Wall Street

Tontine Building, Wall Street, NY, 1797 (n.d.) | George Hayward / Smithsonian American Art Museum / CC0

In 1933, Ferdinand Pecora, newly appointed Chief Counsel to the Senate Banking and Currency Committee, subpoenaed Charles Mitchell, president of National City Bank (now Citibank). Pecora, a cigar-smoking second-generation Italian immigrant, was a “happy discovery” for the committee: his incisive grilling, which forced Mitchell and then a catalog of other Wall Street tycoons to admit to the litany of irresponsible banking practices that had crashed the economy in 1929, made daily headlines and earned him the title “Hellhound of Wall Street.”

Roosevelt egged him on. Pecora’s dramatic cross-examinations provided the ammunition that the president needed to claim, in his inaugural address, that the “practices of the unscrupulous money changers stand indicted in the court of public opinion,” paving the way for the sweeping financial reforms of the New Deal. 

In Busting the Bankers’ Club: Finance for the Rest of Us (University of California Press, 2024), Gerald Epstein investigates what went so wrong in the decades that followed—”the ones that replaced “boring banking” with “roaring banking.” His short answer is the “bankers club”: financiers and the lawyers, politicians, and regulators who do their bidding. Most of the book is dedicated to exposing, in fine detail, the anatomy of this club and its stranglehold over American democracy.

Epstein, a professor of economics at University of Massachusetts Amherst and longtime advocate for financial reform, points to the 1930s as a brief moment of political freedom vis-à-vis American finance. The bankers were not only disgraced: in the absence of a bailout, they were also economically ruined, and in no fit state to fight back, despite calls from Richard Whitney, president of the New York Stock Exchange, for a capital strike if the legislation was passed. (Whitney was later convicted of embezzlement). Roosevelt moved quickly: in a matter of months, the Securities Act and Banking Act had both passed, separating services provided to ordinary people and businesses from risky investment activities, curbing excessive speculation by regulating the sale of stocks and bonds, and creating the Federal Deposit Insurance Corporation. These reforms ushered in a brief period of “3-6-3” banking. In Epstein’s words: “Bankers paid depositors 3 percent, lent out the money at 6 percent, and got to the golf course by three in the afternoon. Boring work, pretty good profits, but great golf.” 

Borrowing from legal scholar Mehrsa Baradaran, Epstein suggests this involved a kind of social contract: in exchange for government support and backstopping of the financial sector, banks would serve public “missions.” Today, Epstein suggests, only half of that contract remains. The government and Fed bail out the banks (and, more recently, the asset managers) with little expectation that the financial sector will prioritize basic social functions.

Epstein lays out clearly and thoroughly the channels through which the club’s tentacles have been allowed to reach into the democratic apparatus, including, unsurprisingly, the “revolving door” between politics and finance and funding of political candidates. Although Epstein limits his study to the United States, his survey mirrors findings across the Atlantic by the nonprofit campaign group Positive Money (my former employer): close to a third of UK Treasury minister meetings in 2020 and 2021 were with the financial sector and its lobbyists, and every single former Chancellor of the Exchequer has gone on to take up a position in the financial sector after leaving public office.

Harder to measure, but no less crucial, is Epstein’s identification of the intellectual “capture” of both the academy and policymaking institutions ”their infiltration by financial interests and the economic paradigms that prop them up. The finance giants have successfully positioned themselves not only as the most efficient engines of growth and prosperity but also, in recent times, as the only possible funders of social transformation—including the energy transition and the “development” of the Global South. 

This “Wall Street Consensus,” as well as the 2008 crisis mantra that major banks are “too big to fail,” epitomizes the suppression of political imagination that pervades the economics discipline and underpins contemporary parrotings of Margaret Thatcher’s claim that there is “no alternative” to neoliberalism. Epstein argues convincingly that “the threat of a bankers’ strike, a bankers’ exit” is the “ultimate ‘club’ that the bankers hold over our heads.”

Although Epstein says from the outset that “our financial problems will not be resolved by a simple return to the New Deal mission-guided financial system,” his proposals—which include reining in speculation and promoting public banking—look suspiciously FDR—esque. Despite acknowledging that, for instance, the New Deal was also the age of redlining and racial segregation, he seems to accept relatively unquestioningly the framing of post-war Keynesianism as a “Golden Age” of capitalism in which the state and “good” productive industrialists were protected from reckless speculators. 

But it is not so simple to draw a clean line between the state, industry, and financial capital. These are deeply entwined in what Daniela Gabor has called “macrofinancial regimes,” in which monetary, fiscal, and financial institutions coalesce to allocate credit towards certain parts of the economy. As Steve Maher and Scott Aquanno point out in a recent book, the New Deal reforms in fact blurred the distinctions further, setting in motion dynamics that would enable Thatcher’s deregulatory explosion (or “Big Bang”). For instance, it was the attempt to separate finance and industry that caused post-war military-industrial conglomerates to internalize various financial functions, including the ability to raise and lend capital, turning corporate managers into the new financiers. 

Interestingly, Epstein reflects on his earlier position “that corruption was a ‘bug’ not a ‘feature’” of the financial system,” admitting: “I now think that … I was wrong.” But the prior question of whether financialization itself is a “bug” or a “feature” of capitalism is left unexplored.

Nevertheless, peppered with colorful metaphors and anecdotes, Busting the Bankers’ Club is a practical and valuable resource for campaigners, journalists, policymakers, and anyone interested in the mechanics of Wall Street’s influence on key institutions of American democracy.