Hillary Clinton’s decision to endorse legislation to limit the revolving door between Washington and Wall Street, and ban “golden parachute” payments for financial executives who rotate into government service, has shifted the balance of power in the most critical fight inside the Democratic Party. The Clinton op-ed supporting the Financial Services Conflict of Interest Act was co-written with Sen. Tammy Baldwin, D-Wis., the bill’s sponsor.
For the past several years, war has raged between the party’s reform wing, symbolized by Elizabeth Warren, and the Wall Street wing, identified with Robert Rubin, the former Citigroup chairman and treasury secretary. Who wins will powerfully influence who the party works for going forward: its donors or its voters.
The difference between the Rubin wing and the Warren wing was once put to me this way: one side wakes up every morning wondering what America would be like without a middle class, the other wakes up wondering what America would be like without Goldman Sachs. Rubin’s mindset is perhaps best illustrated by the fact that in the 1990s, Rubin was surprised to learn that for the past 20 years workers’ wages hadn’t increased with their productivity.
Rubin’s team has dominated policy at the upper echelons of the party since Bill Clinton’s election in 1992. After Obama was elected in 2008, two people made hiring decisions for his economic team during the transition: Michael Froman (Rubin’s former chief of staff at the Treasury Department) and Jamie Rubin (Rubin’s son and then a senior partner at the private equity firm BC Partners). The Rubinites justified picking other Rubinites to lead because they were the only ones with executive experience, frustrating any bids for a new team with new ideas.
The list of Rubinites currently or previously serving in the Obama administration includes Froman himself, now U.S. trade representative; Treasury Secretary Jack Lew; Federal Reserve governors Stan Fischer and Lael Brainard; Health and Human Services Secretary Sylvia Matthews Burwell; chief of the Council on Economic Advisers Jason Furman; and former officials Timothy Geithner, Larry Summers, Gene Sperling and Peter Orszag. Froman, Lew and Fischer previously worked at Citigroup, and Orszag is there now. Lew and Froman benefited from golden parachute awards from Citi, exactly the kind Clinton now says she wants to ban.
Many attribute the light-touch punishment of Wall Street executives who presided over the financial crisis — a group that includes Rubin himself — to the dominance of the Rubin wing.
Since coming to the Senate, Warren’s primary preoccupation has not necessarily been legislation but who would carry out policy inside the Obama administration. Warren was instrumental in preventing Larry Summers from chairing the Federal Reserve. She also waged a public battle to block former investment banker Antonio Weiss from the No. 3 position at Treasury; Weiss withdrew his name and went on to serve as a counselor.
And now the leading candidate for president on the Democratic side just endorsed a bill saying that the payments people like Lew and Froman have received from Wall Street firms should be made illegal under U.S. bribery laws. Suddenly, the money train that the financial sector uses to help ensure that their interests are protected in Washington has become toxic.
The Financial Services Conflict of Interest Act would also extend the lobbying “cooling-off” period for officials rotating out of government from one to two years, and force policymakers to recuse themselves from decisions that would benefit their former employers. But it’s the crackdown on accelerating deferred compensation, theoretically used to keep top executives in their jobs (rather than reward ones who leave to serve in the government), that carries a sting. You can only view these payments in one of two ways: either as a waste of shareholder money, or a bribe to government officials.
Normally, endorsing legislation is one of those perfunctory check-the-box activities that presidential candidates engage in without much meaning, especially when Congress is likely to be partially controlled by the opposing party. But this bill is entirely about the personnel that would serve in the next administration. Clinton can “enact” much of it simply through her decisions on staffing the executive branch.
Clinton had to make a choice because she was cornered by the golden parachute payments her top aides received from their former Wall Street firms when she served as secretary of state. Progressive groups allied with Warren used this as a hook to demand Clinton’s position. Warren herself kicked this off by publicly challenging all presidential candidates to support the Baldwin legislation in July. Clinton’s main challengers for the nomination already endorsed the bill.
Going after the golden parachutes Rubinites have enjoyed could have a chilling effect on who decides to enter government, and will change incentives around accepting jobs on both Wall Street and in Washington. That could change the mix around personnel in the next Democratic White House.
Obviously, Wall Streeters who hope to join a Clinton administration could go to work for the government and leave millions of dollars on the table. But even so, the anti-revolving door principles of the Baldwin bill would likely be thrown in the face of every prospective hire. The untainted options would come from the Warren wing; Rubin wing possibilities would have to operate under a cloud. Hillary Clinton has been forced to pick a side in a quiet but important war, and her decision suggests that the potential 2016 Clinton transition would look a lot different than the 2008 Obama one.