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Charles Gasparino

Charles Gasparino

Posted: December 28, 2009 01:12 PM

New York Needs Wall Street

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David Paterson hasn't fared well over the past two years as governor of New York State: unemployment is high, taxes are out of control and the state's budget is a mess. As Michael Barone pointed out in a recent column, people continue to flee the state in droves.

But I give Paterson an "A" for honesty. He's possibly the only liberal politician willing to admit publicly that the greed merchants on Wall Street are a necessary evil for big government liberalism to survive.

It is, of course, very fashionable to beat up on Wall Street these days, particularly for those on the left. President Obama went on 60 Minutes to call the CEOs of the biggest banks "fat cats," feasting off of government bailout money as unemployment remains high, before he herded them into a room in the White House (or at least most of them; the flights for the CEOs of Goldman, Morgan Stanley and the chairman of Citigroup, were delayed so they attended via a conference call) and asked that they start extending more loans to small business and not pay themselves too much.

But Obama, unlike Paterson, is being disingenuous; aside from a few snotty remarks, the president hasn't done much to get the banks lending right now. In fact, his policies have fostered an environment that allows Wall Street to make money -- bundles of it as demonstrated by Goldman Sachs' $20 billion bonus pool -- at the expense of helping Main Street. Obama has supported Fed Chairman Ben Bernanke's near-zero interest rate policy; he's basically declared every big bank Too Big To Fail, meaning the federal government will save the likes of Goldman Sachs if it should somehow bet wrong in the trading markets, as it did last year.

That means the banks can borrow cheaply in the open market, and in a pinch from the Federal Reserve itself, to finance not lending but their trading in bonds. Why would any bank need to take a chance by lending money to a struggling small business when it can take almost no risk and earn countless billions by simply borrowing at next to nothing, buying a bond and pocketing the difference?

My guess is that Obama is allowing Wall Street to make such easy money, doing as Goldman CEO Lloyd Blankfein calls "God's Work", because the president knows that there's a limit to the amount of debt the Chinese will buy to expand all the socialism he's unleashing on the American people -- from stimulus packages that don't stimulate to health care reforms that make a bad situation even worse. At some point, he will need Wall Street to step in and buy those Treasury bonds the Chinese may soon refuse to buy. In the meantime, small businesses get the shaft so Goldman Sachs can make money to finance big government.

The president wont tell you this because he knows that large portions of the electorate don't agree with Obamanomics (check out his floundering poll numbers) so in order to get his agenda through, he spins a class warfare tale about Main Street versus Wall Street even as he uses Wall Street to advance his big government agenda. Paterson, on the other hand, is fessing up to this unholy alliance.

It began a couple weeks ago when he took a not-so-veiled shot at one of his likely challengers, state attorney general Andrew Cuomo, who has continued the office's Wall Street bashing tradition that began under another AG who became governor, Eliot Spitzer. Cuomo has been investigating Wall Street's huge bonuses; he once threatened to go public with the names of executives earning huge bonuses at AIG, the large insurer that was bailed out by the government last year, if they didn't return the money.

Cuomo's Wall Street attacks have earned him huge recognition, and at least according to the polls, a large lead over Paterson in a Democratic primary. Paterson, however, believes the attacks are counter productive; politicians in Iowa don't go around attacking the agriculture industry, and they don't attack big oil in Texas. So why are so many NY Pols attacking the investment banks that feed the monster of big government in New York State that they created and sustain?

It was, of course, a great question, whether you agree with New York's big government or not (I don't). Cuomo, to his credit, has spoken about the need to cut taxes and slash the state's bureaucracy, though I find it hard to believe he's about to kill the monster his father helped create (Andrew is, of course, the son of former NYS Gov. Mario Cuomo) Over the weekend I interviewed Paterson on WABC radio (I was filling in for the regular host, Larry Kudlow) and he made the following point: Because of all the class warfare from the likes of Obama and Cuomo, the $20 billion in bonus money that Goldman has amassed will probably be handed out to executives not in cash but mostly in restricted stock (the decision to be announced shortly), which the state can't get its grubby hands on.

For all his negatives so far, Paterson's logic on this issue appears to be resonating, at least with Cuomo. As the New York Post reported, the AG seems to be backing off his threat to publicly chastise the AIG bonus babies. He knows he will need them if and when he becomes governor.