Were it not for Melania Trump’s plagiarism, Ted Cruz’s betrayal, Donald Trump’s doomsaying, hackers’ infiltration of the Democratic National Committee’s servers, the fall of DNC Chair Debbie Wasserman Schultz, the revolt of Bernie Sanders’s supporters, and a half-dozen or so lesser scandals—gasp for breath!—the major story coming out of the Republican and Democratic conventions might well be the sudden and pronounced move by both parties against Wall Street.
It began on the first day of the Republican gathering in Cleveland. Trump’s campaign chairman, Paul Manafort, announced to reporters that the Republican Party platform would include a call to reinstate the Glass-Steagall Act, a Depression-era law that separated commercial and investment banks. This was a shock. The restoration of Glass-Steagall was hardly a foreign idea in this year’s presidential race, but it had mainly been the province of liberals such as Bernie Sanders and Elizabeth Warren. Manafort didn’t care. “We believe that the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is one of the reasons why you see all of the Wall Street money going to her.”
Manafort’s remarks might have sent bankers scrambling—had any been around to hear them. But representatives of the major financial institutions mostly avoided Cleveland, allergic to any association with Trump. Four years ago in Tampa, Mitt Romney’s coronation was a veritable Woodstock for Wall Street, a rapturous celebration of capitalism, with Goldman Sachs, Bank of America, and a host of other banks kicking in millions of dollars to back the Republican nominee. This year even the industry’s trade group, the Financial Services Roundtable, declined to hold an event.
The bankers and lobbyists who did show up tried hard to remain invisible. One of the few organizations to welcome them was the Ripon Society, a moderate group with roots in the genteel Rockefeller Republicanism of the 1960s. Ripon’s event was held far away from Quicken Loans Arena, the convention venue, on the 25th floor of a skyscraper whose only access point lay behind a rampart of baton-wielding policemen. Press wasn’t welcome—not even Bloomberg Businessweek, an outlet hardly known for its hostility to business. “I wish I could let you in, but I can’t,” Ripon’s policy director, Stephen Jackson, told me apologetically, as lobbyists waiting to check in avoided making eye contact.
This is strange territory for the banks. The industry usually thrives when public attention is focused elsewhere, because its lobbyists and political allies can tweak the rules to their advantage, confident they’re unlikely to fall under the glare of the spotlight. Something unusual has happened this time: Banks were the target, rather than the beneficiary of a rules change.
What should worry banks and hedge funds is not just Trump’s belligerence, though his talk of a rigged financial system whose leaders “are getting away with murder” is unaccustomed language from a Republican standard-bearer. It’s also that these views have become enshrined in the party’s platform, which contains denunciations of “crony capitalism and corporate welfare” indistinguishable from those in the Democrats’ platform (which, by the way, also calls for reviving Glass-Steagall). “Trump is the Republican Huey Long,” says former Republican Representative Bob Barr of Georgia. “He knows this resonates.”
The turn against a longtime GOP benefactor is deeply disorienting to the last group of Republicans to occupy the White House. “Republicans should be looking at all the criticisms Hillary Clinton made of Sanders during the primary and adopting them,” says Phillip Swagel, assistant Treasury secretary for economic policy under President George W. Bush. “Instead, it’s like an echo. Trump has clearly latched onto something. People talk about the pendulum having swung too far with Dodd-Frank and that now it will swing back to being looser. I just don’t think that’s going to happen.”
Another veteran of the Bush Treasury Department and White House, Tony Fratto, suggested to the Washington Post that pragmatic bankers would be better off crossing the aisle than reconciling themselves to Trump. “They are not buying a ticket on the crazy train,” says Fratto, a partner at Hamilton Place Strategies, which advises major banks. “Banks and the financial sector do not like volatility. He is the volatile candidate, and under those circumstances, supporting Hillary Clinton looks like the flight to safety.”
But any bankers looking for succor among the Democrats gathered in Philadelphia were disappointed. On the convention’s opening night, Elizabeth Warren echoed Trump’s anti-Wall Street harangue nearly word for word: “The system is rigged. It’s true.” And when the crowd wasn’t cheering Sanders’s call to break up the big banks, it was erupting in spontaneous chants of “Tax Wall Street!” The scene was almost enough to make a beleaguered banker long for Barack Obama, who at least placed himself between Wall Street and the pitchforks, rather than egging them on.
In an election as sharply divided as any, the theme of Wall Street perfidy has emerged as a rare point of agreement, with the major partisan conflict revolving around who’s better suited to rein it in. Some believe all this is the inevitable culmination of decades of middle-class wage stagnation. Others believe we’re seeing the aftershock of the financial crisis, which roiled an earlier election. Eight years ago, the economy and stock market were in free fall, and the imperative was to “break the back of the crisis,” as Obama’s first Treasury secretary, Timothy Geithner, liked to put it. Now, with the economy growing steadily and the Dow Jones industrial average pushing all-time highs, public attention has returned to what Sanders, in his convention speech, called “the greed, recklessness, and illegal behavior on Wall Street.”
Whatever the cause, leaders in both parties are convinced that punishing Wall Street is good politics. “If you’ve got a car with a flat tire and the fact that both liberals and conservatives think changing tires would be good, that may just be a sign of common sense,” says Trump enthusiast and former House Speaker Newt Gingrich.
But it’s also true that in the eight years since the financial crisis, Wall Street banks have maneuvered themselves into a terrible political position, first poisoning public sentiment in the immediate aftermath by bemoaning their shrunken bonuses, and then alienating Democratic allies by pushing their chips onto a Republican Party that turned out to be on the verge of collapse.
Manafort’s claim in Cleveland that Wall Street interests were mainly backing Clinton isn’t exactly wrong, but it ignores the broader context. Their fondness for her is a recent development: After Democrats passed the Dodd-Frank financial reforms in 2010, Wall Street threw a fit and shifted its pattern of political giving heavily toward Republicans, a trend that Romney’s nomination in 2012 only intensified. But the subsequent ouster of bank-friendly GOP leaders, such as former House Speaker John Boehner and Majority Leader Eric Cantor, and then the emergence of Trump illustrate the weakness of this strategy.
The story can be told in raw dollars: In 2012 the Republican convention and Romney’s campaign were built upon the idea that Obama and Democrats were hostile to business. The financial sector poured $113 million into Romney’s campaign and affiliated super PAC, according to the Center for Responsive Politics. Four years later, again per CRP, the financial sector has thus far donated just $109,004 to Trump and only moderately more to his affiliated super-PACs.
Even Republicans with the most blue-blooded, pro-Wall Street lineage don’t think this is entirely unjustified. “Uncle Mitt and I e-mail every couple of weeks,” says Ronna Romney McDaniel, Michigan’s Republican Party chairwoman and Mitt’s niece. She doesn’t share her uncle’s antipathy for Trump, nor does she object to the Republican nominee’s shots at financiers. “I don’t know if I can say that the whole Republican Party is there,” she says. “But I think there is a recognition that there have been a lot of Americans left behind in this recovery, and Donald Trump is talking about those people specifically.”
Some of the missing Wall Street money has shifted to Clinton. According to CRP, Clinton and her allied super-PACs have raised about $41 million from the financial industry. Bankers weren’t nearly as scarce in Philadelphia as they were in Cleveland. But despite the fevered suspicions of Sanders delegates, this money is less a measure of insider influence than it is a gauge of desperation for an industry looking for a safe harbor.
Hillary Clinton’s Democratic Party may end up being the answer. But it’s a far cry from the party Bill Clinton led in the 1990s, which unwound Glass-Steagall. She’s vowed to boost oversight of the shadow banking sector, impose stricter penalties for financial crimes, institute a tax on high-frequency trading, toughen the Volcker Rule to limit speculation, and enhance executive power to break up banks deemed too big to fail. “It’s going to be much harder for Clinton to appoint bankers to top economic or regulatory jobs than it was for Bill Clinton or even Barack Obama,” says Jeff Hauser, a lawyer who runs the Revolving Door Project at the liberal Center for Economic & Policy Research. “Democratic politics are much more engaged with financial reform, both in terms of legislation and tougher enforcement of existing rules and laws. The incentives a President Clinton would face would be heavily weighted toward fulfilling these promises.”
This doesn’t augur well for banks hoping to return to happier days, but neither does it signify the second coming of FDR. Clinton’s choice of moderate Virginia Senator Tim Kaine instead of a true leftist like Warren as her running mate suggests there are limits to her desire to reform the financial sector. And Trump’s economic populism, unlike his view of immigration, doesn’t hold as much sway in the most critical Republican redoubts. “The modern conservative movement governs from the House and Senate,” says Grover Norquist, the conservative activist who runs Americans for Tax Reform. “The old Republican Party governed from the presidency because we were never going to get the Congress. But since ’94, we’re more likely to have the House and the Senate than the presidency.” In the near term, the House especially should remain a bulwark against reform, regardless of who’s in the Oval Office.
It will be difficult for any president to reinstitute Glass-Steagall. “I don’t think Glass-Steagall will ever actually happen,” says Swagel, the former Bush Treasury official. “It’s like Trump’s wall: It’s symbolic.” Even so, it’s hard to see banks regaining the kind of influence they once wielded in both parties. If Clinton wins, she’ll have to contend with a Senate led by Warren, Sanders, Ohio Senator Sherrod Brown, and other liberal Democratic reformers. “If Trump is elected president,” Manafort said in Cleveland, “the transformation that’s begun here will be completed.”
Republicans, even those discomfited by Trump’s ascendancy, acknowledge that his influence is likely to endure. “When Republicans run against Clinton in four years, we’re all going to be much more aware of the power of this issue—it can’t just be ‘Let’s have tax cuts to boost investment,’Š” Swagel says.
This change could come sooner than that. “I think we’ll have a lot of mini-Trumps in the 2018 midterm elections imitating what we’ve seen,” says John Weaver, chief strategist for Ohio Governor John Kasich, who worked for Lehman Brothers. “People always copy what they believe might be successful. Maybe it gets better after Trump. But I wouldn’t count on it. I think it’ll be like ‘Night of the Living Dead.’”