In the wake of the historic fraud suit against Goldman Sachs, it was unclear whether the bank would have any presence at President Obama's financial reform speech yesterday. But CEO Lloyd Blankfein chose to attend, along with his number two, Gary Cohn. Why? The President invited them. Instead of getting a tongue-lashing for their fraudulent ways, the President asked them to join him in the fight for financial reform.
If Obama is to be a credible voice for financial reform, and for a just and sustainable economy, he needs to turn his back on Goldman Sachs and other financial behemoths -- including hedge funds like John Paulson's -- premised on a business model of outright deception and collusion. Symbolic gestures won't do it. One strategy: he could refuse all future campaign donations from individuals associated with these firms.
Goldman Sachs has enormous influence over this White House, in large part because of the role the bank played in helping elect Obama. The fact that Goldman was Obama's top corporate contributor does not begin to illustrate the central role the bank's networks played in Obama's campaign -- not just current employees and executives, but, crucially, Goldman alumni. These quiet players have not gotten much attention, but their significance to the Obama campaign cannot be overstated.
One of these Obama supporters is former Goldman Sachs executive Richard Perry, now a hedge fund manager. During the 2008 campaign, Perry hosted a pivotal meeting between Obama and Caroline Kennedy. At the time, Hillary Clinton was still in the race; after winning Caroline Kennedy's support, Obama emerged as the chosen candidate of an extremely influential arm of the Democratic Party elite. The New York Post has described this as "a move some credit with helping Obama score the Democratic nomination over Sen. Hillary Clinton."
Perry's support is all the more notable for the fact that he and his wife had been Hillary Clinton bundlers. He may have been brought on board by his mentor at Goldman Sachs, Robert Rubin. In addition to working for Rubin, Perry babysat for his children and taught classes with him. Rubin's fingerprints are all over the Obama campaign: longtime right-hand man Michael Froman, who followed Rubin from the Treasury Department to Citigroup, played a central role in early fundraising efforts, lining up an unrivaled fundraising team of politically-interested financiers in early 2007. Froman was later charged with picking economic appointments for the Obama administration, along with Rubin's son, Jamie.
Then there are people like David Heller, co-head of Goldman's securities division; Frank Brosens, a hedge fund manager and formerly a Goldman trader under Rubin, and at one point Obama's pick to oversee TARP; Bruce Heyman, a Goldman managing director in Chicago; Eric Mindich, a hedge fund manager and former Goldman trader under Rubin; Jim Johnson, a Goldman director and chair of the compensation committee -- in charge of approving all those exorbitant bonuses. Johnson was Obama's choice to lead his search for a vice president before his ties to Fannie Mae got him in trouble.
All five were Obama bundlers, and all five had strong ties to Goldman Sachs. They raised at least $850,000, and possibly as much as $2.1 million for Obama. That's more than double the amount given to Obama by current Goldman executives ($1 million), all raised by a handful of people in the Goldman alumni network. You can bet that all of these individuals hold Goldman Sachs near and dear to their hearts.
What has all this money won Goldman's network? One need look no further than White House visitor logs to get an idea of the extent of the bank's influence over this administration.
In a study of the logs earlier this year, citizen analysts at LittleSis.org found that more high-powered visitors to the White House had ties to Goldman Sachs than any other business in the country. We looked for individuals who had attended small group or one-on-one meetings with the President or one of his top advisors, identified them, and analyzed their relationships. Out of a list of 250 visitors, seven current and former Goldman employees had attended such meetings, based on our study of available logs. Morgan Stanley and the New York Times were next with six each.
And now one former White House official, Greg Craig, has been hired by Goldman to help it clean up its legal mess.
Against this backdrop, Obama's insistence that he is independent of Goldman Sachs look extremely disingenuous, and rumors that he pressed the SEC to sue Goldman seem far-fetched.
Obama's coziness with Goldman Sachs poses a serious political liability in the months ahead. During Bush's second year, a wave of corporate crises took down several large corporations, including that reigning symbol of corporate corruption, Enron. Bush took heat for his close ties to "Kenny boy" and his mismanagement of the crises, and his approval ratings began dropping. Businesses like Enron may have put him in the White House, but they also threatened to take down his presidency. The run-up to the Iraq War eventually distracted Americans from this shameful cronyism.
Ironically, Enron was just as close with members of the Clinton administration, and its fraud was aided and abetted by Clinton-backed legislation. But Bush took the heat, for good reason: he was the Enron crony in power. And even though Republicans also have strong ties to Goldman Sachs (see: Hank Paulson), Obama will take heat because he is the Goldman Sachs crony in power. Fox News has already begun their drumbeat, but Obama's ties to Goldman are simply too strong for more mainstream outlets to ignore.
How will Obama deal with the political liability of being Goldman's favorite politician, and hold on to the support of voters? Yesterday, he chose to ignore it, but this strategy will almost certainly backfire as the scandal grows and the media begins linking Obama with Goldman.
But Obama does have options for addressing these issues. He is not a former Goldman Sachs executive, and he has never worked on Wall Street. He has a significant opportunity to distance himself from Wall Street's culture of fraud by turning his back on his big-dollar Wall Street donors, and embracing the support of his small-dollar ones.
By making a firm pledge to reject all future donations from individuals associated with the big banks and hedge funds, he can credibly demonstrate his political independence to the American people.
Of course, as long as he continues to invite Goldman Sachs to join him -- on his campaigns, at his speeches, in the White House -- the fight against Wall Street's fraud is a fight against the Obama administration.