Cohan: Whoever wins tomorrow must win over Wall Street
Plenty of Americans may feel that the antagonism between the two is useful -- and lord knows there have been times in recent history when the relationship between the power centers in Washington and New York City has been unbearably cozy. Yet the truth is that America functions best when Wall Street and Washington have a symbiotic -- rather than adversarial -- relationship.
So, whichever man wins, he should get to work immediately on improving the vibes between Washington and Wall Street. Here's how to do it, in three simple steps: First, don't pretend the problem doesn't exist. Yes, it is true that during the past four years Wall Street has benefited enormously under President Barack Obama -- from the trillions of dollars used to bail out failed firms to the doubling of the Standard & Poor's 500 Index since its 2009 nadir to the failure to put in place meaningful regulatory reform to the Federal Reserve's decision to keep interest rates low. Yet Wall Street doesn't see it that way, and the antipathy is palpable.
Fat Cats So while Obama may think it was only his one little televised comment about "fat-cat bankers" drawing huge bonuses during the fiscal meltdown, the anger persists.
And, while the shift to Romney has been stark -- Goldman Sachs Group Inc. and its employees were Obama's biggest supporter four years ago; those riches have mostly gone to the challenger this time -- it doesn't mean either side will forget the last four years should he win. The Dodd-Frank reform act remains the law of the land, banks remain under the (often heavy-lidded) eye of the watchdog agencies, and uber-capitalist Romney, one hopes, understands that markets won't function unless the people have faith in them being fair.
To put things on a new footing, I suggest a weekend retreat in early December to Camp David (if Obama wins), or to Bretton Woods, New Hampshire (if Romney wins), involving both sides' financial and policy gurus. I know it would be a painful and awkward gathering, especially if Obama is re-elected. Even a President Romney would have to figure out how to salve feelings bruised by the endless battles over how the new regulation of Wall Street will work.
What would they discuss at such a retreat? The other two items on my agenda.
One of which is that, while federal agencies need to quickly wrap up writing the rules called for under Dodd-Frank, the government should actually let Wall Street banks take more risk with their capital than Dodd-Frank law implies they should. In return, however, Washington should finally hold Wall Street fully accountable for its actions.
There are two ways to do that. One is to make the top 400 or so bankers, traders and executives at each Wall Street firm put their entire net worth at risk every day: their apartments, townhouses, weekend estates, art collections, investments and so on. Instead of letting the "fat cats" hide behind the corporate veil if something goes wrong, shareholders and creditors should be able to go after their personal assets when the ship sinks.
The government should allow the ships to sink, eliminating in word and deed the possibility of "too big to fail." Let every firm know that if it that gets into financial trouble it will be allowed to fail, even if it is deemed "systemically important." The combination of eliminating "too big to fail" and forcing Wall Street's brass to have their full net worth on the line every day will make Wall Street a much safer place than it has been in the past 40-plus years, since one Wall Street firm after another decided to transform from a small, private partnership into a big, publicly traded corporate behemoth.
Criminal Prosecutions The third step for the new president is to immediately order federal agencies to criminally prosecute those Wall Street bankers, traders and executives whose malfeasance caused the financial crisis. I know the flame has gone out on this front -- the Feds even failed to convict the two Bear Stearns & Co. hedge-fund honchos who were the canaries on the financial crisis coal mine, and even that got tossed on appeal -- but confidence in the capital markets won't be fully restored until the people who made a fortune bringing down the economy are held responsible.
It may be counterintuitive to think that the rift between Wall Street and Washington can be repaired by reopening this wound -- but I believe those running Wall Street firms, now and in the future, will appreciate the fact that there will be legal accountability for bad behavior. After the savings-and-loan crisis 25 years ago, some 3,500 bankers, traders and executives were criminally prosecuted and put in jail.
Like it or not, Wall Street is the left ventricle of global capitalism, and until the damage in it is repaired, the patient's heart won't pump at full strength. Rather, the economy will remain extremely vulnerable to cardiac arrest.
William D. Cohan, the author of "Money and Power: How Goldman Sachs Came to Rule the World," is a Bloomberg View columnist.