The Payoff: Why Wall Street Always Wins

The Wall Street crash of 1929 - 1933 that precipitated and exacerbated the Great Depression led to a series of stringent financial regulations. The S&L crisis of the 1980s resulted in the prosecutions of hundreds of executives. What has been called the Great Recession of 2008 has, 4 years later, resulted in neither regulations nor prosecutions, despite a self-professed reformist president being elected in 2008 by an electorate demanding reforms. In Jeff Connaughton's new book, The Payoff - Why Wall Street Always Wins, we get an insider's perspective as to why even common-sense, highly popular reforms aren't enacted: "In Washington, only the Wall Street lobby is concerned about fraud investigations. And their concern is to prevent them."For more than 2 decades, Connaughton spent time in Washington as part of the Permanent Class, both within government and as a lobbyist. Tying himself to Senator (and now Vice President) Joe Biden, he used that relationship to make millions as a lobbyist. While technically a Democrat, as a lobbyist Connaughton was indifferent to the politics of his clients. "The rest of the country may be divided into red and blue, but DC is green, and cheerfully so."When Biden became Vice President, his senate seat was filled by Ted Kaufman, who immediately declared that he wasn't going to seek a 2nd term. "I later learned from reporters that Wall Street was frustrated that they couldn't find a way to harness Ted, because he wasn't running for re-election" said Connaughton, brought on board as Kaufman's Chief of Staff. Both Kaufman and Connaughton vowed that they'd spend their two years "fighting for accountability for the financial crisis...to ensure there would never be another one."Yet after 2 years, Connaughton admits failure and predicts another crisis: "There have been no high-profile prosecutions...the stock market has become even more dominated by computer-driven trading, too-big-to-fail banks continue to act lawlessly...and regulatory reforms are being written with the help of Wall Street lawyers." Why is this? How did the biggest financial catastrophe in more than 60 years change nothing? People looking for a smoking gun will be disappointed. "It's not a tale of bags filled with cash and quid pro quos." Then what is it?Simple self-interest: "Party cohesion and the desire to make a munificent living go a long way to enforce silence" and conformity, says Connaughton. Politicians don't represent the voters, they represent themselves. The simple fact is that of all a politician's constituents, corporate interests are best able to guarantee a payoff: Money now, to stay in power, and money later, with a career as a lobbyist or other special interest. Few are willing to "burn every bridge...set flame to the ship that would take me back there," as Connaughton has done.Politicians are supposed to represent us, the voter, but don't. But why should this be shocking? In private enterprise, employees are supposed to represent their customers. Be in business long enough, though, and you know how often we compromise our dedication to customers. When exploring how something as horrible like Auschwitz could occur, Theodor Adorno found, "One pursues one's own advantage before all else and, simply not to endanger oneself, does not talk too much." If this describes our corporate culture, it surely describes our political culture as well. (I discuss the corporate culture here.)This book isn't as well written as something we might see from Michael Lewis. It's a bit dry, and in some parts it seems most concerned with settling scores (Biden comes off as thoroughly unlikable). But for anyone interested in understanding how nothing substantive has changed on Wall Street over the past 4 years, this book is a must read. As Justice Souter has said, "What I worry about is that when problems are not addressed, people will not know who is responsible, and when the problems get bad enough - as they might do with another financial meltdown - some person will come forward and say: 'Give me total power and I will solve this problem.'" The antidote to ignorance starts with knowledge, and The Payoff is a great place to start learning.

Jeff Connaughton's book, The Pay Off: Why Wall Street Always Win is an important addition to our understanding of the interplay between politics and finance. Most readers are probably aware of the long and tortured process involved in the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Mr. Connaughton brings context to this legislation, as well as the battle over regulating high frequency trading (HFT) and the investigation of Wall Street executives by the Department of Justice and the SEC in the wake of the credit crisis. He doesn't just discuss the shortcomings of Dodd-Frank, the delays in the SEC's response to HFT, or the failings of the US Department of Justice. Rather, he places these events within the context of his career, which brings the book alive.The background about his work for then Senator Biden, his stint in the Clinton White House and years of lobbying at Arnold and Porter and Quinn Gillespie & Associates help to explain why it was so difficult for Senator Kaufmann and Mr. Connaughton as the Senator's chief of staff to make a lot of substantive progress bringing about rigorous reform of Wall Street in 2009-2010. Over the past several decades, thousands of Jeff Connaughtons have been drawn to Washington D.C. with the idea of performing public service. Mr. Connaughton's book shows how that idealism is slowly transformed into the business of bending legislation and regulation to benefit the interests of the powerful, most especially Wall Street. There's a sad irony throughout the book because Senator Kaufmann and Mr. Connaughton wind up battling the very system they helped to create.At times Mr. Connaughton paints a pretty ugly picture of the inner workings of Washington, but his story rings true. K Street and Wall Street are two very seductive places. The author is honest enough to tell us that the power and the money seduced him. There aren't too many people in Washington or Wall Street willing to make those kinds of admissions.I suppose critics will charge that Mr. Connaughton should have recognized the corrupting influence of money and politics much earlier, and headed for Savannah, Georgia, his current home, ten or fifteen years ago. They may also be put off because Mr. Connaughton only wrote his story after attaining a level of financial security. Without the author's lengthy stint in Washington, we would not have this story. Mr. Connaughton would have just been one more analyst or associate working behind the scenes in government or a lobbying firm without direct access to the policymakers and politicians. And, we wouldn't be privy to the details that give meaning to the uphill battle for financial reform.Anyone who wants to understand how their government operates and how their bank or brokerage firm maintains it position of privilege should put this book on their reading list. The Payoff: Why Wall Street Always Wins

It is highly unusual to read a book, particularly one dealing with power -political and financial - written by such an insider. It is beautifully written, with a compelling narrative, even if one which gives more reason for pessimism than optimism about the American political system with which it deals. Jeff Connaughton is both courageous and intelligent, and his book is a must-read.

Too sad that it is so true. How much will it take for another revolution à la Lenin? Why did occupy Wall Street vanish?

Well written and a clear explanation of why democracy is failing in America. From the perspective of someone who has seen the system from both "sides".

and it was a perfect decision... all students of economics should read this to understand,that "securitization of debt" simply means fraud !

A fascinating glimpse inside the Beltway written by a former insider. Full of villains ( Joe Biden ) and even a few heroes ( Ted Kauffman ).