To a greater extent than most realize, Geithner and his people at Treasury have been more than the architects of the administration’s policy on financial reform: They have been its main legislative strategists and tacticians. When it came to Volcker Rule, Geithner’s worries had little to do with a reluctance to annoy the bankers. Instead, they were based on a sense of confidence that the politics of reform were already breaking the administration’s way. On the day of the Scott Brown earthquake in Massachusetts, the Treasury secretary happened to be talking with a senior Senate Republican who told him that, no matter what the outcome of health care, he was sure that the GOP would lose five to ten votes on the Senate bill.
But the announcement of the Volcker Rule wound up providing an added political boost. For the banks and the Republicans, the core of their legislative strategy had been to try to stall out the clock until November. But together with the bank tax, the Volcker Rule had the effect of ringing the industry’s bell, of elevating the issue and making the opposition realize that the White House was picking up momentum. More than that, it split the industry between those directly affected by Volcker and those who were not.
And yet, for a brief moment in the middle of April, it appeared that the Republicans were coalescing (or trying to coalesce) around the same kind of lockstep opposition to financial reform that they employed in the health-care fight. Then came the filing by the SEC of civil-fraud charges against Goldman. At that moment, any real chance that financial reform would somehow be derailed vanished into the ether.
From Treasury’s perspective, however, the Goldman suit was a mixed blessing. “It’s been helpful in the sense that, broadly speaking, it propelled this stuff forward,” says a senior Treasury official. “But it’s been awful in that the left sort of got buoyed by it and started coming forward with more stuff that in some sense is complicating.”
Geithner makes no secret of his ideological disposition when it comes to reform. “I care about us passing something good and strong,” he tells me. “And my feeling is that you have to do this from the center.”
What that’s meant in practice is that Geithner’s team spent much of its time during the debate over the Senate bill helping Senate Banking Committee chair Chris Dodd kill off or modify amendments being offered by more-progressive Democrats. A good example was Bernie Sanders’s measure to audit the Fed, which the administration played a key role in getting the senator from Vermont to tone down. Another was the Brown-Kaufman Amendment, which became a cause célèbre among lefty reformer such as former IMF economist Simon Johnson. “If enacted, Brown-Kaufman would have broken up the six biggest banks in America,” says the senior Treasury official. “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”
Treasury also devoted its share of effort to warding off more-populist proposals from inside the White House political shop. But, as was the case with the bank-rescue plan, Geithner found that Obama was nearly always on his side. “I’ve talked to the president a lot about this, and I always find him reassuring,” Geithner tells me. “He says, ‘You focus on getting the policy right. That’s our obligation. If we lose that basic commitment, it looks like we’re putting politics ahead of substance. You lose everything.’ ”
Though the Senate bill will still need to be reconciled with the House measure, it’s all but impossible to imagine that what emerges will be regarded as moderate by Wall Street. At Goldman and elsewhere, the belief is strong that the case against Wall Street’s most storied firm was politically motivated; lately, Blankfein has taken to trashing Obama to his friends in unusually brutal personal terms. Dimon—who is fond of declaring, “I’m a patriot!” in meetings with White House officials—recently described himself publicly as “a wavering Democrat.”
And even those less bruised than them have found the experience traumatizing. “They’re not accustomed to being engaged in politics this way,” says a private-equity investor. “Their skin isn’t toughened. They actually take [the attacks by Obama] personally. This is a profession with a lot of smart people, but who aren’t necessarily terribly introspective. They think they actually deserve to make all this money. So any attack on their livelihood is, ahem, unpleasant.”
Maybe it was inevitable that the dewy-eyed affair between Wall Street and the White House would so quickly and nastily come a cropper. For more than 30 years, the approach of every administration to the financial industry has been either laissez-faire or actively deregulatory. On the left, much blame is placed at the feet of Clinton, Rubin and his then-deputy, Summers, but in truth they were merely part of a continuum that stretched back to Jimmy Carter. Considering how close the financial system came in 2008 to Armageddon, the consensus for imposing new rules and greater order was nearly universal (among the sane, at least). Yet that does little to lessen the sense of shock—of violation, really—that Wall Street feels.