Bought and Paid For (34 page)

What he got instead was a doubling down of Bush in terms of spending and a heaping dose of class warfare to boot. The guy he had thought was a moderate turned out to be a lefty.

And he also received a doubling down of abuse. Ken Langone, who had supported Rudy Giuliani's failed presidential run, never let Fink forget that the man he had helped elect had turned out to be a disaster, according to people who overheard their conversation over lunch at San Pietro.

Lloyd Blankfein had initially supported Hillary Clinton for president, but had gravitated toward Obama with the rest of Wall Street. Now, like Fink, he wished he hadn't. The pressure on Goldman mounted through the spring of 2010 at an unrelenting pace, with verbal attacks and more congressional hearings. Despite estimates of a $100 million bonus, Blankfein ended up taking just $9 million. Goldman presented the award—all of it in company stock—as a sign that Blankfein was doing the right thing, walking away from money he had rightfully earned but couldn't take because of the public's distaste for the firm's success.

The PR victory, such as it was, barely registered with the general public, which believed that even $9 million to a banker that feasted off the taxpayer was far too much. Private polling done by the financial firms showed Wall Street's standing sinking even lower, with Goldman leading the downward trend.

The prickly Blankfein, it should be noted, isn't a beloved figure inside Goldman as, say, the charismatic John Mack is within Morgan Stanley. But oddly enough, his plight—and now the plight of the firm—brought Goldman's many warring factions (the bankers never really got along with the traders) together for the first time in years.

The consensus inside the firm, even among bankers who hated both Blankfein and Gary Cohn, was that the firm was the victim of a witch hunt. Many even believed that Goldman's woes could be traced to latent anti-Semitism in the public, ironically inflamed by the relentless coverage of the firm by the
New York Times
.

Goldman, of course, traced its roots to German Jews who after the Civil War couldn't work at the WASP-owned banks, and that identity remained part of the firm's cultural fabric for years. After the firm's being run for the past fifteen years by WASPs (Jon Corzine and Hank Paulson), Blankfein was a throwback to the early days, and according to people at Goldman, several top executives believed the critical press coverage, particularly some of the most stinging rebukes published in the
New York Times
by acclaimed investigative reporter Gretchen Morgenson, carried anti-Semitic overtones and as absurd as such a charge might be, the firm should register the complaint with
Times
management.

But it's hard to play the victim when you're making so much money (Goldman earned $3.5 billion during the first quarter of 2010), and the firm's war-weary flack Lucas van Praag cautioned that such a press strategy would ultimately backfire.

For a change, Blankfein and company listened to him.

Meanwhile, Wall Street's best friends in the administration, Treasury secretary Tim Geithner and chief economic adviser Larry Summers, had continued to signal to Blankfein, Dimon, and the rest of the Wall Street ruling commission that they shouldn't worry too much about Obama's financial reform rhetoric, assuring their friends on Wall Street that they had all but killed the most pernicious parts of the Volcker proposal, namely the call to end proprietary trading and the provisions to limit how much the firms can place of their own capital in hedge funds and private equity.

It had been a hard-fought battle, they said. Obama, after all, was actually beginning to
listen
to Volcker after about a year of ignoring the most experienced economist in his administration, and Volcker hated Wall Street. But a sharp drop in the stock market had made Obama think twice, and the Volcker rule, in its current form, was dead, at least until the next financial crisis.

With that, the firms began feeling good about themselves as they partied on more than $140 billion in bonus money for 2009, doled out during the early part of 2010. It was as if 2008 had never happened, and in the minds of most of Wall Street, it hadn't.

But it did happen, of course, and just about as soon as word leaked that the Volcker rule was out, it was back in.

“Volcker is crazy” was the assessment of just about every banker on Wall Street when they heard the latest: The old man somehow reclaimed the president's attention.

Volcker, as it turned out, might be crazy, but he wasn't stupid. For all the push-back from Geithner and company on Volcker's proposal (Geithner through a spokesman denies that be opposed the final product), the plan somehow received a second life when Wall Street started buzzing as to how Volcker made his plea directly to the president. Soon his political aides, particularly David Axelrod, who was credited with devising Obama's successful campaign strategy, began to support the measure as well. The public, Volcker argued, wanted something done about the risk taking that had proved so dangerous. More than that, by doing nothing to rein in the banks, Obama, the candidate of hope and change, was being associated with the most hated entities in America.

For all the rule's faults, its political value couldn't be underestimated. Obama's association with the big banks, combined with his far-left agenda, had begun to crush his once-lofty poll numbers and threatened Democratic control of the House and Senate. Among the most vulnerable was Senate majority leader Harry Reid, the same Harry Reid who had gone begging to Goldman for campaign cash and gotten screamed at by Blankfein's enforcer, Gary Cohn. Many in Obama's own party would have supported a breakup of the banks, something the public probably would have supported as well. But that would have assured a war with the likes of Jamie Dimon, and all the Wall Street cash would have begun to flow to the Republicans.

So Obama settled for the next best thing, a compromise: the Volcker rule. Thanks to Summers and Geithner, Volcker and his rule languished inside the Obama White House for months, Wall Street executives with direct knowledge of the matter say—that is, until it became clear that Obama's presidency depended on doing something that took on the banking system that he had protected for so long and that had allowed the hated Goldman Sachs to boast record-breaking profits, which were on track to beat bonuses earned in 2009.

With that, Paul Volcker, eighty-three, who was for most of his time in the Obama White House considered nothing more than an ornament, a rare antique to be marveled at for a brief moment before going about your business, became a star once again. The man who had raised interest rates in the late 1970s and early 1980s and argued that high unemployment for a time would be good for the country had now found relevance in the populist anger that was sweeping the country and in Obama's decision to tap into it by attacking his old friends on Wall Street.

Geithner, people at the firms tell me, was livid and so scared about his own relevancy that he began cutting ties with many of his closest contacts on Wall Street. Summers, for his part, kept those contacts but told them he was so frustrated by his diminished status that he might leave the administration at the end of the year. Emanuel, meanwhile, explained to his Wall Street friends that given the anti-Wall Street mood of the nation, the hatred that was palpable from the lefties who read the
Huffington Post
blog and the right-wingers attending Tea Party rallies, the banks should be glad they had friends in high places.

The Volcker rule, despite assurances from Emanuel, Geithner, and Summers to the contrary, wasn't merely in the new financial reform bill; it had become the centerpiece of the entire package being adopted by Chris Dodd, the Democratic senator from Connecticut, not just to rein in Wall Street but also to curry favor with the public as the 2010 midterms drew closer.

Despite funneling substantial sums of campaign cash his way because of his senior position on the Senate Banking Committee, Wall Street had always considered Chris Dodd a fair-weather friend. Since he was from Connecticut, his base of support wasn't Wall Street but the giant hedge-fund industry, which had its offices in the swanky areas of Greenwich and Stamford and competed with the New York-based banks for talent.

The first sign Dodd wasn't in the banks' corner had come when he proposed pay caps for the bailed-out firms back in 2009, a move shot down by Wall Street's friends in the administration, namely Geithner, according to people on Wall Street. But now Dodd had been given a broader mandate as the primary author of the new financial reform legislation, to be known as the “Dodd bill” on Wall Street because he took such a direct interest in the legislation and the president handed him so much control. In other words, Chris Dodd had Wall Street's future in the palm of his hand, and that had the Street on edge. The big question was just how far he would go. Would Dodd embrace not just the Volcker rule in its most strict interpretation but also some of the more loony proposals that had cropped up during the last two years? Or would he play ball with Geithner and Summers?

Inside JPMorgan Chase, Dimon weighed the odds: Politically, Dodd was finished, thanks in large part to his association with the subprime lender Countrywide Financial, run by the controversial Angelo Mozilo. Dodd had received sweetheart loans from the bankrupt mortgage company, whose loans were responsible for the financial crisis, and he had been a major recipient of campaign cash from the disgraced mortgage lenders Fannie Mae and Freddie Mac. With his poll numbers dropping, Dodd had announced that he wasn't running for reelection.

But he wasn't going anywhere fast (his term ended in 2010), and his aides let it be known that after a long and distinguished career (nearly thirty-five years in public office), Dodd wanted a grand exit, something that he could point to as his legacy. That something, they said, was financial reform, and that made Dimon and the rest of the Street nervous.