Obama Gives Wall Street the Cold Shoulder

Richard Drew/AP By tapping Geithner and Summers to drive economic policy, Obama breaks a long chain of Wall Street bankers running government.

When The New York Times published “The Guys from Government Sachs” on October 19, the article struck a popular chord not because the information was particularly new but rather because in one place the paper revealed what we had all suspected for so long anyway: a bunch of wealthy ex-bankers from Goldman Sachs were running the country.

In truth, this is nothing new. For much of the past 100 years—at least since 1921, when Warren Harding appointed banker Andrew Mellon the Secretary of the Treasury, a position he held for the next eleven years—Wall Street bankers have had prominent roles in running the United States government.

None of Obama’s cabinet picks, or rumored cabinet picks to date, have worked in any substantive way on Wall Street.

And that’s what makes so remarkable President-elect Barack Obama’s decision—so far at least—to exclude Wall Street types from leadership roles in his government. Not that another example is needed of how far in our esteem bankers and traders have fallen since the summer of 2007. But this surely drives home the point that one of Obama’s definitions of change is to not allow Wall Street its traditional role in running things. Tim Geithner, the presumptive Secretary of the Treasury, is all of a regulator, an academic and a civil servant. One thing he is not is a Wall Street banker (although he would have been an effective one.) Larry Summers, soon-to-be Obama’s director of the National Economic Council, is the son of economists, an economist himself, a former president of Harvard University and a former Secretary of the Treasury. He was never a banker and never worked on Wall Street. Indeed none of Obama’s cabinet picks, or rumored cabinet picks to date have worked in any substantive way on Wall Street.

The closest Obama has come to picking a banker for a senior role in his administration is his choice of Rahm Emanuel to be White House chief of staff. But Emanuel, a former confidante of the Clintons, hardly qualifies as a Wall Street banker, even though he spent some two-and-a-half years at Wasserstein Perella in Chicago. Bruce Wasserstein bestowed $16.2 million in Emanuel during that time, which Emanuel then used to launch a very successful career in Congress, beginning in 2003. He rose to become the fourth-ranking member in the House of Representatives before his fellow Chicagoan, Obama, asked him to be his chief of staff. The only other banker-type Obama has asked to help him so far has been Josh Gotbaum, a onetime partner at Lazard Frères & Co., in New York. Obama asked Gotbaum to head his transition team to the Treasury and where he goes from here is anyone’s guess. But even Gotbaum has been off Wall Street for more than a decade, even though some reports have—erroneously—described him as a protégé of former Lazard investment banker Felix Rohatyn. (Gotbaum’s father, Victor, worked with Rohatyn to solve New York City’s financial crisis in the 1970s and they were once friendly. Josh Gotbaum came to Lazard with Rohatyn’s help.)

And it is not as though Obama did not have prominent next-gen Wall Street backers, including Mark Gallogly, a former partner of the Blackstone Group who now has his own firm, Centerbridge Partners, and Josh Steiner, a former Lazard partner and founding partner of the Quadrangle Group, the private equity firm run by Steve Rattner, another banker that Obama could have considered for a prominent slot in his administration but apparently has not (he was a prominent supporter of Hillary Clinton, soon-to-be the next Secretary of State.)

This is simply not the year to expect bankers to be plucked from Wall Street for a top job in government, and the reasons are more than obvious. But if Obama keeps on his current path he will break a continuous chain of recruiting Wall Streeters to Washington that extends back to Mellon and probably even farther. There was Henry Morgenthau (FDR’s Treasury Secretary for 12 years), C. Douglas Dillon (Treasury Secretary for both Kennedy and Johnson) and then bankers William Simon, Michael Blumenthal, G. William Miller, Donald T. Regan, Nicholas Brady and then starting with Robert Rubin, the wave of Goldman types.

This is hardly an exhaustive list and doesn’t begin to account for all the Wall Street types in White House jobs or in other cabinet-level positions. But such used to be the expectation on Wall Street that plumb jobs were theirs for the taking in Washington that when Clinton did not choose Rohatyn to be his Treasury Secretary in 1992—he supported Ross Perot for President—or 1996, it was the biggest disappointment of his life. He ended up settling for the job of Ambassador to France after the untimely death of Pamela Harriman, one of the wives of W. Averell Harriman, a Wall Street banker, former governor of New York and Secretary of Commerce in the Truman Administration.

William D. Cohan, a former senior-level M&A banker on Wall Street, is the author of The Last Tycoons: The Secret History of Lazard Freres & Co. Cohan's House of Cards: The Fall of Bear Stearns and the End of the Second Gilded Age, will be published by Doubleday in 2009. He also writes for Fortune, ArtNews, The Financial Times and the Washington Post.