Campaign e-mails and the fine art of politics

A Wall Street executive offered advice on how to deflect criticism for taking money from Wall Street. There was an invitation to spend a weekend at George Soros’s Southampton estate. These and many other tidbits are in the leaked e-mails of Hillary Clinton’s campaign chairman, John Podesta. Guess what else? It turns out that politics influences the Democratic nominee’s positions on financial and regulatory policy.
Yes, I’m sure you’re shocked that Clinton’s aides would worry about how Elizabeth Warren might react to a Wall Street regulatory plan, or whether Bernie Sanders would accuse their candidate of copying his idea for a financial-transactions tax, or if reporters would say she flip-flopped on trade. But rarely are such calculations laid bare, as they are in more than 9,000 messages to and from Podesta, speechwriters, spokespeople, pollsters, policy gurus and others.
The Clinton campaign hasn’t verified the e-mails, made available on the WikiLeaks website, as Podesta’s, yet it hasn’t denied their authenticity either, allowing only that, according to the FBI, they were the result of a Russian-government hack. With this caveat in mind and the caution that they don’t reflect the whole story by any means and can be misleading, the e-mails have important insights. How, for instance, did Clinton settle on a risk fee in her package on Wall Street regulatory reforms?
One big clue is in a February 2016 e-mail from Gene Sperling, formerly an economic adviser to President Bill Clinton and a National Economic Council director under President Barack Obama. He wrote to Neera Tanden, president of the Center for American Progress, which Podesta once led and which consults with Clinton’s staff, that he had been working on a plan to tax financial transactions. It would be a “major Wall Street pays for Main Street proposal,” Sperling wrote. But, he worried, “we may look like we are just copying Bernie.” He urged the campaign to instead “consider details to what is clearly our proposal — Wall Street Risk fee.”
The risk fee, which Clinton eventually adopted, is essentially a surtax on banks with more than $50 billion in assets. The purpose is to make too-big-to-fail banks think twice about conditions like what triggered the 2008 financial crisis, such as borrowing heavily and selling derivatives.
The problem is that the annual fee would come out of a bank’s capital, and regulators should want banks to have as much capital as possible to absorb losses, in the way that a homeowner with 20 percent equity in a house wouldn’t be under water if the home’s market value suddenly declined by 10 percent.
Most big banks today don’t have even that 10 percent buffer. The eight largest U.S. banks, in fact, have borrowed on average 94 cents for each dollar they’ve lent out. If Clinton really wanted to make the financial system safer and to see banks lend more, she would require them to have more capital, making failure less likely in the first place. Instead, a bank could interpret payment of its risk fee as a license to behave in an even riskier manner. But a call for higher capital standards wouldn’t pack the same “Wall Street pays for Main Street” punch as a demand for a risk fee would.
How to look tough on Wall Street was the subject of never-ending internal debate, the e-mails reveal. Mandy Grunwald , a longtime Clinton adviser, urged campaign officials to support reviving Glass-Steagall, the 1930s law that separated commercial from investment banking. This was not because it might have prevented the financial meltdown, but because it might head off a Warren endorsement of Sanders.
“I am still worried that we will antagonize and activate Elizabeth Warren by opposing a new Glass Steagall,” Grunwald wrote when asked to weigh in on a draft op-ed on Wall Street reform. “I worry about defending the banks in the debate. We are not including Elizabeth’s core point about this — that the 5 biggest banks are now 30% bigger than they were five years ago.”
What Grunwald misses is that the five biggest banks got bigger because, during the crisis, Treasury and Federal Reserve officials forcefully merged sick banks with healthy ones. Clinton ultimately backed “a new Glass-Steagall,” which is largely window-dressing. It wouldn’t force big banks to get smaller but would let regulators break up large, failing banks — authority they already have under the Dodd-Frank law.
References to Warren are sprinkled throughout the messages. Clinton and Warren met in early 2015, prompting this revealing e-mail from Dan Schwerin, who oversees Clinton’s speechwriting, to Podesta and several other top aides, on Warren’s influence over Clinton’s personnel choices:
“ spent about an hour and twenty minutes this afternoon with Dan Geldon, a longtime advisor to the Senator. He was intently focused on personnel issues, laid out a detailed case against the Bob Rubin school of Democratic policy makers, was very critical of the Obama administration’s choices, and explained at length the opposition to Antonio Weiss. We then carefully went through a list of people they do like, which EW sent over to HRC earlier. We have already been in touch with a number of them and I asked if he would be comfortable introducing me to the others, to which he seemed reasonably amenable. We spent less time on specific policies, because he seemed less interested in that.”
Antonio Weiss is the former investment banker at Lazard nominated to be Treasury undersecretary and who was successfully blocked by Warren. In another exchange, Schwerin suggested to Brian Fallon, Clinton’s spokesman, that the campaign release excerpts from a paid speech Clinton delivered to Deutsche Bank. “I wrote her a long riff about economic fairness and how the financial industry has lost its way, precisely for the purpose of having something we could show people if ever asked what she was saying behind closed doors for two years to all those fat cats,” Schwerin said. The toughest part of her message, though, is a rather anodyne warning that “if there’s wrongdoing, people have to be held accountable and we have to try to deter future bad behavior.”
The e-mails also show that Clinton’s staff agonized over whether to oppose the Trans-Pacific Partnership, the 12-nation free-trade deal negotiated by Obama that Congress hasn’t yet considered. An October 2015 e-mail seems to indicate that Clinton’s opposition to the deal is lukewarm, at best. Schwerin wrote: “We don’t want to invite mockery for being too enthusiastically opposed to a deal she once championed, or over-claiming how bad it is, since it’s a very close call on the merits.”
At the start of the primary season, her advisers seemed more concerned about the reaction of organized labor, which opposed the agreement, than on whether she had the right policy. Clinton soon came out against the Trans-Pacific deal, having championed it as secretary of State.
Courting the unions caused hand-wringing in other instances, too, the e-mails disclose. Clinton’s advisers spent hours trying to fashion a tweet to recognize a union-organized day of protests in support of a $15 minimum wage, but without actually endorsing that demand.
The roots of this debate go back to studies by economist Alan Krueger, a Clinton adviser who argues that a $15 national minimum could result in job losses. As Clinton’s campaign tried to have it both ways, the dispute was one of the few times the e-mails show any consideration of academic research.
—Bloomberg