Via Bloomberg, we learned yesterday that President Obama buys in to the Wall Street delusion that bankers actually deserve really high salaries. Speaking about JP Morgan’s Jamie Dimon and Goldman’s Lloyd Blankfein, he said this:
The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”
“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”
Krugman’s reaction, in a blog post titled “Clueless,” pretty much sums it up: “Oh. My. God.”
The quotes paint a picture of a president who is hopelessly out of touch with the economic reality and with the public’s perceptions of Wall Street. He also seems to be experiencing some amnesia regarding the massive, taxpayer-funded bailouts that have sustained the institutions run by these businessmen.
The White House has already started attempting to walk back the comments in a remarkable blog post that purports to clear up what the president “actually” said during the interview. While offering up lengthy presidential quotes about the bonuses, say-on-pay, and so forth that put some of his words in context, the post leaves out what I see as the most important quote in the Bloomberg piece, where he says (about Blankfein and Dimon): “I know both those guys; they are very savvy businessmen.”
It makes sense that the White House failed to address that quote, because it’s virtually impossible to walk back what is conveyed by that sentence: that the President is cozy with Blankfein and Dimon, that he respects their intelligence and business acumen, and, in the context of the rest of the interview, that he thinks they actually earn their money.
When Wall Street bankers defend various high-profile members of their cabal, they usually lead with the argument that I know so-and-so, and he is really smart. In other words, some bankers make money because they’re in the right place at the right time, and it’s true they don’t really deserve it, but others (my friends) make lots of money because they are just so intelligent. This appears to be Obama’s take on Wall Street — that some bankers don’t deserve to make so much money, and therefore shareholders should have more say-on-pay. But Dimon and Blankfein: I know those guys, and they are smart.
Of course, any earthling who has been following the financial crisis would respond to these arguments by saying something along the lines of: yes, so smart they they almost blew up the world economy, necessitated a multi-trillion dollar government rescue, and then made even more money. Perhaps that is “savvy,” but it is also wholly corrupt and criminal. That Obama does not see this suggests that we cannot count him among the earthlings, and that he actually has a hard time understanding this perspective on things.
It’s not hard to see where this comes from. The core of Obama’s fundraising team was composed of hedge fund managers and bankers. His White House is run by a former banker, Rahm Emanuel. The New York Times refers to Jamie Dimon as his “favorite banker.” Robert Rubin, arguably the most influential Wall Street policy elite, seeded many of the appointments in his administration. Goldman Sachs was his top corporate contributor. According to our analysis, more visitors to top Obama White House officials have ties to Goldman Sachs, JP Morgan, and Morgan Stanley than any other business.
Obama obviously likes Wall Street, and Wall Street likes him. Considering these basic facts about Obama’s network, Tuesday’s poorly-sourced New York Times piece on how the industry is sending cash to Republicans in a “message to Democrats” looks all the more ridiculous (though perhaps a sign of what would happen if Obama, against all odds, did turn on his network and donor base). Obama is fully captured by Wall Street, and he shares Wall Street’s collective delusion that what they do is actually worth extraordinary levels of compensation.
To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.
It’s not just a CEO issue — the compensation problem runs up and down the ladder. Blankfein and Dimon are at the top, but their compensation is no more absurd than the six figure salaries of recent Ivy grads, who have zero experience in business, but who are employed for their knowledge of business.