How Wall Street Is Redefining Bipartisanship

Janet Yellen is not. Washington’s legal community is. Some say that his recent slide into a job at the private-equity firm Warburg Pincus proves Timothy Geithner always was.

What’s the charge? With the Volcker Rule—which purports to make banks’ trading less risky—gaining final approval just before the new year and Yellen’s confirmation as Federal Reserve chair just after, the phrase “captured by Wall Street” has gained a currency it hasn’t had since the days of the Troubled Asset Relief Program. Dividing the captured from the rest has become the new parlor game for pundits.

What makes it an interesting pastime is that the once-natural categories of pro-market Republicans and pro-regulation Democrats no longer apply. Last year, when Columbia law professor John Coffee quit a task force on financial regulation at the Bipartisan Policy Center, he explained in a parting shot how Wall Street’s influence was changing our politics. Although the major parties were equally represented on the panel, Coffee told the Washington Post in August, “it was not bipartisan in terms of the critical division in Washington: the financial services party and the reform party.”

Coffee’s insight echoes a similar one about how campaign finance is deforming our usual notions of partisanship. “ ‘Republican’ doesn’t mean anything. ‘Democrat’ doesn’t mean anything,” a candidate vanquished by undisclosed corporate cash in Michigan told NPR in November. “It’s the huge money and everybody else.”

The constant press for contributions is a true bipartisan effort. “When it comes to fundraising, they all understand each other,” says Viveca Novak of the Center for Responsive Politics.

But Wall Street’s capture of the capital is more complex. Washington lawyers are hired less for their advice than for doing their clients’ bidding. On the Hill, many would-be reformers have one eye on the revolving door. “Most Senate Banking Committee staffers are in their early thirties,” says former Joe Biden aide Jeff Connaughton, author of The Payoff: Why Wall Street Always Wins. “I can’t tell them, ‘Don’t worry about making money.’ ”

More than that, the big bankers constitute a powerful club. “There’s a social glue,” says Connaughton. “If you play ball with establishment forces, you’ll do well.”

Then there’s the simple fear of wrecking the economy. Even if last-minute changes put teeth into the Volcker Rule, some veteran observers still take the overall timidity of the Dodd-Frank reforms as a sign that Wall Street’s warnings against meddling with the market have paralyzed lawmakers. “So much more could have been asked for by someone with a vision of where to go,” says Donald Langevoort, a securities expert at Georgetown Law.

No one expects a formal realignment of the parties—paralysis only heightens the partisan rancor. But when serious legislating gets done—as when the establishment circled its wagons to pass December’s budget deal, with the House speaker blasting away to his right—expect it to come not by traditional bipartisanism but by a coalition of the captured, or the not.

This article appears in the February 2014 issue of Washingtonian.

Paul O'Donnell

Freelance writer Paul O’Donnell is @paulwodonnell on Twitter.