FINALLY, WASHINGTON was in my rear-view mirror. I knew I needed a long break. I was tightly coiled with frustration, anger at the system, personal disappointment, and even cynicism about America’s future. I had to unwind.
I spent a week in Costa Rica. In Mal Pais, I took a long, slow jog along the beaches and dusty roads that led to a two-acre hilltop overlooking the Pacific Ocean, the lot I’d bought in 2007 amid a speculative frenzy. But the global economic crisis had intervened, and I, like the buyers of the neighboring lots, had never broken ground. On the hilltop, I looked out at the ocean from my empty lot, my earthen savings certificate, now worth half what I’d paid for it. When I finally got back to my hotel room, I was so drenched with sweat and dirt that I stepped into the shower fully clothed and stood for a long time to soak myself with cool water.
Savannah, once I arrived, didn’t seem much different. Yes, it teems with tourists—65,000 of them a day. But it also teemed with for-sale signs, sometimes three or four on a single block. I rented a carriage house attached to a mansion facing Forsyth Park, which is lined with beautiful live oaks draped with Spanish moss. My landlady and her husband had bought three houses before the crisis, back when real estate prices moved in one direction: up. Now two of the three were for sale, including the one with my rental unit. Others in the neighborhood faced similar fiascos.
During my first month in Savannah I felt like I was living in exile. I decided I needed to commit. So I dove in. I arranged to have my boat sent down from Maryland and soon made an offer for a big Victorian: two turrets, three stories, four baths, and nine rooms. It was twice the size of the house I’d just sold in Georgetown, and about half the price. I was benefitting from Savannah’s burst real-estate bubble; I told my new neighbors I’d cashed in my Yankee housing dividend. The previous owners had at one time owned as many as four houses, I heard, but had gone bust and moved to Florida, where state bankruptcy laws enabled them to keep one homestead. The house in Savannah had been repossessed, and the bank wanted it off its books as quickly as possible.
My neighbors invited me to a circulating monthly potluck get-together. Each month, a different host supplied the drinks and refreshments, while the invitees brought a dish. I walked with my next-door-neighbors to the house of that month’s hosts. They had a beautiful home. In Savannah, taste is refined, and I still haven’t seen a house that doesn’t look stylishly furnished and comfortably decorated in soothing colors. The crowd was mainly older people, in their sixties and seventies, but with a tiny smattering of younger people. Everyone was very nice, yet I felt like I’d parachuted into Savannah at an awkward in-between age. I missed the bright young Kaufman staff and DC’s young professional scene.
I spoke to the host briefly, a man in his sixties, and his wife, who was an interior designer. We made an appointment for the following week to talk about decorating my house. A week later, I had to postpone our appointment. Before I could reschedule, I ran into one of my neighbors. He told me there was sad news about the party host. I hadn’t heard. The wife, he said, came home and found him. He’d committed suicide. My neighbor heard that he was overextended in real estate. Savannah is a town near a beach that likes to throw parties, but the undertow is strong.
Readjusting to normal life in Savannah was disorienting. In Washington, my Sunday ritual had been to retrieve the New York Times and Washington Post from my front stoop and sit down to watch Fox News Sunday, Meet the Press, This Week, and Face the Nation. When the shows overlapped, I’d flip back and forth depending on the guests. I’d read the papers during the commercials and, after the shows were over, continue reading into the early afternoon. This was the Sunday ritual of virtually everyone I knew in Washington (church-goers and parents of small children might tape or TiVo the shows and watch them later, but that was about the only variation). All this Sunday reading and viewing was essentially mandatory as a shared reference point for conversations with friends and colleagues for the rest of the week.
In Savannah, these same shows seem wildly irrelevant. Down here, people don’t talk about national politics, except to say that Washington is clueless (the fact that I left is proof enough; no one ever asks me for details about DC). More importantly, seen from six hundred miles away, the shows seem like empty rituals. Rarely, if ever, does anything truly newsworthy transpire. Government officials use the shows as a platform to recite their talking points; the journalists and commentators, as a platform to ask supposedly tough questions. As I write this, the discussion is about potential Republican presidential candidates—nine months before the Iowa caucuses. In Washington, the topic must appear timely; in Savannah, it appears ludicrously premature.
After a few months in Savannah, I visited Washington for a long weekend. I socialized with more people in those four days than I had in the past four months. At one restaurant near Capitol Hill, I had drinks with friends and saw a parade of people like Tom Daschle, Harry Reid, and big-time lobbyists I knew. I even had coffee with a couple of reporters who are writing books about DC and who wanted to pick my brain. I now know why people like the easy drug of a fast-paced life and a feeling of being in the know, of belonging. If you reject your long-time professional culture, a giant hole appears. Now you need a new set of people, understandings and things to do. Fortunately, Savannah is filled with the arts, music, film, theater, and opportunities for volunteer and charitable activities.
In Washington, I’d never had a dog. In Savannah, I’d be working at home, and my new house had a big courtyard. I went to the website of the Savannah Humane Society and saw a three-year-old, medium-sized chow mix that looked nice but distressed. I decided to go meet her. They brought her out on a leash. She’d had a tough life, I learned. She’d been found in a backyard with seventeen other dogs; the other sixteen were too feral and had to be put down. She’d seen the ugly side of life and hadn’t forgotten it, plus she had heart-worm. But the staff assured me she was a sweetheart (she was the favorite of several of them), and something about her intrigued me. When I took her outside the shelter, she explored the area with her snout to the ground, a bit like she was trying to track down her lost mind. I sat cross-legged in the yard, and eventually she put her paws in my lap and rested her head against my chest. A wounded soul was reaching out to me. I’d found a friend.
I named her Nellie, and a few days after we were home, I noticed she was breathing rapidly. I typed into Google “how fast should a dog breathe?” and the answer came back, “About 70–80 breaths per minute.” Nellie was breathing at least three if not four times a second. The web site also said respiration issues in a dog may be a symptom of heart failure. I tried to pet and calm her down. But she kept up at least 180 breaths a minute. I slept by Nellie’s crate that night.
In the morning, before the vet’s office opened, I got a call from Ted, asking me what I was up to. “Listening all night to a dog breathe.” Then we were off to the vet, where Nellie got another X-ray, and the vet suggested it might’ve been an adverse reaction to the antibiotics. I took her off the medicine and within a day her respiration slowed considerably.
Now, I wake at sunrise each day to the sight of Nellie wagging her tail furiously. “Wanna go for a walk?” The park is a dog paradise, and Nellie (completely recovered) struts her stuff as she looks for squirrels. Once she sees one, she turns into a lioness, stalking forward slowly. She keeps her head, back, and tail perfectly level as she lowers her profile and creeps forward one step at a time. Nellie, once heartworm-infested, now has quite a vertical leap. If I give her enough slack, she’ll sprint to the tree and take a mighty pounce. Once, we ran into a nest of five squirrels. Watching Nellie dart one way then another was as close to a Zen-like moment as I’ve had in years.
How easy it is once you’ve made it to insulate yourself from America’s problems, to give up on changing an almost immutable Washington system. To believe the best lack all conviction, and the worst are filled with passionate intensity. To enjoy life wherever one lives as best one can while America continues on a path of decline. To despair that Wall Street and our government’s inability to learn the lessons of a devastating financial crisis may have caused America’s best days to be behind her, rather than hope Americans can find the ability to organize themselves to win back their democracy so that government works again for the greater good.
In the fall of 2011, the topics of Ted’s Wall Street speeches in 2009 and 2010 are leading the news: unresolved questions about mortgage fraud on a massive scale; high-frequency trading blamed for unprecedented market volatility; fears about short-selling of European bank stocks lead to temporary short-selling bans in Belgium, France, Italy and Spain; too-big-to-fail banks in Europe and the U.S. starting to wobble, undermining the stability of the world financial system. The only difference is I’m hearing about it in Savannah, sometimes sitting with my chair pulled within a foot of CNBC-TV as I watch the markets rocket down (and up) with breathtaking speed.
In one week in August 2011, the Dow Jones moved up or down by more than 400 points a day for four straight days, the first time in our market’s history we have ever experienced such sustained volatility. During the last five months of 2011, the average difference between the Dow’s intraday high and low was a stomach-churning 260 points. New research suggests that high-frequency trading exacerbates volatility. But whatever the causes of the Dow’s daily rollercoaster ride, millions of Americans are getting off it. Ordinary investors withdrew more than $135 billion from domestic stock mutual funds in 2011.
Now, as I write in the spring of 2012, the azaleas and banking scandals are in bloom, including J. P. Morgan for failing to supervise complex derivatives positions by the “London Whale,” one of its traders, leading to billions of dollars in losses. And worse, Barclays and other banks have been exposed for manipulating LIBOR, which sets rates for trillions of dollars of financial instruments, leaving the credibility of the banking community in tatters. In the summer of 2012, the stock markets went haywire again when Knight Capital was battered by its own software glitch and in 45 minutes lost $440 million. Americans in overwhelming numbers are losing confidence in our political system, financial system and financial markets.
What can America do to reclaim its government from the ruling financial elite?
First, Wall Street-Washington reform must become a cause that is loyal to neither party and that brings about an awakening among independent and Republican voters especially. Wall Street blew up and set in motion a chain of events that hastened America’s fiscal and economic decline. We need to fix Wall Street (and Washington) so that that won’t happen again.
Republicans, Democrats, and independents alike should realize that the American economy can’t succeed without long-term financial stability and credible capital markets. Moreover, America’s relative economic decline will continue if our best and brightest keep heading to Wall Street to engineer golden crumbs rather than create and build new industries and better products.
We need citizen power to stand up to politicians of both parties who refuse to hold Wall Street to account and bring about meaningful reforms. If you believe, as I do, that Wall Street’s capture of Washington is America’s biggest problem, it’s time to stop voting for the lesser of two evils and stand on principle. The Occupy Wall Street movement for a time had been a refreshing gust of renewed hope for change. When will the Tea Party and Occupy Wall Street realize that, when it comes to crony capitalism, they share common ground?
We still need structural reform of Wall Street, either by separating federally insured commercial banking from risky investment banking by reinstating Glass-Steagall, or by passing Brown-Kaufman to place a size-and-leverage limit on too-big-to-fail institutions. We still need a Justice Department and SEC willing to enforce the law against the most powerful by holding accountable those individuals who are responsible for fraud. And we still need advanced regulatory surveillance capabilities to monitor increasingly complex trading markets where high-frequency computer strategies now run amok. We’ll have none of those things until we break Wall Street’s hold on Washington.
Second, voters must force these issues into the 2012 presidential campaign and every congressional election, this year and in future years. Unless President Obama makes a dramatic course correction, even Democratic voters who believe in reform should continue to stand up to him. There’s nothing worse than a false prophet. The financial crisis was so cataclysmic, so devastating to the lives of millions of Americans, it had the potential to bring fundamental change to Washington. Instead, the “change agent” America elected president was compromised from the very beginning. Before Obama ever put his hand on the Bible—before he even won the election—he began handing the keys of power to the very financial elite who had brought about the cataclysm in the first place. Governor Mitt Romney’s campaign, meanwhile, is gorging itself on Wall Street contributions, while Romney himself calls for the repeal of Dodd-Frank and makes blissfully amnesiac statements like, “I want regulators to see businesses and enterprises of all kinds as their friends, and to encourage them and to move them along.” If the Republicans had had their way, the financial crisis would’ve led to no reforms at all, leaving Americans helpless to Wall Street offenses in a legal and regulatory system that had become a complete sham.
Under Obama-Biden, the SEC has made a small comeback and has finally adopted certain rules that Ted had pushed but that only begin the first steps to understanding high-frequency trading. For the most part, the SEC has remained on autopilot, refusing to buck the Wall Street players who camp in its hallways. (A study by Duke Law Professor Kimberly Krawiec reviewed federal agency meetings with outside parties to discuss the Volcker Rule posted between July 21, 2010, the date of presidential signing, and October 11, 2011, the date of rule proposal. It shows that financial institutions, financial industry trade groups, and law firms representing such institutions collectively accounted for 93.2 percent of all federal agency Volcker rule meetings, whereas public interest, labor, research, and advocacy groups and other persons and organizations accounted for only 6.8 percent.)
What’s worse, the Obama Justice Department simply did not make a well-organized, well-resourced, and determined effort to hold Wall Street crooks to account. Apparently Rahm Emanuel and Secretary Geithner didn’t want criminal prosecutions to disrupt the banking sector. Eric Holder, despite his swearing-in-day pledge, didn’t care enough about upholding the rule of law. And Lanny Breuer was left to act like Eliot Ness in Kaufman’s Senate hearings when in reality the bootleggers were getting away scot-free.
For me, what is deplorable is not the department’s failure to bring charges, but its failure to be adequately dedicated and organized either to make the cases or reach a fully informed judgment that no case could be made. Given the inadequate effort, as President Obama virtually admitted in his 2012 State of the Union address when he announced the formation of yet another task force (which remains an ill-staffed farce), we’ll never know what an appropriate effort would have produced. And that has resulted in the appearance of a double standard. If the explanation for the inadequate effort is corruption (the administration could not afford to anger Wall Street contributors), the revolving door, or a belief that the health of the financial industry is more important than legal accountability, then we have an actual double standard. I don’t know the explanation, but in terms of faith in our institutions, it may not matter whether the double standard is real or apparent. That double standard has torn the social and moral fabric of our country in a way I find to be unforgivable.
Third, we must do something about getting money out of politics. I support calls for public funding of campaigns, but I simply don’t believe it will happen. And even if Congress did pass meaningful limits, the Supreme Court, after decades of campaign finance jurisprudence, would likely strike down such a law as an unconstitutional limit on speech. For those reasons, some reformers are calling for a constitutional convention, but that would be opening a Pandora’s box: a chaotic process with ideas for amending the Constitution not limited to campaign finance.
Although less ambitious, a movement to stop Congress from taking contributions from lobbyists would have a huge affect on the system. We should also ban lobbyists from bundling contributions for incumbent campaigns. Every good lobbyist I know would welcome such a change.
Until American voters reclaim Washington, The Blob will keep oozing along, bigger now than ever during the regulatory implementation of Dodd-Frank, as Wall Street further floods the zone with unprecedented legions of lobbyists, fundraising events, lawyers, analysts, and public relations professionals.
Every voter who wants to break Wall Street’s hold on Washington should put congressional and presidential candidates to the test with two questions (in addition to shunning lobbyist contributions and bundling):
A per trade fee would be specifically earmarked to construct a consolidated audit trail to allow better monitoring of trades and also strengthen the regulatory and law enforcement systems we need to prevent manipulation and wrongdoing. This isn’t a tax for the general treasury; it’s a user fee dedicated to policing Wall Street. For long-term investors, the fee would amount to pennies. For high-frequency traders who turn millions of trades per minute, it would take a serious bite out of their business model. We need to slow down the technical arms race that is leading to faster and faster trades without any corresponding social utility. MIT needs to be sending its graduate engineers to innovate our economy, not to find new ways to skim Wall Street profits.
Fourth, with respect to the revolving door, I support a one-year cooling off period for senior federal agency employees. If a lawyer worked at the SEC, she can go to a private law firm but for one year she should be barred from advising clients on SEC matters she touched. The assistant attorney general for antitrust can’t leave and immediately start an antitrust practice. This is more than a ban on contacting one’s prior agency for a year; it’s a cooling-off period during which the departing federal employee can’t earn money in a way that’s directly related to his or her former job. Relatedly, I would greatly increase pay for regulatory staff. We need a corps of well-trained and competent regulators, and unless we make it a priority to recruit and retain good people, we’ll never slow the revolving door.
Finally, we’ll have another financial crisis. That will be the moment for this reform movement to clean house. People like Arianna Huffington, Simon Johnson, and Ted—and nonprofits like Better Markets and Americans for Financial Reform—already are leading the effort. Others from across the political spectrum have heard the call and will join them. In late July 2012, Sandy Weill—the quintessential mega-banker and architect of multiple financial mergers that led to Citigroup—shocked Wall Street when he called for the reinstatement of Glass-Steagall. It takes time, but the right ideas are gathering force. Although it would be nice to think a spontaneous movement like Occupy Wall Street can change Washington before it’s too late, that’s not likely. Reform probably will come from the rubble of the next financial catastrophe. As the Dodd-Frank Act was signed into law, Chris Dodd, Barney Frank, and Secretary Geithner didn’t even pretend that we won’t have another financial crisis, because they know videotape lasts a long time. The market meltdown of August 2011 may be a sign of debacles to come.
A true reform movement to break the Wall Street-Washington axis of greed may take a decade or more to succeed, until the next Teddy Roosevelt or FDR comes along. Both political parties are raising money from Wall Street with open baskets. Both parties continue to permit regulatory capture. And so the 2008 calamity, which should’ve brought about fundamental change, will be the prelude to the next financial disaster, under any foreseeable election outcome in 2012.
That’s why all concerned people should get involved now.