The original version of this column incorrectly said that Sen. Barack Obama (D-Ill.) voted for 2005 legislation making it more difficult for Americans to declare bankruptcy.
Wall Street Democrats vs. Main Street Democrats
Never let it be said that there's no difference between the two parties. On matters economic, the Republicans are almost invariably the party of major banks and corporations (though the current backlash against immigration is one of the rare instances in which the party's voting base has triumphed over its financial base). The Democrats, by contrast, are on matters of economics the party of -- well, not labor, as such. Not consumers, as such. The younger masters of the universe who work on Wall Street like as not are liberal on cultural issues and appalled at Republican foreign policy, though they're no fans of regulating capitalism. They give big-time to such Democrats as Barack Obama (who supported legislation moving class-action lawsuits from state to federal courts, a bill intended to reduce the size of jury awards in such lawsuits) and Chuck Schumer (who has opposed a fairer tax rate for hedge fund operators). The Democratic Party is their political home -- just as it is labor's.
The Democrats, in short, are the party of class conflict. Nowhere is that conflict clearer these days than in the efforts of Senate Democrats to designate the two new Democratic members of the Securities and Exchange Commission (the SEC has five members nominated by the president, three from the president's party, two from the opposition). One of two Democratic-held seats is newly vacant, and the other is expected to be vacant by year's end.
Largely behind the scenes, a battle has been raging between those Democratic groups that want to see the seats go to investors' advocates and the Wall Street Democrats who prefer new members who would keep the banks' and brokerages' concerns uppermost in mind.
Until the past few days, the two front-runners for the slots were Luis Aguilar and Yoon-Young Lee, both attorneys at Washington law firms.
Aguilar came to the United States from Cuba as a child and worked in a staff position at the Atlanta office of the SEC before becoming a private-sector securities lawyer. He has criticized the Sarbanes-Oxley Act, which stiffened financial reporting requirements on businesses in the wake of the Enron debacle, for what he termed its "burdensome cost imposed on corporate America."
Lee is a longtime attorney with WilmerHale, which is one of the financial industry's leading lobbyist law firms. She has written a number of letters to the SEC on behalf of clients, a list that includes Goldman Sachs, J.P. Morgan, Lehman Brothers, Merrill Lynch and Citigroup. On their behalf, she has petitioned the SEC to weaken the firewall between a firm's investment banking and research-analyst operations. "The notion that an analyst might have an incentive to influence a fund's investments via research is entirely remote," she wrote -- notwithstanding that this is precisely what happened in the Enron affair. In another such letter, she argued that rules requiring firms to disclose their procedures on research-analyst compensation -- that is, to make sure that analysts' pay wasn't linked to the value of the stocks they were appraising -- posed a "technological nightmare for broker-dealers."
Such arguments sent an understandable chill down the spines of investor groups, and late last week Lee's candidacy, which had been championed by Schumer, reportedly fell into disfavor among leading Senate Democrats. Aguilar's confirmation, however, is still considered likely.
The entire behind-the-scenes confirmation process still leaves some investor advocates uneasy. "The financial industry gets to vet the candidates," says Barbara Roper, the director of investor protection for the Consumer Federation of America. "They've been given this veto authority that's not helpful." Dan Pedrotty, who as director of the office of investment at the AFL-CIO looks out for the union pension funds that are among the largest investment pools on the planet, says that the Democratic appointees need "not just expertise in securities but a demonstrated track record of advocating for investors and for our members' funds."
The problem is that the drift of much of Wall Street toward the Democrats on noneconomic issues coincides with Wall Street's creation of inscrutable and unregulated investment devices that imperil the entire economy, as the current mortgage crisis makes painfully clear. On gay rights, say, the nouveau financiers are 21st-century progressives; on economic oversight, they are 1920s speculators, determined to keep their machinations free from public oversight. The decision the Senate Democrats make on their SEC appointees will be a good index of the relative strengths of the economically opposed forces within the party and may even foretell the balance of forces within a Hillary Clinton or Obama administration. If the financial industry prevails, it will also leave the Democrats having to answer an awkward question going into the 2008 elections: Why does America need two parties that represent Wall Street?