The Payoff – Why Wall Street Always Wins
The Wall Street crash of 1929 – 1933 that precipitated and exacerbated the Great Depression led to a series of stringent financial regulations. The S&L crisis of the 1980s resulted in the prosecutions of hundreds of executives. What has been called the Great Recession of 2008 has, 4 years later, resulted in neither regulations nor prosecutions, despite a self-professed reformist president being elected in 2008 by an electorate demanding reforms. In Jeff Connaughton’s new book, The Payoff – Why Wall Street Always Wins, we get an insider’s perspective as to why even common-sense, highly popular reforms aren’t enacted: “In Washington, only the Wall Street lobby is concerned about fraud investigations. And their concern is to prevent them.”
For more than 2 decades, Connaughton spent time in Washington as part of the Permanent Class, both within government and as a lobbyist. Tying himself to Senator (and now Vice President) Joe Biden, he used that relationship to make millions as a lobbyist. While technically a Democrat, as a lobbyist Connaughton was indifferent to the politics of his clients. “The rest of the country may be divided into red and blue, but DC is green, and cheerfully so.”
When Biden became Vice President, his senate seat was filled by Ted Kaufman, who immediately declared that he wasn’t going to seek a 2nd term. “I later learned from reporters that Wall Street was frustrated that they couldn’t find a way to harness Ted, because he wasn’t running for re-election” said Connaughton, brought on board as Kaufman’s Chief of Staff. Both Kaufman and Connaughton vowed that they’d spend their two years “fighting for accountability for the financial crisis…to ensure there would never be another one.”
Yet after 2 years, Connaughton admits failure and predicts another crisis: “There have been no high-profile prosecutions…the stock market has become even more dominated by computer-driven trading, too-big-to-fail banks continue to act lawlessly…and regulatory reforms are being written with the help of Wall Street lawyers.” Why is this? How did the biggest financial catastrophe in more than 60 years change nothing? People looking for a smoking gun will be disappointed. “It’s not a tale of bags filled with cash and quid pro quos.” Then what is it?
Simple self-interest: “Party cohesion and the desire to make a munificent living go a long way to enforce silence” and conformity, says Connaughton. Politicians don’t represent the voters, they represent themselves. The simple fact is that of all a politician’s constituents, corporate interests are best able to guarantee a payoff: Money now, to stay in power, and money later, with a career as a lobbyist or other special interest. Few are willing to “burn every bridge…set flame to the ship that would take me back there,” as Connaughton has done.
Politicians are supposed to represent us, the voter, but don’t. But why should this be shocking? In private enterprise, employees are supposed to represent their customers. Be in business long enough, though, and you know how often we compromise our dedication to customers. When exploring how something as horrible like Auschwitz could occur, Theodor Adorno found, “One pursues one’s own advantage before all else and, simply not to endanger oneself, does not talk too much.” If this describes our corporate culture, it surely describes our political culture as well. (I discuss the corporate culture here.)
This book isn’t as well written as something we might see from Michael Lewis. It’s a bit dry, and in some parts it seems most concerned with settling scores (Biden comes off as thoroughly unlikable). But for anyone interested in understanding why nothing substantive has changed on Wall Street over the past 4 years, this book is a must read.