Why Wall Street tycoons loathe Sanders, Clinton

Hillary Clinton and Bernie Sanders had an argument about financial regulation during Tuesday’s debate — but it wasn’t about whether to crack down on banks. Instead, it was about whose plan was tougher. The contrast with Republicans like Jeb Bush or Marco Rubio, who have pledged to reverse even the moderate financial reforms enacted in 2010, couldn’t be stronger.

Clinton had the better case. Sanders has been focused on restoring Glass-Steagall, the rule that separated deposit-taking banks from riskier wheeling and dealing. And repealing Glass-Steagall was indeed a mistake. But it’s not what caused the financial crisis, which arose instead from “shadow banks” like Lehman Brothers, which don’t take deposits but can wreak havoc when they fail. Clinton has laid out a plan to rein in shadow banks; so far, Sanders hasn’t.

But is Clinton’s promise to take a tough line on the financial industry credible? Or would she, once in the White House, return to the finance-friendly, deregulatory policies of the 1990s?

Well, if Wall Street’s attitude and its political giving are any indication, financiers themselves believe that any Democrat, Clinton very much included, would be serious about policing their industry’s excesses. And that’s why they’re doing all they can to elect a Republican.

To understand the politics of financial reform and regulation, we have to start by acknowledging that there was a time when Wall Street and Democrats got on just fine. Robert Rubin of Goldman Sachs became Bill Clinton’s most influential economic official; big banks had plenty of political access; and the industry by and large got what it wanted, including repeal of Glass-Steagall.

This cozy relationship was reflected in campaign contributions, with the securities industry splitting its donations more or less evenly between the parties.

But then came the financial crisis of 2008, and everything changed.

Many liberals feel that the Obama administration was far too lenient on the financial industry in the aftermath of the crisis. After all, runaway banks brought the economy to its knees, causing millions to lose their jobs, their homes, or both. Yet nobody went to jail, and the big banks weren’t broken up.

But the financiers didn’t feel grateful for getting off so lightly. On the contrary, they were and remain consumed with “Obama rage.”

By any normal standard, President Barack Obama has been remarkably restrained in his criticisms of Wall Street. But with great wealth comes great pettiness: These are men accustomed to obsequious deference, and they took even mild comments about bad behavior by some of their number as an unforgivable insult.

Furthermore, while the Dodd-Frank financial regulation bill enacted in 2010 was weaker than many reformers had wanted, it was far from toothless.

Financiers bitterly resent any constraints on their ability to gamble with other people’s money, and they are voting with their checkbooks. This lopsided giving is an indication that Wall Street insiders take Democratic pledges to crack down on bankers’ excesses seriously. And it also means that a victorious Democrat wouldn’t owe much to the financial industry. In other words, while there are some differences in financial policy between Clinton and Sanders, as a practical matter they’re trivial compared with the yawning gulf with Republicans.