Why Wall Street Hates Obama
The explanation is surprisingly simple.
Photograph by Saul Loeb/Getty Images.
Wall Street hates Barack Obama. That much, we know. But why? Just three years ago, he was Wall Street’s favored candidate. After being elected, he helped bail them out. He stopped Congress from going after their pay. He rejected proposals for radical reforms like breaking up the biggest banks. You would think Wall Street would give Obama a big Christmas bonus this year. Instead, they’re mobilizing against him.
There have been several competing theories for why the finance industry has turned on the White House. One is policy: The administration pushed through the Dodd-Frank financial regulatory reform bill, which tamps down on proprietary trading, leverage, and other tools banks use to increase profits. Another is ideology: Wall Street fingered Obama as a socialist, seeking to redistribute its hard-earned capital gains to the lazy and poor. A third explanation is psychology: Obama clearly doesn’t respect Wall Street. Therefore, Wall Street hates him.
All of those may be—and probably are—part of the story. But now there is a new and far more concrete contributor to the antipathy. Perhaps Wall Street hates Obama because Wall Street is doing terribly—and everybody blames the incumbent when the economy turns sour. The big investment banks are hardly broke—they remain, for the most part, profitable enterprises. But they are not thriving in the way they were a year or even six months ago, and they are dropping employees and slashing bonuses as profits tumble.
Consider the data provided in an analysis of New York’s financial industry by Thomas DiNapoli, the state comptroller. This week, he wrote that profits “declined 10.8 percent in the first half of 2011 to $12.6 billion. [This office] forecasts that profits are unlikely to reach $18 billion for the entire year.” Eighteen billion sounds like a lot! But, he notes, it is just one third of the profits the banks were making back in 2010.
Financial firms are, not surprisingly, throwing employees overboard, DiNapoli reports. “The securities industry could lose an additional 10,000 jobs” in the next year, he writes. Add that to job losses in the banking sector, and the overall industry will have eliminated one in five of its New York-based jobs since 2008. Looking beyond New York, the numbers get even worse. Bank of America is shedding a whopping 30,000 positions. Even Goldman Sachs—the same Goldman Sachs boasting about its all-time record profits 18 months ago—is shedding 1,000 workers. The investment banks are also cutting compensation for the workers who remain. The Wall Street Journal reports that consultants expect bonus checks to drop 30 to 40 percent, depending on the bank.
Just six months ago, profits were sky-high in the financial sector. Banks like Goldman Sachs no longer had Lehman Bros. or Bear Stearns to compete with. Fewer competitors and ample help from Uncle Sam pushed profits higher. Indeed, last year, real corporate profits neared an all-time peak, with businesses pulling $1.68 trillion, pre-tax, and sitting on nearly $2 trillion in cash.
No more. Take J.P. Morgan, widely considered the healthiest of the big investment houses. This week, it reported that its third-quarter profits dropped about 25 percent, even after getting a boost from a one-off accounting change. In a note to investors, Jamie Dimon, the bank’s chief executive officer, offered this tepid conclusion: “All things considered, we believe the Firm’s returns were reasonable given the current environment.” Next week, a number of the other big banks report their third-quarter earnings. The balance sheets are not likely to be pretty, either. Analysts are lowering their estimates for banks like Goldman Sachs, whose quarterly revenue they expect to fall from $10.71 billion to $4.93 billion year over year.
What gives? First and foremost, the economy just caught up with the banks. America’s consumers are not consuming much, which means that American businesses are not thriving. Mergers and acquisitions have slowed as companies prefer to hang onto their cash, or spend it to survive. The flurry of tech-sector-fueled initial public offerings we saw at the beginning of the year is now over. The European debt crisis and the months-long political impasse around it are weighing on the financial world. That means trouble for the investment banks’ bottom lines. J.P. Morgan, for instance, reported this week that its fees from investment-banking fell nearly half in the third quarter. And investors have noticed. The KBW Bank Index, a composite of banking stocks, has fallen about 30 percent this year.
This month, Citi performed a survey of a large number of investors, asking them about where they see the markets going and current sentiment. The proportion who foresee a recession has tripled to 30 percent since July, Business Insider reports. A majority now believe that Obama will lose the next election. And the thing that has investors most worried, more so than debt and housing and declining profits? “Government policy missteps.”
The antipathy towards Obama, of course, is not new, and is certainly multidimensional. Plenty of financiers loathed the president before their profits turned south, back when their only complaint was that he kept calling them fat cats and wanted to regulate them. But Wall Street has gone from seeming cautiously ungrateful to angrily opposed. Some of that may actually be their renewed strength and the president’s increasing weakness. But some of it is doubtlessly that Wall Street is, all of a sudden, suffering a bit, and like so many Americans, they blame the president.
Annie Lowrey, formerly Slate’s Moneybox columnist, is economic policy reporter for the New York Times.