (rational) person as ungrateful and even churlish. One explanation for it revolves around the industry’s endemic twin defects: short-termitis and amnesia. “Wall Street is focused on the next five minutes or the last five minutes,” says Roger Altman, a deputy Treasury secretary under Clinton and now chairman of the boutique investment bank Evercore Partners. “At the end of Obama’s speech at Federal Hall, he said that this community must remember the debt it owes to the taxpayers. But I’m not sure most of Wall Street does remember.”
Another, not inconsistent, theory is that the money changers aren’t merely forgetful but mildly deluded. “They’ve created a narrative where irrational actions by a few people plus the nature of government intervention forced them to do things inconsistent with their free-market philosophy and regular way of handling their business,” offers a Democratic financier. “So, yes, they took the TARP money, but only because they had to. None of them are sitting there saying to themselves, ‘You know, I was responsible for this crisis. Therefore, I’m really grateful to the government that it stepped in.’ This is not the narrative they have in their heads.”
But one of the city’s most successful hedge-fund hotshots offers a different surmise: “The majority of Wall Street thinks, ‘Hey, you lent us money. We did a trade. We paid you back. When you had me down, you could have crushed me, you could have done whatever you wanted. You didn’t do it! So stop your bitching and stop telling me I owe you, because I already paid you everything! The fact that I’m making money now is because I’m smarter than you!’ I think that’s where you’ve got this massive disconnect. In simple human terms, the government is saying, ‘I saved your life, and all you did was thank me once. You should be calling me every day: Thank you. Thank you.’ The guy who saved the life expects more. And the guy whose life is saved says, ‘I already thanked you!’ ”
On page three we learn what Krugman really believed about nationalizing the banks:
After countless rehearsals of the options, Obama wanted to hear a broader range of voices. So in April, a dinner was set up at the White House with the president and a clutch of big-name economists: Paul Krugman, Joseph Stiglitz, Jeffrey Sachs, Alan Blinder, Kenneth Rogoff. “That turned out to be a defining moment in the debate,” Geithner told me. “Partly because they were all disagreeing with each other, and partly because they knew what they were against but not exactly what they were for and what it entailed—except Krugman. He was the only one willing to say, ‘Look, there’s a good case for nationalizing, but if you do, you have to understand two things: One, it’s incredibly expensive, it’ll cost trillions; and two, you have to guarantee everything.’ ” Once again, Obama cast his lot with Geithner.
So, when he finally got a shot on advising the president directly on the issue he gave the same advice that I provided at the time. The richest irony I found in the piece was related to the warning I gave Jane Hamsher at the time (that nationalization would enrich the hedge-fund managers just as much as Geithner’s plan).
A bigger debate was over the question of whether to nationalize the weakest banks, which were thought by many to be insolvent. A number of the members of Obama’s economic team began leaning in the direction of taking over at least a couple of the most troubled institutions. Geithner suspected that some of his colleagues were channeling ideas fed to them by pals of theirs at hedge funds, many of which were licking their chops over the prospect of buying a boatload of distressed assets in the event of nationalization or some similar scheme. More to the point, Geithner also believed that if the government started taking over banks, it would turn into a costly quagmire.
And, finally, what about Geithner’s performance?
Geithner’s stabilization plan is now widely regarded as having worked—mainly thanks to the once-derided “stress tests” that he imposed on the banks, which showed the world that their circumstances weren’t as dire as many feared and let them raise the requisite capital to get back on their feet. By this spring, the big banks had paid back virtually all the TARP money they’d received, and the cost of the bailout to taxpayers was smaller than that of the S&L crisis of the early nineties.
I never guaranteed anyone that Geithner’s plan would work. I just said that it made sense, posed less risk and probably less cost than nationalization, and that the wrong people would get rich no matter what Geithner did.
And the thanks the president gets is to have the progressive left attacking him, Wall Street loathing him, and the Tea Partiers obsessing over bailouts that actually worked.
The politics of the collapse were always going to be choppy, but the bottom line is that saving the economy was better politics than the alternative. And if you think people are pissed about the cost now, just imagine what they’d be saying about the cost of nationalization. There are a lot of ungrateful people out there. It’s not just the assholes on Wall Street.
