Bailout

The politics of finance

By Felix Salmon

It’s politics-of-finance day today, with The Big Money running an excerpt from Jonathan Alter’s new book, about Paul Volcker and Larry Summers, while John Heilemann has a big New York cover story on the relationship between Obama, Geithner, and Wall Street.

Alter is unsparing when it comes to Summers:

Inside the White House, David Axelrod was among the few representing the so?called populist side of the argument, and a joshing debate broke out. Axelrod asked Summers, ?So, what does your plutocrat constituency make of this, Larry??

?It?s good to be hearing what Che thinks,? Summers replied.

But if Summers was more politically shrewd and more aware of the consequences of his outbursts becoming public, the old habits persisted. When Christie Romer was brought in to be the chair of the Council of Economic Advisers, Summers tried to exclude her from important meetings. Romer fought back, even suggesting to Summers that sexism might have played a role in her exclusion, a serious charge given that he was fired as president of Harvard for perceived sexism.

?Don?t you threaten me!? Summers yelled.

?Don?t you bully me!? Romer shouted.

Heilemann, meanwhile, reports that the current administration, which saved the banks from nationalization, is now held in such contempt that Lloyd Blankfein, a Democrat, “has taken to trashing Obama to his friends in unusually brutal personal terms”, and that at least one big Wall Street bank is likely to slash its Obama donations by more than 90% in 2012.

Both Alter and Heilemann trace the decision not to nationalize to a dinner at the White House in April 2009, attended by Paul Krugman, Joe Stiglitz, Alan Blinder, Ken Rogoff, and, at least according to Heilemann, Jeff Sachs as well. Krugman and Stiglitz were in favor of nationalization, but we open about the fact that it would be an expensive and fraught course of action; Obama, faced with an alternative, sensibly took it.

The overwhelming impression I get from reading both accounts, however, is that we’re still in the middle of the story and that no one has a clue what the ending is going to be. The fate of Wall Street is not remotely settled yet, and indeed it’s not at all obvious what the Obama administration wants the fate of Wall Street to be. But Wall Street, it’s clear, is not going to be satisfied with anything short of a complete return to the status quo ante. They’re going to have to get used to disappointment.

Full post as published by Macroprudential on May 24, 2010 (boomark / email).