I owe almost my entire Wall
Street career to the Clintons. I am not alone;
most bankers owe their careers, and their
wealth, to them.
Over the last 25 years they – with the Clintons
it is never just Bill or Hillary – implemented
policies that placed Wall Street at the center
of the Democratic economic agenda, turning it
from a party against Wall Street to a party of
Wall Street.
That is
why when I recently went to see Hillary
Clinton campaign for president and speak
about reforming Wall Street I was skeptical.
What I heard hasn’t changed that skepticism. The
policies she offers are mid-course corrections.
In the Clintons’ world, Wall Street stays at the
center, economically and politically. Given Wall
Street’s power and influence, that is a
dangerous place to leave them.
The
administration’s economic policy took shape as
trickle down, Democratic style. They championed
free trade, pushing Nafta. They reformed
welfare, buying into the conservative view that
poverty was about dependency, not about
situation. They threw the old left a few bones,
repealing prior tax cuts on the rich, but used
the increased revenues mostly on Wall Street’s
favorite issue: cutting the debt.
Most
importantly, when faced with their first
financial crisis, they bailed out Wall Street.
That crisis came in January 1995, halfway
through the administration’s first term. Mexico,
after having boomed from the optimism
surrounding Nafta, went bust. It was a huge
embarrassment for the administration, given the
push they had made for Nafta against a cynical
Democratic party.
Money was fleeing Mexico, and
much of it was coming back through me and my
firm. Selling investors’ Mexican bonds was my
first job on Wall Street, and now they were
trying to sell them back to us. But we hadn’t
just sold Mexican bonds to clients, instead we
did it using new derivatives product to get
around regulatory issues and take advantages of
tax rules, and lend the clients money.
Given how aggressive we
were, and how profitable it was for us, older
traders kept expecting to be stopped by
regulators from the new administration, but that
didn’t happen.
When Mexico started to collapse, the shudders
began. Initially our firm lost only tens of
millions, a large loss but not catastrophic. The
crisis however was worsening, and Mexico was
headed towards a default, or closing its border
to money flows. We stood to lose hundreds of
millions, something we might not have survived.
Other Wall Street firms were in worse shape,
having done the trade in a much bigger size. The
biggest was rumored to be Lehman, which stood to
lose billions, a loss they couldn’t have
survived.
As the crisis unfolded, senior
management traveled to DC as part of a group of
bankers to meet with Treasury officials. They
had hoped to meet with Rubin, who was now
Treasury secretary. Instead they met with the
undersecretary for international affairs who my
boss described as:
“Some young egghead academic who
likes himself a lot and is wide eyed with a
taste of power.” That egghead was Larry Summers
who would succeed Rubin as Treasury Secretary.
The
bailout worked, with Mexico edging away from a
crisis, allowing it to repay the loans, at
profit. It also worked wonders on Wall Street,
which let out a huge sigh of relief.
The
success encouraged the administration, which
used it as an economic blueprint that emphasized
Wall Street. It also emphasized bailouts,
believing it was counterproductive to let banks
fail, or to punish them with losses, or fines
or, God forbid, charge them with crimes, and
risk endangering the economy.
The
use of bailouts should have also been a reason
to heavily regulate Wall Street, to prevent
behavior that would require a bailout. But the
administration didn’t do that; instead they went
the opposite direction and continued to
deregulate it, culminating in the repeal of
Glass Steagall in 1999.
It changed the trading floor,
which started to fill with Democrats.
On my trading floor,
Robert Rubin, who had joined my firm after
leaving the administration, held traders
attention by telling long stories and jokes
about Bill Clinton to wide-eyed traders.
