Wall Street’s Republican Problem

The star Republican congressman Kevin McCarthy was standing in front of a hardware store display of screws last month, recording the Weekly Republican Address. “Just as John Hancock,” he said into the camera, “boldly signed his name to the Declaration of Independence, so that even Britain’s King George could read it, I want to say this slowly, so there is no room for misinterpretation.”

The Kevin McCarthy who starred in the 1956 sci-fi fable Invasion of the Body Snatchers had died a few days earlier, at age 96. This one, the man who wrote the House Republicans’ new Pledge to America, paused to curve his mouth into an oval. “Our government has failed us. From the billion-dollar bailouts to the stimulus package,” he said, keeping his body still but tilting his head from side to side, “you cried stop.”

On the second page of its foreword, in between photographs of the Statue of Liberty and Mount Rushmore, his pledge likewise vows to permanently end bailouts. But since well before the official new blueprint, and even without considering the great vengeance and furious anger of the Tea Party wing, Republicans have been crusading against government support of Wall Street.

That hasn’t deterred Wall Street’s leaders, exasperated by a president who called them “a bunch of fat cat bankers,” flabbergasted by intricate new regulation and insulted that tax rates for the wealthy may go back to where they’d been before Bush. Beginning in February, when 17 of the top 25 federal beneficiaries of the industry were Republicans, financial industry money has seesawed neatly from left to right.

“What people care about is they want a more pro-business regime–that’s it,” one of the city’s most important hedge fund managers said in a very brief interview.

But between dread about sovereign debt, the housing market, unemployment, third-quarter losses and deflation–if not inflation, too–it does not seem impossible that another financial crisis could somehow happen again. And if Wall Street gets its way, it will have nudged into power a party that has deafeningly proclaimed the evils of government intervention.

Does Wall Street’s support of a party that’s openly pledged not to save them mean it has accepted it shouldn’t be bailed out again? Interviews with executives suggested not, for three reasons. They think that another crisis won’t happen, or that if it does, they will not need another bailout because of reforms, or that if they do, our country’s leaders would oblige, no matter who’s in power.

“We’ve learned campaign rhetoric is to get elected, and when I’m elected I do what I wanted to do in the first place. Look at this administration,” said the chairman of Petrus Partners, H. Fred Krimendahl II, an alumnus of Goldman Sachs, where he is a senior director. Mr. Krimendahl, speaking just after TARP was brought to its official end on Sunday, has voted for Republicans since Eisenhower. “Look, if something happened again on Wall Street that would really threaten the entire system, and had the danger that it would bring everything down, I’m not sure it would make a difference.”



THE LAST REPUBLICAN administration’s choice between free-market purity and saving the financial system from apocalyptic collapse was not, Treasury Secretary Hank Paulson wrote later, really a choice at all. Since then, as the MIT professor and former I.M.F. official Simon Johnson has written, the Dodd-Frank reforms have done nearly nothing to make it any easier to safely wind down a cross-border giant like Citi without government support.

What has dramatically changed is the pitch of fury. “Frankly,” as the Republican consultant Frank Luntz wrote in a memo about financial reform, “the single best way to kill any legislation is to link it to the Big Bank Bailout.” He advised that the outrage was a “time bomb set to go off on Election Day,” but also, in a closing section on words to use, recommended the phrase “never again,” an oath associated with genocide and the Holocaust.

What would the party do, then, in case of another systemic crisis? “I think both Wall Street and everyone in Washington regard the fall of 2008 as a once-in-a-generation clusterfuck,” a source close to House Republican leadership said. “You’re asking a question about a theoretical that both Wall Street and Washington don’t expect to happen.”

Last month, the Congressional Oversight Panel issued a monthly report whose conclusion has an entire section called “TARP ‘Stigma’ Has Grown and May Prove an Obstacle to Future Stability.” The more something is called evil, the harder it is to use. “I can’t get into the hypothetical,” the Republican National Committee spokesperson Doug Heye said. “Sure, I can stand back and say, ‘Oh, there are lots of neat paradoxes going on in this election cycle,’ but that’s not something we’ve engaged in.”


WHAT’S STRANGER IS that Wall Street donors don’t seem to have, either. The head of investment banking at one of the large banks said that because of the recent financial reform, Republicans wouldn’t actually be faced with the choice between systemic collapse and roaring hypocrisy. “I think the resolution authority in Dodd-Frank goes a lot of the way,” the source said.

Better yet, it may not even have to be tested. “The debt creation that led to this massive bubble took over a 25-year period in this country,” he said. “I don’t know that we’re going to be in a situation like that for a long time. Having said that, the chances that we’d get through it without having to utilize something like TARP, whatever year it would be then, are higher based upon the resolution authority.”

Because of that, the hedge fund manager said in the short interview, “none of these big banks are going to need a bailout for a very long time, maybe ever.”

And even if they do, Mr. Krimendahl said, a solution could be found. “I think there’s a way to sell anything to the public,” he said, “if you have the right leadership.”

In the meantime, the business world’s donors don’t mind that the Republican National Committee has made ads that show the street sign on Wall Street melting, with sound effects and a minor-key piano melody. “Wall Street squanders our money,” a gravelly voice says, “and Washington is forced to bail them out with, you guessed it, our money. Could it get any worse?” That ad, whose final frame warns about Mr. Obama’s spending plan, was from September 2008.

But if Republicans have mixed emotions about Wall Street, Wall Street also has slightly mixed feelings about the Republicans. “It’s not as though they’re looking at them as blood brothers,” a private-equity communications chief said. “They’re just looking at a more sympathetic audience.”


Wall Street’s Republican Problem