Economy

Krugman: Why Wall Street Tycoons Are Panicking About the 2016 Election

Financiers are doing whatever they can to elect a Republican, any Republican.

Photo Credit: via YouTube

Paul Krugman weighed in on the differences between Hillary Clinton and Bernie Sanders when it comes to financial reform and regulation in Friday's column. His conclusion: they differ in degrees of toughness, but the starkest contrast is between them and the entire Republican field. Ultimately, his evidence is that when it comes to campaign contributions, the financial sector has never been more Republican.

While Sanders has won the most accolades and fans for his drive to regulate banks and restore Glass-Steagall, Krugman argues that, in some ways, Clinton had "the better case" in Tuesday’s debate.   

Mr. Sanders has been focused on restoring Glass-Steagall, the rule that separated deposit-taking banks from riskier wheeling and dealing. And repealing Glass-Steagall was indeed a mistake. But it’s not what caused the financial crisis, which arose instead from “shadow banks” like Lehman Brothers, which don’t take deposits but can nonetheless wreak havoc when they fail. Mrs. Clinton has laid out a plan to rein in shadow banks; so far, Mr. Sanders hasn’t.

Then Krugman turns to the question of whether Clinton is credible when she talks tough about financial reform, or "would she once in the White House, return to the finance-friendly, deregulatory policies of the 1990s?"

Krugman doesn't know (or doesn't want to say.) So he examines Wall Street's political donations, which have shifted.

To understand the politics of financial reform and regulation, we have to start by acknowledging that there was a time when Wall Street and Democrats got on just fine. Robert Rubin of Goldman Sachs became Bill Clinton’s most influential economic official; big banks had plenty of political access; and the industry by and large got what it wanted, including repeal of Glass-Steagall.

This cozy relationship was reflected in campaign contributions, with the securities industry splitting its donations more or less evenly between the parties, and hedge funds actually leaning Democratic.

Everything changed after 2008 financial crisis, however. While most liberals and progressives were dissatisfied with the Obama administration's efforts to rein in the big banks, petulant Wall Street became consumed with rage that they were subject to any reform. That rage is ongoing and has been transferred to all Democrats. Hedge funds have also flipped.

The lopsided giving could be very good news, in Krugman's opinion, since a it "means that a victorious Democrat wouldn’t owe much to the financial industry."

Let's hope.

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