Sideways: Nominees try to be Wall Street smart
The decision by Congressman Barney Frank not to seek re-election to the US House of Representatives next year could result in an unexpected financial windfall for some employees of Goldman Sachs.
Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks
The firm’s staff members were among recent donors to Frank, who pledged to refund contributions when he announced he would not be running for a 17th two-year term in Congress.
Frank – the co-author of the 2010 Dodd-Frank law to reform Wall Street regulation – is often portrayed as an opponent of investment banking practices. However, that has never caused a breakdown in relations with an industry that prefers to hedge its bets when it comes to funding influential US politicians.
The Securities Industry and Financial Markets Association hosted a fundraising event for Frank as recently as June, even though the Republican victory in last year’s mid-term elections stripped the veteran Democrat of his chairmanship of the House Financial Services Committee.
Frank was respected by his foes in Washington, including the financial industry lobbyists, who have been battling since the 2008 credit crisis to convince politicians and voters that mortgage agencies Fannie Mae and Freddie Mac deserve the chief blame for the downturn for encouraging lending to unqualified borrowers.
Frank was unapologetic in his support of the agencies, before and after the 2008 crisis, and his understanding of legislative and financial market mechanics was widely viewed as an obstacle to the Republican drive to adulterate and reverse the move to tighten banking regulation. Frank’s departure announcement should smooth the path for that drive ahead of next year’s US election.
Wall Street votes in the election – in the form of cash – are finding their way towards Mitt Romney, the front-runner to be Republican nominee in the presidential race. Stephen Schwartzman, chairman of Blackstone, will host a fund-raising event for Romney in December and JPMorgan chief executive Jamie Dimon, a one-time Obama ally, let it be known that he met Romney this year.
Romney could have been designed in a lab as an ideal presidential nominee for Wall Street chiefs. He co-founded Bain Capital and spent 15 years working on buyouts that churned out fees for bankers before leaving private equity management for politics in 1999, so he knows Wall Street in and out.
He is socially liberal, or at least he was until discovering his inner conservative in his quest for Republican primary votes. And he is impressively malleable, with an outcome-focused attitude that helps to explain why he was such a success in finance. Romney would never knowingly quote John Maynard Keynes, but his willingness to shift policy stances in the search for support can be taken as an endorsement of the Keynes riposte to a critic who accused him of inconsistency: "When the facts change, I change my mind. What do you do sir?"
Romney’s chief rival for the Republican nomination is Newt Gingrich, former Speaker of the House of Representatives. Gingrich has tried to position himself as a Washington outsider, despite spending two decades in Congress, and has joined the assault on Fannie Mae and Freddie Mac, to similarly jarring effect.
In a Republican primary debate in October, Gingrich ventured the view that Barney Frank should be jailed over his role in the approach to the financial crisis and singled out Frank’s closeness to lobbyists for Freddie Mac as a particular issue. This line of attack was undermined when it emerged that Gingrich had been paid $1.6 million in consultancy fees by Freddie Mac over the course of eight years after he left Congress.
Gingrich explained loftily, if not plausibly, that he had been paid for his services as a historian, not for anything as tawdry as lobbying. This prompted Frank to quip that he would not be seeking employment as either a lobbyist or a historian once he had left Congress.
Potential voters in the Republican primaries showed little interest in the Freddie Mac furore, and Gingrich moved ahead of Romney in many polls after the unlikely candidacy of Herman Cain imploded at the end of last month. The apparent solidification of the contest as a two-horse race should be a comfort to Wall Street executives, even if they prefer Romney to Gingrich.
Both men have long experience dealing with corporate America and avoid the rhetoric of other contenders, such as Congressman Ron Paul, whose campaign to roll back government includes a pledge to abolish the Federal Reserve.
Wall Street chiefs might oppose regulation that cramps their trading style, but they know they need a credible government backstop for those times when the market-making music stops.