Thirty-eight hours after Scott Brown’s smack-upside-the-head victory in the race for Ted Kennedy’s former Senate seat, Barack Obama took the podium in the Diplomatic Reception Room at the White House. Hovering behind him was Paul Volcker, the former Fed chair and (for months, largely ignored) Obama economic adviser; far off to the side stood Treasury Secretary Tim Geithner. In the wake of Brown’s win, the prospect of passing health-care reform—and the rest of Obama’s first-term agenda—suddenly seemed dim. So the president had decided to pursue the obvious, logical course: He had decided to change the subject.
The topic to which Obama now shifted was financial reform, in particular to the matter of speculative, big-casino activity by the nation’s banks. “I’m proposing a simple and common-sense reform, which we’re calling the Volcker Rule—after this tall guy behind me,” Obama declared. “Banks will no longer be allowed to own, invest, or sponsor hedge funds, private-equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so—responsibly—is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private-equities funds while running a bank backed by the American people.”
As Obama spoke, Volcker, whose jowly countenance usually runs the full spectrum from mournful to hangdog, beamed like a 3-year-old who’d just been handed a brand-new toy firetruck; Geithner wore the expression of a kid whose puppy had been run over by a real one. Kremlinologists instantly deconstructed the tableau, speculating that Geithner, long leery of the premise of the Volcker Rule, had lost an internal power struggle. That he’d fallen out of favor with Obama. That, as an A-list economics writer put it, “His days must now be numbered.”
In fact, Geithner had, by then, made his peace with the Volcker Rule. After being overruled by his boss, he had been tasked with designing the proposal so it would be sound policy—and though Geithner still doubted it would do much good, he was now convinced it wouldn’t do much damage, either. He also saw the political upside to endorsing the idea. For months, Volcker had been waging a public campaign on behalf of his scheme, suggesting that the administration was being too soft on Wall Street, lending ammunition to those on the left who felt the same. At least now, the secretary reasoned, the old man would pipe down.
But Geithner considered the timing of the announcement miserable, on the grounds that it would be perceived by the media and Wall Street as a clumsy bid by Obama to gin up some man-of-the-people juju in reaction to the Brown debacle. When Treasury aides voiced this concern, however, it was dismissed by the White House’s political operation. “After Massachusetts,” replied communications director Dan Pfeiffer on a staff conference call, “if [Robert] Gibbs and I wear purple ties, that will be seen as political, too.”
Wall Street’s reaction to the unveiling of the Volcker Rule came swiftly and was even harsher than Geithner had feared. The Dow promptly plunged 213 points, with bank stocks leading the way down. “It was like the White House said, ‘Okay, we lost Massachusetts, health care is screwed, so let’s go after Wall Street,’ ” says the CEO of one of the nation’s biggest banks. “And for a lot of Wall Street people, it was like, ‘Okay, first you slap us in the face, now you kick us in the balls. Enough is enough. I mean, we’re done.’ ”
On May 20, the Senate passed its bill to reregulate Wall Street by a vote of 59-39, complete with a (watery) version of the Volcker Rule. The story of the legislation’s passage can be told in a number of ways: a tale of conflict or compromise, triumph or capitulation. But on any reading, that story is only the climactic chapter in a larger narrative: how the masters of the money game fell out of love with—and into a state of bitter, seething, hysterical fury toward—Obama.
The speed and severity of the swing from enchantment to enmity would be difficult to overstate. When Obama was sworn into office, Democrats on Wall Street rejoiced at the ascension of a president in whom they saw many qualities to admire: brains, composure, bi-partisan instincts, an aversion to class-based combat. And many Wall Street Republicans—after witnessing the horror show that constituted John McCain’s response to the financial crisis—quietly admitted relief that the other guy had prevailed.
Today, it’s hard to find anyone on Wall Street who doesn’t speak of Obama as if he were an unholy hybrid of Bernie Sanders and Eldridge Cleaver. One night not long ago, over dinner with ten executives in the finance industry, I heard the president described as “hostile to business,” “anti-wealth,” and “anti-capitalism”; as a “redistributionist,” a “vilifier,” and a “thug.” A few days later, I recounted this experience to the same Wall Street CEO who’d called the Volcker Rule a testicular blow, and mentioned I’d been told that one of the most prominent megabank chiefs, who once boasted to friends of voting for Obama, now refers to him privately as a “Chicago mob guy.” Do all your brethren feel this way? I asked. “Oh, not everybody—just most of them,” he replied. “Jamie [Dimon]? Lloyd [Blankfein]? They might not say Obama’s a socialist, but they come pretty close.”