Actually Mr. Lewis, it's not just Wall Street that's rigged. It's the American system.
- By David RothkopfDavid Rothkopf is visiting professor at Columbia University's School of International and Public Affairs and visiting scholar at the Carnegie Endowment for International Peace. His latest book is The Great Questions of Tomorrow. He has been a longtime contributor to Foreign Policy and was CEO and editor of the FP Group from 2012 to May 2017.
This past Sunday on 60 Minutes, Michael Lewis, the Damon Runyon of modern Wall Street, looked into the camera and uttered the potent thesis of his latest book, Flash Boys. "The stock market," he said, "is rigged."
The tale he told was so appalling and compelling that it’s no wonder the book is already in the upper ozone of Amazon’s best-seller list. In short, he described how fat-cat Wall Street high-frequency traders had gamed the markets to give themselves a decisive split-second edge in making trades — thus making the rest of us into chumps. They essentially found out what you wanted to buy and — in the split second between your broker initiating the trade and the deal going through — they’d step in front of you in line, buy what you wanted, jack up the price, and sell it straight back to you. It’s called front-running and it’s not legal … unless you do it by exploiting inefficiencies in high-tech fiber optics and black box algorithms that regulators haven’t caught up with yet.
What makes the story even more horrifying is that, at least to anyone who happens to read the financial pages every now and then, it shouldn’t be the least bit surprising. We live in a new golden age of financial abuse in which old-fashioned scam artists have found new ways to get rich using technology and protect these ill-gotten assets with a nearly untouchable status amid America’s political-financial oligarchy. Greed is good, say the new (very old) rules, but Wall Street has learned a few things since the days of Milken and Boesky: spread a few crumbs in front of the right members of your co-dependents in the political establishment, and you’ll receive (in the same mail as your American Express Centurion card) your Washington, D.C.-approved get-out-of-jail-free card.
Just ponder the recent glorious past of our financial history. The financial community persuades Washington to get off its back by posting its top executives in top positions for decades. (It’s actually more likely than not that if you ran Goldman Sachs you also had a top job in the U.S. government over the past couple decades.) Then, when the same execs who said they would self-regulate blew up their banks with mortgage-backed security scams, they called up Washington and said, "Please bail us out or the system will collapse, crushing the little guy." Then they got bailed out, propping their banks back up but somehow forgetting to help the little guy who was left holding the bag for mortgages Wall Street actively sold to him, no matter his credit. Then when the cry came to regulate, Wall Street pushed back so hard that today, thanks to inadequate reforms, there are more too-big-to-fail banks than there were back before the crisis that the too-big-to-fail banks caused.
But wait … don’t stop there. We also now have simultaneously occurring major scandals involving corruption in global FOREX markets, corruption in setting LIBOR rates, and this front-runner scandal. Oh, and the fines (or as Wall Street likes to call them, the cost of doing business) associated with the last round of scandals were so meager that they barely bit into the hyper-profitability of these firms. In fact, the big Wall Street CEOs who oversaw the crisis have actually not only been kept on but have gotten giant raises after the fines were imposed.
So, while I have already ordered Michael’s book (he once briefly worked with me back in the days that dinosaurs — read the BSDs of Salomon Brothers — roamed the Earth so I feel OK using his first name), and with all respect to him and full admiration for his amazing ability to tell hugely important and complicated stories, I think he has it wrong. It’s not just that the market is rigged. It’s our entire system that’s rigged.
If that was not clear to you before today, the Supreme Court may have actually done one useful thing with its otherwise atrocious decision to declare campaign finance limits unconstitutional. They may have made the craven, corrosive role of money in politics even clearer. One of the main working parts — let’s say, the crankshaft — of this rigged system is the utterly corrupt relationship between the check-writers of Wall Street (and Las Vegas, Silicon Valley, and everywhere in between) and the check-takers of Washington, D.C. The operating assumption that has driven the court since the perverse and profoundly destructive Citizens United v. Federal Election Commission decision of early 2010 — that somehow "money is speech" and is thus protected by the First Amendment — is at work again in this latest decision, in the case of McCutcheon v. Federal Election Commission. As many have correctly noted, the problem with this idea is that, in practice, it means that people with more money have louder voices (more free speech to exercise) than people with less money. It is contra the intent and spirit not only of our constitution but of the entire rationale behind any democracy, much less the one that used to hold itself up as an example to the world.
But offering ourselves up as an example to the world has not been our strong suit for a while — not since Iraq, not since Abu Ghraib, not since Guantánamo, not since serial violations of sovereignty of other nations by our drones and cyberwarriors, not since the NSA surveillance revelations of vast systemic violations of privacy at home and abroad (see, most recently, this week’s revelations by Director of National Intelligence James Clapper). And the list goes on, from the failure to learn from or prosecute the perpetrators of the financial crisis of 2009, to a growing inequality which has now reached levels not seen since the last Gilded Age; from a failure to take care of minorities in inner cities, the majority of whom are not getting high school degrees, to our continuing inability to create good jobs for the people who need and want them. Add to that the indignity of Citizens United and, now, McCutcheon, and you have to have some pretty big balls to walk around the world lecturing allies and enemies on the virtues of our current version of the American system.
And if you hear the sound of buzzing emanating from within the Beltway today, that’s because it’s going to get worse before it gets better. The buzzing is not so much that of disapproval or of our otherwise inert Congress doing as it should and getting up off its haunches and actually passing meaningful campaign finance reform. No, it’s the buzzing of consultants and bundlers, of the permanent money machines of the political parties, and of the secret, not-yet-actually-legal-but-active-as-hell bankrollers of the likely 2016 presidential candidates responding to the giant judicial KA-CHING that emanated from within the marble walls of our highest court today.
The next presidential election will inevitably become the most high-spending free-for-all in American electoral history. Forget Iowa. The only primary that matters now is who can court the most billionaires and centimillionaires that will choose which candidates can raise the $1.5 billion it will probably take to win the White House. (Sorry, ordinary millionaires not invited. Look at the inequality tables, by the way: Most benefits in recent years have not gone to the top 1 percent, they’ve gone to the top .01 percent. Coincidence? If you think so, I’ve got a long-shot candidate I’d like you to fund for president.)
In a practical sense, what Justice John Roberts and his right-wing gang did was make it far more likely that the winning candidates for each party will be the ones who play the best moneyball. That means the ones with the biggest cash crankshafts. And that means Hillary Clinton and Jeb Bush. That, in turn, means that it is more likely today than ever that, in addition to being America’s first African-American president, Barack Obama is very likely to become the only American president between 1989 and 2021 (at least) who is not named Bush or Clinton.
So take that democracy fans. Here in this nation of 314 million people, it is more likely today than ever that our message to future generations is that there are only two families we think capable of producing our leaders. (And immediate families at that, not even extended families.) Now, let me be perfectly honest here. As it happens, of all the possible GOP candidates, I prefer Jeb Bush — who I have met a couple times, watched in action, and found exceptionally impressive. He’d be a terrific president. And of all the candidates out there for president that have been mentioned, at this moment in time, I think Hillary is the one who would get my vote. (And that’s for many reasons: not least of which is because in this rigged system, among those who have been shut out the longest are women and it’s long overdue that we set that right.)
But it’s all a bit ridiculous, right? Two families? It’s not a reflection on the Bushes or the Clintons to say that the system is so skewed toward money and brand names, proven commodities, and fund-raising networks, that we’ve actually brewed up our own aristocracy in this country. Take that Vladimir. Between our money class and our political class, you and your oligarchs have nothing on us.
Clarification: The McCutcheon v. FEC ruling leaves in place limits in donations for individual candidates. Thus much of its benefit goes to political parties. However, joint fundraising PACs — like 2012’s Obama Victory Fund or Romney Victory fund — that primarily benefit top of the ticket candidates but also help other candidates and party groups that support them, are likely to provide a way around this so that there are new flows to candidates and their leadership PACs. Further McCutcheon, in conjunction with Citizens United, sets a dangerous precedent about where future campaign finance rulings may go. Thus the biggest and best fundraisers have and are likely to gain further advantage and the biggest check-writers gain further influence.