The Wall Street Dems-- Rising Or Falling?

Barney Frank is no longer a Member of Congress and his influence on the House Democrats' fiscal agenda has been largely supplanted by that of former Wall Street executive Jim Himes (New Dem-CT). As we saw last week, the New Dems have been boasting that a quarter of all House Democrats are now Members of their caucus. 53 Democrats, including DNC head Debbie Wasserman Schultz, have joined the New Dems, a caucus dedicated to-- above anything else-- sucking legalistic bribes from Wall Street and corporate America by backing their toxic economic agenda. And, unlike the Blue Dog Caucus which is nearly extinct, the New Dems have grown, thanks largely to the recruitment policies of Steve Israel and the DCCC, and includes 20 freshmen. (In contrast, the Progressive Caucus only includes 11 freshmen. In fact, the newest recruit into the bowels of the New Dem Coalition was Anne Kuster who quit the Progressives to move over to the Dark Side.)

This year the New Dems have teamed up with the Republicans-- they are, after all, the "Republican wing of the Democratic Party" or, as many joke, "your father's Republican Party"-- to dismantle Barney Frank's efforts to curb Wall Street's predatory excesses. New Dems on the Agriculture Committee-- Kuster, Pete Gallego (TX), Sean Patrick Maloney (NY), Mike McIntyre (NC), David Scott (GA) and Juan Vargas (CA)-- and on the Financial Services Committee, have made common cause with the GOP to undermine regulations--to the point of deregulation-- on derivatives. Support for the scheme to reduce Social Security via a Chained CPI came from just two places: the GOP and the New Dems. The Chained CPI scheme is a Wall Street priority.

Yesterday, conservative Democratic operative Peter Beinert tried making the case at the Daily Beast that the Democratic Party has turned against Wall Street. He's incorrect. His initial assertion that the forced withdrawal of Larry Summers for the Fed Chair proves the congressional Dems hate Wall Street, assumes, incorrectly, that Wall Street was unified in its desire to see Summers get the job. Not only did the Dow spike up yesterday when the news of Summers' withdrawal hot the floor, but Forbes also begs to differ: The Best News for the U.S. Economy This Year: Larry Summers Drops Out of Fed Chairman Race. "As Mark Leibovich has pointed out in This Town, a hilarious new book on the Washington eco-system of show-boating, self-aggrandizement, and financial conflicts, the nation’s capital is noted for a tendency for people to 'fail upward': those who fail in one job suddenly re-appear-- often within months-- in bigger jobs where they are unleashed to do even more damage. Even by Washington standards, however, the idea that Summers had any claim on the job of Fed chairman was straight out of Through the Looking Glass. Certainly had he got the job, it would have been the ultimate proof of John Maynard Keynes’s cynical maxim that 'worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.' Thus it is heartening that Summers has just announced he is withdrawing  from the contest (albeit it took three Democratic members of the Senate Banking Committee-- Jon Tester, Sherrod Brown, and Jeff Merkley-- to stare him down)." Fingleton, a former editor for Forbes and the Financial Times, goes on to cite Joe Stiglitz's NY Times column proving Summers' unsuitability and then explains that Summers' connection to Wall Street is to its "seamier side... Summers’s net worth as of 2009," he points out, "was at least $17 million, more than 40 times the figure he reported in 1999. What made the difference was  Wall Street’s unerring generosity towards those public intellectuals whose ideas sell the American public interest down the river."

Am I being too harsh? Not at all. Those of us who criticize Summers’s record aren’t all merely wise after the fact.  A lot of people over the years have insisted on comprehensive financial regulation, not least the architects of the late 1930s Glass-Steagall system, which kept the U.S. banks out of trouble for more than four decades-- the best four decades in  American economic history. If you want to find contemporary policymakers who have understood all along the case for financial regulation, you need go no further than Canada, which did not follow the United States down the road to deregulation. In contrast with the repeated crises which have rocked U.S. finance for more than three decades, the Canadians have been rewarded with a consistently efficient, crisis-free financial system.  It is a similar story in much of central and northern Europe, where for the most part financial regulators have maintained a firm grip in the face of constant exhortations from the United States and the United Kingdom to deregulate.

Or maybe Beinert meant that the Dems are just moving away from that "seamier side of Wall Street," although the gusher of legalistic bribes to the New Dems wouldn't indicate as much. It was after all, that "seamier side of Wall Street" that got former New Dem Chair Joe Crowley, one of the three most corrupt Democrats in the House, put into the caucus leadership this year. And it is seamy Wall Street cash that has fueled the upward career of a second of the 3 most corrupt House Democrats, DCCC Chair Steve Israel, who has relentlessly recruited Wall Street-friendly New Dems to run for House seats.

Beinert's main premise is that the main reason Summers "dropped out is that he became identified with deregulatory policies that were far more tolerated inside the Democratic Party in 1999-- or even 2009-- than they are today. Four of the twelve Democrats on the Senate Banking Committee, and 19 Democrats (plus one independent) of the 54 in the full Senate, had already expressed their public opposition meaning that Obama would have had to rely for Summers’ confirmation on Republican votes. The AFL-CIO had come out against Summers. So had MoveOn, Daily Kos, Chris Hayes, Paul Krugman and the editorial page of The New York Times. By contrast, Summers had barely any high-profile defenders outside the administration. When people did speak up in his defense, it was often on background." You'd think Beinert had never heard of the New Dems, even though he's straight from that DLC wing of the part they crawled out from.

What the Summers’ fight shows is how dramatically the financial crisis has reshaped the economic debate inside the Democratic Party. In 2008, Summers’ patron and ally, Robert Rubin, was rumored as a potential Obama running mate. Today, Rubin has largely disappeared from public view and given his role in the deregulatory policies of the 1990s, any defense he offered of Summers would have hurt his cause. In 2006, an ambitious Democratic policy wonk like Gene Sperling could write a book that criticized liberals for being insufficiently pro-business without worrying that it would hurt his chances of getting a top government job. No one would do that today.

It’s not that Wall Street no longer wields influence among Democrats. The party still relies on the financial services industry to help fund its campaigns and its lobbyists can still shape legislation. But the danger of being too publicly associated with Wall Street has increased. Democrats who want to pass their time between government gigs and earning millions at an investment bank now have to think harder about the political risk. And regulators who coddle Wall Street have to worry more about becoming props in an Elizabeth Warren YouTube video gone viral.

Ironically, Warren may be the political loser in Summers’ decision to drop out. Had he come before her banking committee, their duel would have dominated cable news. And he would have served as the perfect foil for her populist challenge to the Wall Street branch of her party. Hillary Clinton, by contrast, would have had to explain on the stump whether she supported confirming as Fed Chairman the man her husband had picked to run the Treasury Department.

The Democratic rebellion against Summers, like the Democratic rebellion against military action in Syria, bespeaks a deep frustration that party elites still share the economic and foreign policy assumptions that helped cause the disasters of the last decade. The next battle may the Obama administration’s desire for “fast track” authority to help push through giant new trans-Atlantic and trans-Pacific free trade deals. If I were Hillary Clinton, I’d come out against it now.

I'm glad Beinert feels Elizabeth Warren speaks for the Democratic Party and represents its future-- and I wish it were true. As for Hillary coming out against the toxic trade agenda promulgated by the Bushs, her husband and Obama... well good idea, unless it's just a political calculation and not a real break with... Wall Street.