naked capitalism

Those who recall the early Clinton years may see some parallels to today, albeit in a watered-down form now.

Clinton came into office, as political scientist/economist Tom Ferguson put it, “chanting one word as a mantra: ‘change.” He then appointed:

an economic team that looked like Wall Street, a foreign policy team that resembled Jimmy Carter’s, and a raft of other appointments that looked, if not exactly like the Business Council (still a white male bastion), then perhaps the affluent clientele of some exclusive spa or ski resort.

Clinton announced policies apparently intended to please a lot of people that seemed to make no one happy: talk re balancing the budget, tax increases on the rich, a strong dollar policy. And Hillary pressed forward with the health care reform plan, which seemed to garner front page coverage almost every day during the first year in office. The economy languished and Clinton’s ratings fell.

Clinton had had a narrow base of business support, and it had included Wall Street. His initial bond-market friendly and strong dollar stance had stood him in good stead with them. But pretty much everyone in finance had taken levered bets on interest rates staying low or falling further. When Greenspan raised Fed fund rates in early 1994, the result was massive derivatives losses, a bigger wipeout than the 1987 crash. Clinton backed the widespread calls for investigations and more regulation. And he also, unexpectedly reversed the strong dollar policy, on the assumption that if the US drove the dollar low enough, it could force the Japanese to open their markets (the Plaza accord had shown that a weaker dollar curbed US imports of Japanese goods, but did little to increase US exports to Japan. The barriers were “structural,” meaning deeply-held consumer preferences plus a host of non-tariff trade restrictions. The idea was that this would spur jobs and donations from companies that were keen to penetrate the Japanese market.

The result? Donations from Wall Street collapsed. Some donors even rescinded six figure pledges. And the business that were though to benefit from a cheaper dollar were singularly uanppreciative and did wanted more goodies before they upped their donations.

The Democratic party had not concrete accomplishments to tout, a flagging economy, and a health care fiasco. The 1994 midterm rout focused the Clinton team’s mind. As dire as the Republican revolution appeared to be, its message did not resonate with voters. So a quick reversal, including a resumption of Wall Street friendly policies, was the new order of the day.

Now things are not that bad for the Democrats…..yet. But Afghanistan looks to be a tar baby no matter what Obama does. If the economy (and we mean the economy, not the markets) does not appear to be recovering by fall next year, the Democrats could be looking at a reversal of fortunes, not as dramatic as Clinton faced, but enough to undo their Congressional majorities (I will admit to not having looked at what seats are up for grabs, incumbency is a huge factor in these calculations). And the loss of financial backing is likely to have an impact.

Put it this way: if the banksters are pulling back even with Team Obama proposing largely cosmetic reforms, can we expect the Administration to live up to its tough talk if it starts feeling pressured on other fronts?

The way they kept this under control in Australia, BTW (at least when I was there) was that NO political ads were permitted on TV. Candidates that scored above a certain threshold were given a set amount of free air time (I forget how they pulled straws to determine who got which slot). And TV ads are the big ticket item; get rid of those, and we’d see considerably less corruption in America. But we’ll never figure out how to cut that Gordian knot in America.

From the New York Times:

The Wall Street giants that received a financial lifeline from Washington may have no compunction about paying big bonuses to their dealmakers and traders. But their willingness to deliver “thank you” gifts to President Obama and the Democrats is another question altogether.

Yves here. This is actually a pretty amazing lead in. Is the New York Times finally starting to officially take up the line that Team Obama has given a sweetheart deal to the industry, despite its pretenses otherwise? Back to the story:

Mr. Obama will fly to New York on Tuesday for a lavish Democratic Party fund-raising dinner…But from the financial giants like Goldman Sachs, JPMorgan Chase and Citigroup that received federal bailout money — and whose bankers raised millions of dollars for Mr. Obama’s election — only a half-dozen or fewer are expected to attend (estimated total contribution: $91,200).

Part of the reason, several Democratic fund-raisers and executives said, is a fear of getting caught in the public rage over the perception that Wall Street titans profiting from their government bailout may use their winnings to give back to Washington in return. And the timing of the event, as the industry lobbies against proposals for tighter regulations to address the underlying causes of last year’s meltdown on Wall Street, has only added to the worry over public appearances.

Yves here. Not sure I buy that. Was it Marcy Kaptur who pointed out that not a single Wall Street CEO came to Obama’s September speech in New York one year after the Lehman meltdown? It was a pointed show of lack of respect. The “oh we have to worry about propriety so we can’t bribe you right now” is spurious. It didn’t seem to stem donations when the TARP largesse and stress test head fake was on. Back to the story:

“There is some failure in the finance industry to appreciate the level of public antagonism toward whatever Wall Street symbolizes,” said Orin Kramer, a partner in an investment firm who is a Democratic fund-raiser and one of the event’s chairmen. “But in order to save the capitalist system, the administration has to be responsive to the public mood, and that is a nuance which can get lost on Wall Street.”

Yves here. Did you catch that? Someone who is sensitive to public anger thinks that the need of the government to serve the citizenry, as opposed to the moneybags, is “nuance.” To the article:

Dr. Daniel E. Fass, another chairman of the event who lives surrounded by financiers in Greenwich, Conn., said: “The investment community feels very put-upon. They feel there is no reason why they shouldn’t earn $1 million to $200 million a year, and they don’t want to be held responsible for the global financial meltdown.” Dr. Fass added, “How much that will be reflected in their support for the president remains to be seen.”

The story does suggest that some of the fall in contribution is due to the loss of Bear and Lehman. But this factoid is telling:

So far in the current election cycle, though, Wall Street accounts for less than half as much of the Democratic Party’s fund-raising as it did in 2008: 3 percent, or about $1.5 million out of a total $53.6 million in the eight-month period, compared with about 6 percent, or $15.3 million out of $260.1 million during the last election. (Republicans relied more heavily on their party to support their presidential candidate in 2008, and the party’s Wall Street fund-raising has fallen even further.)

Wall Street is arguably doing better than the rest of the economy, and is providing lower donations. In 1994, a more dramatic fall off in contributions lead to measures to appease the financiers. Will we see a repeat?