Bought and Paid For

by Charles Gasparino

  The great irony, of course, is that Wall Street is a place where some of the world’s best salesmen make millions by telling people what they want to hear. And that’s exactly what Barack Obama was doing to Spector and the rest of Wall Street with grand results: turning the tables and making the sale.

  And it was working, thanks to people like Warren Spector.

  When he had first met Obama in 2004, Spector had had no idea that this guy would become the president. But he had liked his chances to become the U.S. senator for Illinois, so he had introduced him to people who could help him win that election, which he had.

  Now, just four years later, Spector was helping the young senator win his most important campaign. And the ultrarich mogul was getting a kick out of being part of the primarily student- and retiree-led campaign for “hope and change,” to boot.

  “I would never be allowed to do this at Bear,” Spector would later remark to friends about the time he spent on Obama’s campaign. “I’m so glad I got the opportunity.” When they weren’t working the phones, Spector and the other volunteers would venture out to minority neighborhoods, knocking on doors, handing out flyers, and reminding people to vote on Election Day for the man who would make history as the first African American president.

  It was grueling work, at least for most of the volunteers, who slept on cots or on the floor of the campaign office. Spector would often work twelve hours a day as well, but his idea of slumming it was retreating to a nearby luxury hotel to recharge at night. But in the end he felt it was well worth it.

  Warren Spector had survived Jimmy Cayne, who continued to ridicule him behind his back, and he had survived Bear Stearns with his vast fortune intact, while Bear itself collapsed. And if you talk to friends of Spector, they’ll tell you he felt he was doing something great—helping bring change to the nation in the form of Barack Obama.

  On Election Day 2008, the remaining heads of the big Wall Street firms were, of course, still fighting for survival. The total collapse of the financial system that had followed Lehman’s bankruptcy filing continued to send shock waves through the banking network. One bailout followed another. There was TARP, which eventually consisted of government-mandated direct infusions of cash into each and every firm. That was preceded by the government’s takeover of giant insurer AIG, which had run out of money to cover its insurance contracts on imploding mortgage bonds held by firms like Goldman Sachs. If AIG couldn’t make good on those contracts, Goldman would have to write down and take massive losses on those bonds and would probably go out of business as well. But once the government stepped in, Goldman was saved, at least for now.

  And at least the bank heads and their compatriots were on the verge of helping to bring “hope and change” to the White House. With the economy and the financial system in tatters, all the polling showed that Obama and his vice presidential pick, Joe Biden, would easily beat the McCainPalin ticket, and much of Wall Street, particularly those in the executive suites, was rejoicing. Bush fatigue had set in on Wall Street despite the fact that most firms had split the ticket in the 2004 elections, giving equal amounts to the Democrats and Republicans in both Congress and the presidential election. Now these same executives were high-fiving over their decision to flood the Democrats with money as the leadership of all three branches of government skewed decidedly to the left.

  To hear the CEOs themselves tell it, eight years of George W. Bush had left America a broken land. Deficits were out of control (even though Wall Street had made countless millions selling the debt that supported those deficits). The economy was sinking. President Bush, they all complained, destroyed the country’s reputation overseas, where they had extensive operations; his aggressive foreign policy (including the wars in Iraq and Afghanistan) made it difficult to travel overseas and meet clients, and alienated those clients as well. About the only thing they couldn’t blame on Bush was the financial crisis—even the most left-wing executives on Wall Street had to grudgingly admit that was at least in part their doing. And as for John McCain? They believed the maverick who had never really cottoned to Wall Street would make a bad situation even worse.

  As they saw it, Bush, like McCain, was never really one of them. He wasn’t anti-Wall Street; far from it. His Treasury secretary, Hank Paulson, had worked at Goldman. Less boldfaced names populated other areas of the administration; the president’s chief of staff, Josh Bolten, was a former Goldman partner. But the guys in suits felt that the president himself was too Texas, too “cowboy,” to really understand the needs of Wall Street. To the typical Wall Street executive, Bush came off as the type of guy who would rather chat with a small businessman running a modest manufacturing plant than play golf at John Mack’s fancy club in Rye, New York, where most of the Wall Street power elite belong. And they were right.

  But Obama appeared so comfortable in their presence; to the bankers and executives who listened to Obama in private chats during the campaign (and that included all of the major CEOs), this was a guy who could have easily worked at a big Wall Street law firm if he hadn’t gone into community organizing first.

  Once the euphoria of Election Day itself had passed for Obama’s supporters in banking, all the signals seemed to indicate that the ease and friendliness Obama had displayed to Wall Street during his campaign was about to translate into Wall Street’s having even more influence in the new administration than it had had with the old one.

  Tim Geithner, the president of the New York Fed, was a career bureaucrat (part of the coterie of regulators who never saw the crisis coming) and a devotee of Bob Rubin, who was still at Citigroup and seemed destined for some top job in the new administration. But in public Rubin’s reputation had been crashing as the market did, as the megabank needed one bailout after another to survive, and it became clear that while Rubin claimed no responsibilities at Citi in return for his multimillion-dollar salary, he nonetheless was one of the key architects of the bank’s failed business model. Traders who worked there at the time say that he prodded the firm to take more and more of the types of risks that eventually led to its near insolvency. Rubin also stubbornly supported Citigroup’s labyrinthine structure, which mixed customer deposits (checking and savings accounts that are insured by taxpayers through the FDIC) with the risk taking on the trading desks; thus ensuring that as the bond traders doomed the bank, it was the taxpayers who would be on the hook to make the depositors whole.

  Yet even as he was about to resign from Citigroup, Rubin had been making inroads with Obama, giving him private briefings about Wall Street and the economy. Rubin may be the best-known Clintonite on Wall Street, but what is less known is that his son Jamie Rubin, who had also served in the Clinton administration and who was now working in private equity, had, like Gallogly, been one of Obama’s earliest supporters from the financial sector. Jamie Rubin, along with Gallogly and people like UBS’s Bob Wolf and veteran hedge fund manager Orin Kramer, were known on the Street as Barack’s Bundlers for their ability to raise money for the candidate when he was contesting Clinton for the nomination, even when he was considered a long shot to win.

  Bob Rubin, for all his toxicity as one of the architects of the financial crisis, was embraced by the new president. Indeed, Obama seemed to be more impressed with Rubin than Citigroup’s stockholders were; the company’s owners were now in open revolt against Rubin, questioning his massive salary and lousy results. Yet Geithner and another Rubinite, Larry Summers, fresh from making a quick $8 million for two years’ work at the hedge fund D.E. Shaw and speech making, were the odds-on favorites to become Obama’s Treasury secretary.

  The links between the new White House and Lower Manhattan wouldn’t end with Geithner, Rubin, and Summers, however.

  “It’s Rahm,” Tom Nides told John Mack not long after Obama’s election as president was made official on November 4, 2008. He was, of course, talking about Rahm Emanuel, one of the most powerful and aggressive Democrats in Congress, who had just been chosen to be the most
powerful man in the new administration (after the president, of course): the chief of staff.

  Nides, as it turns out, was one of the first people to know with any degree of certainty not just that Emanuel was Obama’s choice for chief of staff (it had been rumored for some time before the election) but also that he would accept the offer. And there was good reason for Nides’s insider information: He and Emanuel had been close friends for years, working their way up through the Democratic Party together back in the mid-1980s. While Emanuel chose to make a career primarily in politics and Nides primarily on Wall Street, both understood just how much they needed each other.

  At least superficially, they are an odd couple. Emanuel is short, lean, and intense. He loves to scream and curse, not just at aides but also at reporters and even members of Congress: at anyone who stands in his way. One famous anecdote recounts how, after Bill Clinton’s election, Emanuel repeatedly plunged a steak knife into the table, screaming the names of the people whom he saw as the president’s enemies and shouting, “Dead! . . . Dead! . . . Dead!” after each one.

  Nides is taller, softer around the middle, and affable—traits that made him so successful as a Washington DC flack and lobbyist and as an executive at Morgan Stanley, where his chief duties included lobbying and PR management (“flackery”).

  In reality, they have much more in common. Both have straddled the Wall Street-Washington nexus for the past twenty-five years, and done so successfully, something that might come as a surprise in Emanuel’s case. Indeed, much has been made of Emanuel’s long political career—as a party operative; a Clinton administration hatchet man (where his tough style earned him the nickname “Rahmbo”); later as Chicago’s representative in Congress, where as chairman of the Democratic Congressional Campaign Committee (DCCC) he emerged as a leading force in helping the Democrats take control of the House; and finally as Obama’s chief of staff.

  Much less has been made of Emanuel’s impressive, and extensive, ties to Wall Street. They began with a stint in the early 1990s as an outside “political consultant” for Goldman Sachs, where he used his deep connections in the Chicago political community to help the firm secure municipal bond and other government contracts—nearly twenty years before he would become the second-most-powerful person in the country, he was already working to deepen the bonds between Wall Street and Washington.

  During those years as a consultant for Goldman, he started to develop a network of friends on Wall Street, including a young senior executive named Jamie Dimon and, of course, his friend Tom Nides, who a few years later started working at Morgan Stanley. When Emanuel’s deep ties to Goldman were first reported, he was in the Clinton White House. He quickly and vociferously attempted to quell speculation that former Goldman chairman and Clinton economic adviser Bob Rubin had gotten him the job. “Rubin had nothing to do with it,” he told me at the time.

  Maybe so, but the Clinton White House was a Wall Street-friendly place, deregulating the markets; bailing out their friends at the banks when they felt it to be necessary, as they did during the Mexican peso crisis and the LTCM collapse; and passing laws that allowed them to grow and take enormous risk (e.g., by ending Glass-Steagall). With that, it was only fitting that Emanuel’s next gig after the Clinton administration would be on Wall Street: In 1999, in the midst of the dot-com bubble, he worked for a quick couple of years at the investment bank Wasserstein Perella, where he earned an equally quick $16 million before entering politics once again as a member of the House.

  People on Wall Street like to joke that Emanuel doesn’t have much of that $16 million left because of his free-spending wife. But if so, he made up for the lack of personal cash in political pull. Once back in the House, Emanuel used his Wall Street connections again, this time to raise millions of dollars as head of the DCCC, where he and his fellow Wall Street travelers, like Tom Nides, helped deliver the most liberal congressional leadership in the modern era when Nevada senator Harry Reid became majority leader of the Senate and San Francisco congresswoman Nancy Pelosi became the first female Speaker of the House (and one of the most liberal ever).

  Now ensconced at Obama’s side in the White House, Emanuel was ready to deliver for his buddies on Wall Street. After the election Tom Nides’s boss, John Mack, effectively retired from the day-to-day management of Morgan Stanley, stepping down as CEO (though he remained chairman), while Emanuel’s good friend Nides was stepping up: He became Morgan’s chief operating officer—one of just a handful of top executives reporting directly to the new CEO, James Gorman. In addition, Nides was appointed the new chairman of Wall Street’s chief lobbying group, the Securities Industry and Financial Markets Association, also known as SIFMA. It was here that Nides began to plot Wall Street’s comeback after the disastrous 2008, something he was relying on his friend in the White House to assist him with.

  The billions in taxpayer-financed bailouts and the recession caused by the financial crisis weren’t things that endeared Wall Street to Main Street. The country was angry, even if Obama didn’t appear to be (his nickname inside the campaign was “No Drama Obama”). During the campaign and after the election, Obama had had numerous meetings with his Wall Street kitchen cabinet about the banking crisis that lingered through the end of the year.

  Lurking in the background, of course, was Bob Rubin, always willing to lend his sage advice and perspective as a survivor of past crises, even if that same advice may have contributed to the current one.

  Obama, by all accounts, listened intently. There would be new rules, no doubt, he said, and now that the Democrats were in charge of just about everything (having built bigger majorities in the House and Senate), Wall Street was bracing for some class warfare coming from the liberal politicians.

  Tom Nides was one of those unofficial advisers as well, even if he was a former Hillary supporter. According to people who know him, after the 2008 election, Nides wasn’t really worried about attacks coming from the Democrats—after all, the House leadership included Wall Street’s favorite liberal, Representative Barney Frank, who had been helping the Street lighten regulation and finagle Congress for years. And then there was the Street’s favorite Senator, Chuck Schumer of New York, who never passed up the chance to tax, spend, and regulate, unless it involved Wall Street: As the ranking member of the banking committee, awash in Wall Street campaign cash, Nides was betting that Schumer would never kill the golden goose.

  Instead, Nides believed if Wall Street truly faced a threat, it was from the Republican Party, particularly the Republican members of the House. As he saw it, they were the renegades who had voted against the initial plan to bail out the banks, the Troubled Asset Relief Program, which caused the markets to tank more than six hundred points that afternoon, and they were the ones now being influenced more and more by the Tea Party—a nascent political movement that viewed Big Wall Street as the evil equivalent of Big Government.

  Obama lived up to Wall Street’s expectations and began assembling a senior staff that had little of the “hope” and even less of the “change” he had promised in his campaign. In fact, he began to assemble a group of regulatory bureaucrats who looked like they had been plucked right out of the good ol’ Clinton days, which made Wall Street, and Nides, now its chief lobbyist, absolutely giddy.

  Rubin was gone, a casualty of the financial crisis, but after Obama announced Rubinite Tim Geithner’s selection as Treasury secretary, the market rose to close over four hundred points higher from its low—this on the news that the country’s finances would be run by a man who not only had missed the entire financial crisis, allowed Fannie and Freddie to implode, and permitted AIG to go on an unparalleled risk-taking spree, but who had been a key voice in favor of bailing out the financial system in 2008. Wall Street had other reasons to rejoice. Larry Summers, fresh from getting booted out as president of Harvard University after implying that women were bad at science and math, and even fresher from leaving the hedge fund where he had made millions doing almost
nothing, would become the new president’s chief economic adviser. Banks and traders from other big firms found high-ranking jobs as well: Gary Gensler, Rubin’s old pal from Goldman Sachs and later at Treasury, snuck back in to government as head of the Commodity Futures Trading Commission, which regulates one of the core businesses that helped get Wall Street in trouble, the use (and abuse) of derivatives.

  The only sour note amid the general euphoria sweeping the Street over team Obama was that somehow the Crazy Old Man, Paul Volcker, had made his way into the administration as a senior economic adviser. The former Fed chairman was as anti-Wall Street as ever, and top executives were warned that he wanted to once and for all rein in the excesses that had produced the 2008 financial collapse. They were also told not to fear: The president planned to keep Volcker around like a crazy uncle, for window dressing, and nothing more.

  With Geithner, Summers, and lesser-known names like former Citigroup banker Michael Froman (a law school buddy of the president), and Phil Murphy, former Goldman Asia region chief and finance chair of the National Democratic Committee, in place (Froman as a deputy assistant to the president and Murphy as ambassador to Germany), Nides and Wall Street knew they had an administration they could work with. “Could you imagine who John McCain might have picked for the Treasury?” was a standard joke among the Wall Street hierarchy as they thought back to the presidential campaign and wondered what a McCain presidency might have looked like if, say, the financial crisis had come to a head after the election rather than before. In fact, Nides and the rest of Wall Street had barely gotten to know McCain during the campaign, except through the filter of Hank Paulson, who had briefed the Arizona senator on the financial collapse. And that was hardly a briefing: What was reported back to the heads of the big firms was that while Paulson was busy saving their collective asses, McCain was busy chewing out Paulson’s ass. Hank Paulson, then the Treasury secretary and the former CEO of Goldman Sachs, is an imposing man, about six feet three inches tall, hunched over even as he normally stands, with steely blue eyes and a voice that’s more like a rasp. He played football at Dart-mouth, and while he could be exceedingly polite and accommodating to clients (he was a longtime investment banker) he’s also known for his mean streak when challenged, as McCain had done to him in the fall of 2008 on a nearly daily basis.