What do the creation of the Federal Reserve in 1913 and the financial bailout of 2008 have in common?
They share the phenomenon of a lot of bankers working with and in Washington, according to Nomi Prins, author of the new book “All the Presidents’ Bankers.”
Prins, a former Goldman Sachs exec, states the White House and Wall Street have been working together since the Panic of 1907, when President Teddy Roosevelt handed the keys to the Treasury to banker J.P. Morgan and his cronies, who picked the winning financial firms to get bailed out and survive the liquidity crisis.
In the book, subtitled “The Hidden Alliances That Drive American Power,” Prins
divulges how, through the Cold War and Vietnam era, presidents and bankers pushed America’s superpower status and expansion abroad while promoting broadly democratic values and social welfare at home.
But in the 1970s (when Nixon took the dollar off the gold standard), Wall Street’s rush to secure Middle East oil profits altered the nature of political-financial alliances.
Bankers’ profit motives trumped their heritage and allegiance to public service, while presidents lost control over the economy, as was dramatically evident in the financial crisis of 2008.
From Citigroup’s founding chairman Walter Wriston, who told the Nixon administration that his bank was really the “caretaker of the aspirations of millions of people” whose money it held, to Goldman’s Lloyd Blankfein “doing God’s work,” bankers have always played the “aw, shucks” card after getting their way from the White House either through policy changes or bailouts.
Prins points out that the interconnectedness between the presidents and the bankers was so tight through family and social ties that FDR could just as easily have run Chase bank and Winthrop Aldrich the nation. Wriston might have secured the presidency while John F. Kennedy took the helm of Citigroup (in those days, The First National City Bank of New York).
So Prins’ postmortem on the 2008 crisis would not surprise financial historians: “As of September 1, 2013, the SEC reported it had levied just $1.53 billion in fines and $1.2 billion in penalties, disgorgement, and other money relief against the big banks for their multitrillion-dollar global Ponzi scheme — or as the SEC put it, ‘addressing misconduct that led to or arose from the financial crisis.’ ”