An unusual move by a thin-skinned, too-big-to-fail bank, Citigroup, to slap down the finance-skeptic faction of the Democratic party appears to be backfiring.
Reuters reported on Friday that Citigroup was making clear its displeasure with the way Elizabeth Warren had been calling out its overly-cozy relationship with the Administration by threatening to withhold its customary bribe, um, donation to the Democratic party:
Big Wall Street banks are so upset with U.S. Democratic Senator Elizabeth Warren’s call for them to be broken up that some have discussed withholding campaign donations to Senate Democrats in symbolic protest, sources familiar with the discussions said.
Representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America, have met to discuss ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party’s tone toward Wall Street, sources familiar with the discussions said this week.
The story noted that the amount at issue was only $15,000 per bank, so this scheme is more a warning shot that a serious move, particularly since it is aimed at the Senate, and thus pointedly steers clear of the Big Finance stalwarts, the Clintons. But if you widen the frame a bit, there is more at stake here than you might think. Warren has declared war on the Wall Street wing of the Democratic party, including the powerful network of proteges and fundraisers affiliated with former Treasury secretary, former Goldman partner, and more recently, vice chairman of Citigroup Bob Rubin. One politically-savvy financial analyst calls this cadre “the Rubino crime syndicate”.
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Warren fingered Citigroup’s extensive connections to the Executive branch when she fought the addition of a rider to a must-pass spending bill that would eliminate a Dodd Frank provisions to force banks to stop trading certain derivatives in taxpayer-backstopped entities (the so-called swaps pushout rule). As you’ll see below, not only did Warren have the bad taste to point out that the current Treasury secretary is a Citigroup alum, and that Sandy Weill, Citigroup chairman, had offered Timothy Geithner the opportunity to run the bank, she also said that Dodd Frank had come up short by not forcing Citigroup’s breakup. If you’ve not seen this speech, you need to watch it. You’ll understand why Citigroup is desperate to find a way to leash and collar Warren.
Even though Warren lost the swaps pushout rule battle, the ferocity of the fight, the attention it garnered, and her and her allies’ relentless focus on the bank tactic of using arcane-seeming provisions to shift risk onto the public, as well as their deep political connections, threw a wrench in the financiers’ plans. They’d hoped to roll what little post-crisis reform that took place by going after technical-seeming provisions that they assumed the dumb chump voter would never notice. Instead, Warren turned the tables by using the effort to inflict considerable public relations damage.
As much as the Warren attack might not seem like much of a victory, it’s important to understand what she and the other bank opponents are achieving. The banks count on the public not understanding and not caring about the more arcane aspects of finance, and furthermore assuming that bank reform is settled. On the political front, the power of the financiers doesn’t lie simply with their lavish campaign donations; it also lies in the perception that opposing them is a political death sentence.
And that is why Warren has become so dangerous to them. Remember that Obama brought her in to start up the CFPB in a classic “keep your enemies close” strategy. It’s a near certainty that they hoped to destroy her politically because she, as a Harvard academic with limited administrative experience, would flail about and fail in executing such a mammoth task. So they were stuck with her when she succeeded and was the obvious candidate to run the new agency. The Administration cast about for months trying to extricate itself from the mess it created, finally nominating Richard Cordray, a Warren hire at the CFPB, and enticing her with the bright shiny toy of a Senate seat.
The Administration (remember that Obama is still very much the party leader) again got too clever by half. It decided to exploit Warren as a major fundraiser. But that gave her an independent power base. And given the carnage in the Congressional midterms, the wisdom of following Democratic party dictates isn’t looking too hot for individual Congresscritters, unless they hail from conservative districts. The public is waking up to the party’s limousine liberalism, and voters who care about economic fairness are increasingly staying home on election days.
So given Warren’s ability to raise money on her own, the idea of getting the Democratic party to rein her in is sorely misguided. The real target would seem to be the other bank opponents, like Sherrod Brown and Jeff Merkley, and any other Senators or Representatives who might dare to oppose rule by Big Finance.
Warren struck back fast and hard, getting the attention of Bloomberg:
In a fundraising request (titled “Wall Street isn’t happy with us,”) Warren accused the banks of wanting Washington to puts its needs before Americans and “get a little public fanny-kissing for their money too.” The pitch argues that 2016 Democratic Senate candidates could lose $30,000 each, and asks for for help raising matching funds.
“The big banks have issued a threat, and it’s up to us to fight back,” Warren wrote.
If Citigroup, JP Morgan, Goldman Sachs, and Bank of America wanted to give Warren—a skilled fundraiser—a chance to bolster her image as an anti-Wall Street progressive hero and raise a few thousands, they succeeded. What this won’t do is make it easier for Democrats to soften their tone toward Wall Street.
Cynics may say that these are just range wars, and that Warren is a progressive hood ornament for the Democratic party. While we’ve criticized her for her timid student loan proposal and for her falling in line with US adventurism abroad (save the proposed intervention in Syria, where Congress refused to back Obama), Warren is nevertheless is achieving something significant. Despite what Simon Johnson called a “quiet coup” by the banks, Warren is demonstrating that the major financial firms can be defeated. The perception that they are vulnerable is critical to building an effective opposition; one of the easiest ways to discourage dissent is to say, “Why bother? You’ll never win.” But Warren, to the chagrin of the Administration, made such a stink over the nomination of Lazard M&A star Antonio Weiss that he withdrew. We know of other one other pro-bank move the Administration planned to take where Warren and two Senate allies told them they’d have a fight if they went ahead. The Administration sat pat as a result.
So while these fights individually may not seem consequential, recognize that cumulatively, the banks are finding they are incurring more costs in trying to get their way, and are even sometimes getting their noses bloodied. While this is still a long way from seeing big bank executives prosecuted, the diminishment of bank power isn’t going to happen overnight, but through steady, persistent pressure on their many vulnerable points. If nothing else, it’s great sport watching big banks score own goals when trying to beat back Warren.