Why Wall Street should rethink its alliance with the GOP
In light of the US government shutdown and looming debt ceiling deadline, Wall Street should shift its traditional GOP alliance to Democrats. Republican extremism is threatening US credibility and markets. Wall Street's clout can help reshape America's fiscal future.
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While the exact benefits and costs of Republican policies to Wall Street are difficult to quantify, it is common sense that without fiscal stability in Washington, we will not have stable and healthy markets. In the absence of robust markets, even lower taxes and deregulation will have little value.Skip to next paragraph
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A major contributor to Wall Street’s success has been the international credibility of the US financial system, the relative stability of the dollar, and the implied safety of investing in American businesses. Historically, that has attracted capital to American companies, buoyed the domestic stock market, given Wall Street firms great power and influence, and helped our economy in general.
That credibility, however, is being eroded. The longer the GOP continues to play politics with tactics like threatening to throw the US government into financial default, the harder it becomes for other nations to believe that America will be a going concern, let alone a viable trading partner, in the future, and the less leverage we have on the global financial stage. That process then erodes the American banking industry’s power to call the shots and make the oversized profits that it enjoys.
Wall Street is in a very powerful position today. With its vast resources, the banking sector can exert a tremendous amount of clout in Washington, and help shape America’s fiscal future. If money really does talk, then Wall Street has enough to talk very loudly.
Republican supporters on Wall Street need to first exert pressure on Mr. Boehner to put his House in order and move away from extremist tactics. But if Boehner doesn’t bend, Wall Street should switch sides. The speaker's track record thus far as not been good. The 2014 midterm elections and 2016 presidential election will be here soon enough. Wall Street can put its money where its mouth is – and telegraph to lawmakers its intentions.
On the surface, the capitalist ideology of Wall Street clashes with the populist beliefs of the Democrats, but that, too, is more hype than reality. The Clinton administration, for example, was staunchly deregulatory, repealing the Glass Steagall Act of 1934, which limited commercial banks. And the Obama administration bailed out the banking industry after the financial crisis of 2008 despite public opposition.
Even the fuss over Democrats' push to eliminate the Bush tax cuts was overblown, since an increase in taxes on the wealthy amounts to only $80 billion per year, which is a pretty small percentage of the $27 trillion of wealth that is owned by the top 1 percent of Americans.
Working with the Democrats may require Wall Street to live with more regulation and higher taxes than it would like, but by using its influence wisely, it can also mitigate those very factors and negotiate a reasonable compromise. That will be to everyone’s benefit, and in any case, is far better than the alternative – ongoing market uncertainty at the hands of extremist Republicans.
Perhaps the best illustration of this paradoxical synergy is occurring right now, as JPMorgan Chase CEO Jamie Dimon meets with President Obama to discuss the debt ceiling. The president is expected to ask Mr. Dimon, whose bank is under investigation by several government agencies, to help the White House make the case to Republicans to avoid using the debt ceiling as leverage in budget negotiations.
Bedfellows may not get stranger than this, but this could be a harbinger of things to come.
Sanjay Sanghoee is a political and business commentator. He has worked at leading investment banks Lazard Freres and Dresdner, as well as the hedge fund Ramius. He has appeared on CNBC’s ‘Closing Bell’, TheStreet.com, and HuffPost Live and is the author of two thriller novels. For more information, visit www.sanghoee.com