And so, apparently, did Obama, as he plotted his vast expansion of government predicated on the notion that his economic policies were beginning to take hold. In March 2009, the Dow Jones Industrial Average reached its low point and began a steady climb that would total more than four thousand points by the end of the year. Wall Street was getting beaten up in the court of public opinion, but it was also feasting off Obama’s policies and making money as if the financial crisis had never occurred. Prosperity, according to the president, appeared to be right around the corner, and Obama had big plans that began to solidify as 2010 approached: a massive expansion of the welfare state, free health care, cap-and-trade energy limits, and who knows what else.
The president even sounded giddy at times. At one point, he urged Americans to start buying stocks because, given all the stimulus he had pumped into the economy, they looked cheap—an unprecedented move in the eyes of some on Wall Street, who couldn’t believe a president was making investing recommendations to the American public. He touted the marginal increases in economic growth as if they were proof positive of the vision of his policies, even as unemployment remained alarmingly high through the year.
And the press bought the spin as the nation’s GDP began mimicking the stock market, rising quarter after quarter through the end of the year.
Even the great conservative TV economist Larry Kudlow proclaimed a “V-shaped” recovery to be in the works, meaning that after a sharp decline, all the cheap money and pent-up demand for business would sooner or later lead to massive economic growth and hiring once again. These optimists were more worried about inflation than anything else.
And yet the upward part of the V in the recovery never came, at least for the millions of people out of work. During the course of 2009, the GDP did begin to improve and the recession was officially over. But Peter Sidoti’s research had held up better than the predictions of the president’s economic team. Obama’s stimulus package had failed to simulate private-sector employment, even if Wall Street was making money again.
Small business continued to cut costs and cut jobs. Construction remained in a depression. Even states that had kept their workforces fat and happy began to cut, particularly places like New Jersey and Virginia, where Republicans tapped into the voters’ growing discontent with Obama’s policies and were able to defeat Democratic incumbents for governor by vowing to rein in runaway state spending.
The president, reading from his teleprompter, assured the country that jobs would return—he would make sure of that—while reminding Americans of the mess he had been left by the previous administration. But by the end of 2009 and into early 2010, the blame game had become tiresome to most Americans and Obama’s once-lofty poll numbers began to fall.
Obama had now been in office for nearly a full year, and even though his voters were beginning to reconsider their support, Obama still had the backing of the Democrat-controlled Congress. With its help, he had rammed through a stimulus package that didn’t work. And now he was vowing to ram through health-care reform that polls showed most people either didn’t want or didn’t understand well enough to have an opinion about. That’s because average Americans understood what the president couldn’t or wouldn’t: Both measures did little to help Middle America recover from the worst economic disaster since the Great Depression, and the Big Government programs only ensured a huge increase in the nation’s already massive deficit.
A growing majority of the American people were coming to realize that the president, for all his political savvy, knew very little about how the economy works. Why nationalize health care when getting a job means getting health insurance? Why stimulate the economy through massive amounts of government spending when businesses usually begin to hire workers when government cuts their costs through lower taxes?
They also realized something else: While they were still suffering, Wall Street was living it up again. If you came to New York and hung around the city’s swankiest bars, you could see it happening: twentysomething traders once again ordering bottles of Cristal and bragging to their friends about the killing they made in the markets. In the executive suites of Goldman Sachs they were partying as well; senior Goldman executives weren’t bluffing when they promised bankers and traders that 2009 would be a very good year for them if they stuck around through all the political noise as the firm began doling out bonus money to its senior executives.
Blankfein, despite his humble beginning, saw nothing wrong with the subsidized paychecks.
But many Americans saw it differently, and now they were looking for blood.
“We’re the only thing separating you guys from the pitchforks,” a very excited Rahm Emanuel told Tom Nides one afternoon, using a line he’d actually borrowed from the president. Emanuel had been fielding telephone calls from his Wall Street buddies with great regularity by the end of 2009 and into 2010, as the public perception of Wall Street sank to new lows and the impression that Obama was in the pocket of the fat cats grew.
The political advisers like David Axelrod believed Obama and a wary public needed a common enemy, and Wall Street was it. And with that, the name-calling reached new heights. During an Oval Office meeting in February 2010, the president seemed to slip, referring to Blankfein and Dimon in particular as “savvy businessmen” when asked about their bonuses, only to cause the White House to issue a statement suggesting that he didn’t mean what he said when the complaints came flooding into the White House.
Emanuel was caught in the middle. Despite his long political résumé, he had been a creature of Wall Street himself, serving as a consultant for Goldman Sachs in the early 1990s and later in the decade as an investment banker heading the Chicago office of investment boutique Wasserstein Perella, where he earned close to $16 million for just two years’ work.
And now he was hearing his Wall Street buddies talk as if the past two years of bailouts and subsidies hadn’t happened. Nides, for his part, was in a particularly nasty mood about the attacks coming from the White House.
A longtime political adviser and confidant of Morgan Stanley CEO John Mack, Nides had just been promoted to chief operating officer (COO) of the big brokerage firm, and his ascendancy spoke volumes about the changes on Wall Street in the era of Obama, featuring unprecedented government intervention. Nides had very little, if any, real Wall Street experience—he had never sold or traded a bond and never served as an investment banker. But with vast experience in greasing the wheels of Big Government on behalf of his Wall Street clients, Nides now found himself at the top of one of the biggest Wall Street firms. He was an invaluable commodity on the new Wall Street—one that would be more dependent on government handouts than ever before.
But what made Nides unique was his relationship with Emanuel. The two had been friends for nearly twenty-five years, having worked in politics since the mid-1980s while making periodic stops on Wall Street to make money. Recently, Nides had made Wall Street his more permanent home, while Emanuel had chosen Washington.
That didn’t stop the two from being frequent dinner companions when they were in New York or DC, or from speaking on the telephone almost every day. In addition to his senior role at Morgan Stanley (he reported to new CEO James Gorman), Nides moonlighted as chairman of Wall Street’s chief lobbying group, where he could put his relationship with one of the most powerful men in Washington to good use on behalf of the entire securities business.
But now Nides was on the hot seat. The attacks by the president, not to mention the new financial regulations Obama promised in mid-2010, sent Wall Street, particularly the CEOs who had so enthusiastically supported Obama, into a tizzy. And Nides was on the receiving end of many of the complaints. Inside Morgan and among his vast network of contacts across Wall Street, he had implored both Democrats and Republicans to vote for Obama, telling anyone who would listen that the same guy who had palled around with Bill Ayers and Reverend Wright was actually a moderate at heart and would surround himself with moderate
advisers.
Nides had seemed to deliver on the advisers part when Obama appointed Geithner, Summers, and Emanuel to key positions in his administration. No one could argue with the president’s policies toward Wall Street, which experienced a massive boom in profits and bonuses just months after the big firms nearly evaporated.
But now the full reality of Obamanomics had set in. The Republicans he had convinced to endorse Obama worried about exploding debt levels and the unprecedented government intervention in the economy, soon to grow even greater as the president began plans for his financial-services overhaul. Meanwhile, the Democrats on Wall Street couldn’t understand why Obama was bashing them at every chance he got. Mack, now the chairman of Morgan, never seemed to miss an opportunity to walk into his office to remind Nides what his “friend” was saying.
Just as Nides became the target of anti-Obama anger inside Morgan Stanley, Larry Fink became the target inside Wall Street hot spot San Pietro. The BlackRock founder’s favorite restaurant had become ground zero for anger that couldn’t be directed directly at Obama but could be directed at one of his biggest and earliest supporters.
“Are you talking to your fucking friend in Washington yet!?” billionaire financier Ken Langone bellowed one afternoon as he held court along the famed chairmen’s row of tables in the restaurant and pestered Fink about his association with the president. Fink just put his head down and sheepishly said, “No.”
More recently, Joe Perella had been telling everyone he knew that the Wall Street crowd had ignored his advice and voted for Obama, despite his proving to be a socialist.
“I told everyone about this guy and no one wanted to listen!” he screamed at Fink one afternoon while lunching at San Pietro.
The difference between Perella and Langone and the heart of the Wall Street establishment is that they are entrepreneurs: Perella runs a boutique investment bank and Langone a small brokerage house after he was a founding partner of The Home Depot. They don’t rely on Big Government to shower them with riches, at least not on the scale of Fink and the rest of Wall Street.
While Fink just brushed off the criticism, the daily drumbeat of complaints was starting to take its toll on Nides. He often complained that he felt like a “piñata” at work, getting beaten up every day from all sides—by the Democratic liberals at the firm and by the Republicans who had backed Obama out of firm loyalty. Even people outside Morgan began to chime in with complaints, stating that he wasn’t doing enough in his job as head of the Wall Street lobbying group known as SIFMA.
Nides’s response to them mirrored what he was told by Emanuel: The special programs given to the banks by Obama had been controversial, and the president had taken his lumps in public opinion over them, but he hadn’t backed down.
Moreover, the alternative would be worse, he repeated and repeated. The Republicans were increasingly enchanted with the Tea Party activists, who hated Wall Street more than the Maxine Waters left wing of the Democratic Party hated the bankers and traders. If the Tea Partiers and their friends in Congress had their way, Wall Street would be a ghost town. So Rahm Emanuel’s message to Nides and Nides’s message to the rest of the Street was pretty simple: Watch what Obama does, not what he says.
Nides could only hope.
In December 2009, Obama was planning his second meeting of the year with his campaign contributors on Wall Street. But before he did so, he needed to draw a strong rhetorical distinction between himself and the men who had destroyed the economy. The venue chosen by the president was the television news show 60 Minutes, which was viewed by millions of Americans. Reporter Steve Kroft asked for and received permission to air the interview the Sunday before the president’s meeting with his bankers- cum-fund-raisers.
Obama, whose policies had allowed the firms to make so much money almost immediately after the crisis, sounded as if he were as perplexed and angered as anyone about the turn of events. He attacked firms like Goldman for paying themselves huge bonuses while the nation suffered through nearly 10 percent unemployment (though he never mentioned that his stimulus package had failed to actually stimulate the economy and job market). He railed at the bankers for their greed, which had caused the financial collapse (though he never mentioned the millions of dollars in campaign checks those greedy bankers had produced for him). And he said he didn’t get elected to help “fat cat” Wall Streeters make money while the rest of the country suffered (though he never mentioned his regular meetings with those very same fat cats, nor their close ties with key members of his administration).
It’s funny what a little name-calling can do on Wall Street. Obama’s “fat cat” description of the bankers and traders he was set to meet the following day wasn’t quite the “shot heard round the world,” but it was an interesting wake-up call that the friendship Wall Street had enjoyed with the president was morphing into something more like a business relationship, where two sides use and abuse each other for mutual gain.
It’s easy to understand why Obama decided to resort to banker bashing. His economic policies had produced clear winners and losers. While the big banks shelled out multimillion-dollar bonuses to the same people responsible for the recession, those in more blue-collar industries suffered. What Obama couldn’t escape was the continued reality of the disaster of his stimulus package and the dual economy it created: Massive unemployment in many industries, such as construction, continued largely unabated, while government bureaucrats—the real beneficiaries of the stimulus package—remained comfortably employed.
Also remaining comfortable and employed were the people who had plunged the economy into the mess (and helped elect Obama), the Wall Street bankers and traders. By early 2010, the big firms made plans for a big expansion in their workforce to keep up with mounting profits that showed no sign of slowing down. With superlow interest rates promised by the Fed for the foreseeable future, and too-big-to-fail status making it easy and cheap to borrow, all the firms were earning big money and finalizing plans to shell out record executive bonuses. The firms argued that they were actually showing restraint, paying bonuses that were a smaller percentage of overall revenues than in previous year, with more than half of the money coming in company stock. But the argument failed to impress once the raw numbers were disclosed: JPMorgan Chase led the pack, paying $29 billion in total compensation—even more than it had paid out in 2007, the year before the meltdown. The unyielding press attention on Goldman overshadowed the fact that Citigroup handed out more money in compensation than its more successful rival, $23.6 billion compared to $21.5 billion for the evil empire, and that Bank of America, despite its massive bailout, was getting ready to shell out $31 billion in total compensation. Morgan Stanley, in keeping with Mack’s austerity plan, paid just $16 billion, though people inside rival Goldman Sachs groused Morgan paid out a higher percentage of its revenue in compensation than any other big bank. Mack, it should be noted, earned a salary of a little less than $1 million.
This, naturally, caused the class warfare that had been brewing at Tea Party rallies, among union workers (not the still-employed civil service unions, of course), and in other fringe groups to spread to the mainstream.
That’s why Obama’s old friends—Jamie Dimon, John Mack, Larry Fink, Lloyd Blankfein, and Gary Cohn—made such enticing targets. With Obama’s own poll numbers dropping and the country in a foul mood, the one thing he knew of that united the Left, Right, and Center was hatred of Wall Street. It didn’t matter that Obama was about to meet with the very individuals he was now bashing or that they had been largely responsible for helping him win the presidency in the first place. When you’ve bought and paid for a politician at this level, as the bank chiefs were slowly coming to realize, you have to take such attacks in stride.
But that didn’t mean they had to like it.
It was around 8:00 A.M. New York time, and John Mack was seated in first class for his flight to Obama’s much-touted bankers’ meeting. He was still digesting the 60 Minutes i
nterview that had aired the night before, when he received a call from Blankfein. Mack was taking off from the Westchester County Airport in Purchase, New York, Blankfein from La-Guardia. Both had decided to fly commercial, rather than take their respective corporate jets. Earlier that year, several auto executives had flown to Washington on their private planes in an attempt to beg for government assistance in helping their companies get back on their feet. The move had solidified the CEOs’ reputation as insensitive and greedy businessmen, out of touch with reality, and after a year of getting killed in the press, the last thing Mack and Blankfein needed was to be compared to the morons who had run GM and Chrysler.
But now they thought they had outmaneuvered themselves. “We’re being delayed because of fog,” Blankfein said. Mack said his flight was delayed as well. Mack and Blankfein had become close over the course of the past year, which was odd given that Goldman and Morgan were longtime rivals. But they had come to realize that they now shared a mutual dilemma. They were both among the most despised businessmen in America, although with Matt Taibbi’s conspiracy theories about Goldman still making news (remember his “vampire squid” comment?), Blankfein was clearly sitting in the hotter seat. That hot seat would get even hotter in the days and weeks ahead.
As they sat in their plane seats and chatted on their cell phones, the president’s 60 Minutes interview came up. Mack remarked how much “everyone hates us” and that even the guy who billed himself as the first “postpartisan president” was getting in on the act. Mack said he was prepared for the worst during the meeting, expecting the president to pick up where he had left off in the 60 Minutes interview and begin badgering the banks over bonuses and their lack of lending. One of the staple criticisms of Wall Street over the past year had been that despite taking taxpayers’ bailout money, the banks weren’t recirculating the cash to small businesses in the form of loans. And why should they? It was far more profitable to take all that cheap government cash and make easy trades with it than to lend it out.
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