Obama eco­nomic team to sweep Wall Street clean

“It turned out we were ei­ther naive or stupid to think that when can­di­date Obama spoke about "change you can be­lieve in," he was in­clud­ing Wall Street.”

The Pak Banker - - Front Page - Wil­liam D. Co­han

WHEN US vot­ers elected Barack Obama pres­i­dent in Novem­ber 2008, many of us were con­vinced he would make a top pri­or­ity of re­form­ing Wall Street, which had just al­most suc­ceeded in bring­ing down our way of life through greed and lack of ac­count­abil­ity. De­spite the fact that Gold­man Sachs Group Inc. (GS), JPMor­gan Chase & Co. (JPM) and Cit­i­group Inc. (C) were among Obama's top 10 fi­nan­cial back­ers in 2008, we were hope­ful we would see a change in the sys­tem whereby bankers, traders and ex­ec­u­tives were re­warded ev­ery day to take huge, asyn­chro­nous risks with other peo­ple's money.

Wil­liam D. Co­han is the au­thor of the re­cently re­leased "Money and Power: How Gold­man Sachs Came to Rule the World" and the New York Times best­sellers "House of Cards" and "The Last Ty­coons."

We also be­lieved that Obama wouldn't suc­cumb to the back­room ma­neu­ver­ings of the plu­to­crats and be­hind-the-scenes money men -- such as for­mer Trea­sury Sec­re­tary Robert Rubin and for­mer Deputy Sec­re­tary Roger Alt­man -- who were busy ad­vo­cat­ing a quick re­turn to the sta­tus quo and look­ing to move their friends into po­si­tions of great im­por­tance in Obama's Cab­i­net.

It turned out we were ei­ther naive or stupid to think that when can­di­date Obama spoke about "change you can be­lieve in," he was in­clud­ing Wall Street.

In ways we may never fully un­der­stand, Rubin quickly cast his spell on Obama. Be­fore long, Rubin pro­teges were ap­pointed to the three most im­por­tant eco­nomic po­si­tions in the new ad­min­is­tra­tion: Ti­mothy Gei­th­ner as Trea­sury sec­re­tary, Lawrence Sum­mers as na­tional eco­nomic ad­viser and Peter Orszag as di­rec­tor of the Of­fice of Man­age­ment and Bud­get. For good mea­sure, the ad­min­is­tra­tion named Mary Schapiro, the head of the Fi­nan­cial In­dus­try Reg­u­la­tory Author­ity, Wall Street's dys­func­tional self-reg­u­la­tory or­ga­ni­za­tion, as chair­man of the Se­cu­ri­ties and Ex­change Com­mis­sion.

Sum­mers has gone back to Har­vard Univer­sity, and Orszag is now at Cit­i­group (and writes a col­umn for Bloomberg View). Gei­th­ner and Schapiro will be leav­ing Wash­ing­ton shortly. Yet other Rubin acolytes -- Gene Sper­ling, now the na­tional eco­nomic ad­viser; Jack Lew, Obama's chief of staff; and Michael Froman, the pres­i­dent's top in­ter­na­tional eco­nom­ics ad­viser - - are still very much in res­i­dence at the White House.

What did these men and women col­lec­tively achieve dur­ing Obama's first term? A re­mark­ably Wall Street-friendly set of poli­cies. To re­cap, the big banks con­tin­ued to be bailed out; the weak Dodd-Frank fi­nan­cial re­form act con­tin­ues to get wa­tered down as its spe­cific rules are ham­mered out; not one Wall Street trader, banker or ex­ec­u­tive has been held crim­i­nally li­able for ac­tions lead­ing up to the fi­nan­cial cri­sis; and the Stan­dard & Poor's 500 (SPX) has dou­bled since its nadir in March 2009. The Fed­eral Re­serve also did its part: pump­ing tril­lions of dol­lars into the cap­i­tal mar­kets to keep in­ter­est rates at rock- bot­tom lev­els (a gift to Wall Street and a tax on savers).

A pretty amaz­ing list of fa­vors, if you think about it. Yet Wall Street clearly thinks it is owed even more. The an­tipa­thy be­tween the fi­nan­cial sec­tor and Obama has never been greater. Eight of Repub­li­can chal­lenger Mitt Rom­ney's 10 top donors in the elec­tion were Wall Street firms. (Mean­while, the mar­kets re­sponded to Obama's re-elec­tion with a 400-plus point drop.)

So, Pres­i­dent Obama, the time has come for you to do in your sec­ond term what many peo­ple hoped you would do in the first: In­sti­tute mean­ing­ful re­form on Wall Street. An es­sen­tial first step is to sweep out the re­main­ing ves­tiges of the Rubin- Alt­man nexus. Bring in a new group of peo­ple who not only un­der­stand how Wall Street re­ally works but also have ded­i­cated much of their lives to chang­ing it.

Who might some of those peo­ple be? For Trea­sury sec­re­tary, the best choice is Ersk­ine Bowles, who has dis­tin­guished him­self as co-chair­man of the Na­tional Com­mis­sion on Fis­cal Re­spon­si­bil­ity and Re­form. Al­though it is true that Bowles was chief of staff to Pres­i­dent Bill Clin­ton, and thus rubbed el­bows with Rubin and Alt­man, he isn't in that Rubin or­bit. He un­der­stands Wall Street -- he founded a small epony­mous in­vest­ment bank and a pri­vate-eq­uity firm, Carousel Cap­i­tal, and was a part­ner at pri­vate-eq­uity gi­ant Forstmann Lit­tle & Co. -- and did a fine job serv­ing as pres­i­dent of the sprawl­ing Univer­sity of North Carolina sys­tem.

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