Wall Street as the co-government of the U.S.

I’ve written many posts about the revolving door between Wall Street and Washington, and how the U.S. government puts the interests of the financial oligarchy above the interests of the American public.

I’ve just finished reading a book that shows how far back in American history this goes.

 ALL THE PRESIDENT’S BANKERS: The Hidden Alliances That Drive American Power by Nomi Prins (2014) is a narrative history showing the interdependence of the Presidents and the Wall Street banking and financial community from the early 20th century to the present day.

Nomi Prins showed how American Presidents from 1910 to 1970 had to take the interests of Wall Street banks into account in implementing their policies, and then how, from 1980 on, the banks freed themselves from governmental restrictions to engage in ever-bigger speculations, from which they had to be bailed out.

Her story begins with the Panic of 1907 with President Theodore Roosevelt standing by helplessly while J. Pierpont Morgan summons bankers to his mansion and arranges a bailout to prevent financial collapse.

The Federal Reserve System was created in 1913 in order to prevent such a situation from recurring.

This was a major turning point in American history.  It gave the United States a financial stability and financial resources without which it could not have been a world power.  It made possible U.S. participation in the world wars, the projection of American global power and the great expansion of federal government activity—none of which could have been paid for on a pay-as-you-go basis or with foreign loans.

At the same time, it formalized the position of the great American banks as a kind of fourth branch of government.

It’s interesting how many of the Presidents had special banker friends who served as financial mentors and ambassadors to the financial community.

J.P. “Jack” Morgan Jr. was a friend of Wilson and FDR.  Thomas Lamont of J.P. Morgan Bank worked with Wilson, Hoover and FDR.  Winthrop Aldrich of Chase was a friend of FDR and Truman.

Sidney Weinberg, who became the head of a little-known firm called Goldman Sachs in 1930, was especially noteworthy.  He helped finance Franklin Roosevelt’s 1932 election campaign, and enjoyed close ties with FDR, Truman, Eisenhower, JFK, LBJ and Nixon.

Now Goldman Sachs is one of the biggest Wall Street financial firms and its influence is all-pervasive.

Franklin Roosevelt and Lyndon Johnson were especially pro-active in trying to recruit or Wall Street in pursuit of their policies.

FDR’s close relationship with various Wall Street figures seems to contradict his rhetoric of “I welcome their hatred” and driving the money-changers from the temple.  But in fact, as Prins pointed out, FDR’s prompt action in the first 100 days of his administration saved the banking system from collapse, and the 1930s stock market enjoyed a brief recovery, boom and second bust.

Many Wall Street figures of an earlier era were sincere public servants., Prins noted  John J. McCloy, who was assistant secretary of war under FDR and U.S. high commissioner for Germany in 1949-1952, is an example.  This ideal faded from the 1980s on.

Prins wrote that U.S. banking culture has changed.  In an earlier era, Wall Street was dominated by  blue-bloods who saw themselves as part of a ruling elite with responsibilities as well as privileges.  In the 1930s, some of them were willing to embrace restrictions that were in their long-range self-interest.

Over time Wall Street came to be dominated by upstarts who see themselves as self-made men with no responsibility to anyone but themselves.

Maybe there is some truth in this, but I think, as she also noted, the period from 1970 to 1980 was when the American financial industry became truly globalized, and the fate of the American financial community was no longer tied up with the power and prosperity of the United States.

It began in the era of the petro-dollar, in which banks vied with each other to attract OPEC oil money and to find ways to invest it.   Bankers came to think of the U.S. government as something that was holding them back from achieving their global ambitions.

The story from 1980 on is a story of the U.S. government step-by-step removing all the safety nets, firewalls and regulations intended to prevent speculative excesses.  This led to bigger and bigger financial bubbles, bigger and bigger crashes and the bigger and bigger bailouts by the U.S. government.

Prins wrote that the Wall Street-Washington alliance must be broken up, but this is going to be hard to do..

Banking is a necessary part of a well-ordered capitalist system.  Until and unless an alternative is found to capitalism and maybe even if it is, banks will be needed in order to turn savings into capital—that is, in order to use the nation’s latent wealth as a means of generating new wealth.

The problem is how to make the banking system serve the needs of the real economy, in which people make useful goods and services, rather than making the real economy a set of chips in a high-stakes poker game which nobody can be allowed to lose.  Prins’ book shows how the USA so far is going in the opposite direction.

Excerpts from All the President’s Bankers

All the President’s Bankers: The Hidden Alliances that Drive American Power | ZeroHedge.

READ: Nomi Prins’ “All the President’s Bankers”: The Hidden Alliances that Drive American Power” | Democracy Now!

Interview with Nomi Prins

The Oligarchy Doesn’t Care About Democracy, Just Rigged Markets.  An interview of Nomi Prins by Mark Karlin for Truthout.

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All In! The Bush Family Goes for Number Three (With the Help of Its Bankers) by Nomi Prins for TomDispatch.  [Added 6/24/2015]

Tags: American presidents, Franklin Roosevelt, Nomi Prins, Theodore Roosevelt, Wall Street