by Ken Feltman
Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement.
– Dan Quayle, former vice president of the United States and senator from Indiana
Should I complain about the relocation of the world’s financial capital? Personally, I stand to gain. Here in Washington, I make my living knowing how to push the levers of government to get things done. My life could become easier. Maybe this will save me trips to New York, the former financial capital. Other businesses are laying off employees and shuttering money-losing facilities. But with Washington becoming the financial as well as governmental capital, most lobbying and public relations firms report new clients and big assignments from existing clients.
Suddenly, financial institutions from around the world need to know what’s happening in Washington. Others are exploring setting up shop in Washington, just as they once rushed to Tokyo and London. They are spending lavishly, because they figure that they must protect their interests in the new financial capital of the world.
Washington a financial capital?
I know, I know: Some doubt that Washington is the world’s new financial capital. They look back. Years ago, the financial press was filled with articles saying that the financial capital of the world might be shifting from New York to Tokyo. Then Japan went into a financial funk. Next, some claimed that Frankfurt would become the “new New York.” Then came stories about Singapore. Those articles were overtaken by ones saying that London would become the new world financial center, and those articles were superceded quickly by stories that London was the new financial capital. Then it was Dubai in the news.
All the articles were wrong. London made a strong bid, especially with the resurrection of Canary Wharf and the rush to The City by thousands of bankers, brokers and investment managers. London was in a better time zone, more convenient to many investors, especially Middle Eastern and Asian investors. They like the London lifestyle. Changes in U.S. laws made many question listing securities on U.S. exchanges. Still, New York clung to the top in some reports while London was tops by other measures.
Unfortunately, Washington became the financial capital of the world when Congress and the Bush administration coordinated the bailout of financial institutions. This means that a different culture will now look over the shoulders of financial executives. The entrepreneurs who devised derivatives will have to please unimaginative bureaucrats who are given to making rules, not profits.
The clash of cultures is inevitable: The financial capital of the world has moved into a capital with existing procedures and emphasis on retroactive oversight, not forward-looking insight. Washington will not change to welcome this newcomer. The government practiced in Washington is not the kind familiar to most people – who are used to governments that accomplish things on a regular basis.
Washington drives orderly outsiders crazy. Just ask the Canadians, who know Washington well and shake their heads at Washington’s convoluted ways. Washington-based government is designed to slow down decision-making on the quaint theory that the best government is that government which governs least.
As the first of the hordes of bankers began to plop down in Washington in October, they struggled with the alien culture. For example, a week after Neel Kashkari became one of the most important people in town (as Interim Assistant Secretary of the Treasury for Financial Stability, in charge of the $700 billion Troubled Asset Relief Program), three European bankers came to Washington to meet with him. They were sure Kashkari would want to have their opinions on how their American operations were, somehow, different and unique – and deserving of special treatment.
Because a friend in Germany suggested they talk with him, they invited a lobbyist to have a drink with them just before they left to return home. They started off by telling him how large and important their financial institutions are; he knew that already. Adroitly and in turn, each told the lobbyist how important socially and in the financial world one of his traveling companions was; that was when the lobbyist learned that the bankers may never come to understand Washington. Here, a low-level bureaucrat can tie things in knots and no amount of family ties, old school ties, old money or new money can cut the Gordian knot.
Eventually, they confessed that they did not get an appointment with Kashkari. One of them knew Treasury Secretary Henry Paulson but despite stressing that fact to Kashkari’s assistant, and leaving messages with Paulson’s assistant, and despite having the chief executives of two of the largest financial institutions in New York call on their behalf, the bankers could not get an appointment.
Another of the three had attended Yale and talked about people he knew who might know President Bush. Bush would put Kashkari in his place, they were sure. They talked about high priced Washington lobbyists and lawyers who could help them because those lobbyists and lawyers “know everyone.” The lobbyist needed to hear no more. He saw the tragedy coming. He suggested that they needed to get to the airport but if they did not object, he would give them the benefit of his experience. He told them that the president does not schedule appointments for department and agency staff. In fact, very few high ranking officials in Washington exert scheduling influence over other officials, even those reporting to them. One of the bankers cleared his throat.
The lobbyist concluded: Often, the people who can help are personal friends or contacts of the government official, not someone above in the official hierarchy. Therefore, a network of friends at all levels is important because being effective in Washington does not depend on access to the top person so much as it requires access to the right person. They seemed grumpy as they got in the car. They said they would return soon.
The next morning, the call came that Kashkari was available that evening. But the bankers decided not to fly back to Washington.
His German friend later told the lobbyist that he had embarrassed the bankers. Still, they wondered if they could retain him. No, he said. He would wait for a client where the personal chemistry and chances of success are better.
The lobbyist never mentioned that he has Kashkari’s private mobile number in his mobile phone.
That’s how Washington works. This is a business of making friends, not enemies. Going up the chain of command makes enemies below. This is a business in which you must be available on a moment’s notice to make a meeting. You have no time to fly in.
Do we understand what is happening?
The financial world – especially the world centered in places like Tokyo, Frankfurt, London, Zurich, Brussels, São Paulo, Beijing, Mumbai, Moscow, Dubai and New York – needs to understand just how much has changed and how much is still left to change. Because Washington’s way is alien to their current way of doing business, the world’s financial communities will have rough sledding for a time. Eventually, they will adjust to Washington. Other places would accommodate the financial titans but Washington bureaucrats have no incentive to accommodate. The financial communities must accept that fact, not fight it as more than a few are already doing.
When the discussion was about Tokyo or London versus New York, I was not concerned. Wherever the financial hub was, the rest of the world would find it. Time zones would blur into computerized blips and the deals would continue. But Washington as the world’s leading center of finance and commerce? That is worrisome.
I know this town and I am worried. As you re-read Dan Quayle’s words, you should worry, too.