The many sources of Wall Street power

No matter which party is in powerful, Wall Street firms such as Goldman Sachs have a powerful voice in Washington.  This will be hard to change.  Wall Street’s power has many dimensions.

  • Wall Street is a power center independent of government.  James Carville, one of President Bill Clinton’s main political advisers, famously said that if he died, he would like to be reincarnated as the bond market, because that is the entity to which everybody bowed down.  Interest rates determine the limits of what government can pay for.  But I think the bond market is less an impersonal force than the decisions of a dozen or two bankers and a handful of rating agencies.
  • Candidates depend on campaign contributions in order to be able to run, and more campaign funds come from big financial institutions than any other interest group.
  • The financial industry’s lobbyists are more numerous and have better access than advocates for depositors, borrowers and investors.  This does not necessarily imply corruption.  No decision-maker is better than their sources of information, and Wall Street lobbyists are always on hand to provide information from their point of view.
  • The White House draws on Wall Street executives to staff the Treasury Department and other economic posts partly because they have expertise on the complexities of high finance.  This has become the default decision.  A Robert Rubin, Henry Paulson or Timothy Geithner is an uncontroversial appointment for Treasury Secretary.  If a President appointed an outsider such as Paul Krugman or Joseph Stiglitz, they would be blamed for everything that went wrong in the economy.  Furthermore they might have trouble finding qualified underlings not drawn from Wall Street.
  • Wall Street has won the battle of ideas.  President Obama, like Presidents Bush and Clinton, apparently believes sincerely that letting banks fail or subjecting them to serious regulation or prosecuting financial fraud would destabilize the economy.  Leaders of both political parties agree with Wall Street’s priority of a balanced budget over putting people to work.

Click on The Quiet Coup for an article by Simon Johnson, former chief economist for the International Monetary Fund, on Wall Street’s control of U.S. economic policy.

Click on The new American oligarchy for my review of 13 Bankers: The Wall Street Takeover and the Next Financial Crisis by Simon Johnson and James Kwak.  I highly recommend the book.

Click on The financialization of America for my review of Bad Money: Reckless Finance, Failed Policies and the Global Crisis of American Capitalism by Kevin Phillips.  I highly recommend the book.

Click on How the Finance, Insurance and Real Estate Sector Drove the Political Growth of the One Percent of the One Percent for a report on the explosive growth of large political campaign contributions by Wall Street firms.

Click on The Wall Street-Washington Revolving Door Keeps Spinning for a report by Bill Moyers.

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