Placating a Pavement: How Wall Street Translated Economic Power into Political Power in the 1990s Christine Eggestad A Master’s Thesis Presented to The Department of Literature, Area Studies, and European Languages The Faculty of Humanities UNIVERSITY OF OSLO In partial fulfillment of the requirements for a Master’s Degree in American Studies Spring 2018 I II Placating a Pavement: How Wall Street Translated Economic Power into Political Power in the 1990s by Christine Eggestad III © Christine Eggestad 2018 Placating a Pavement: How Wall Street Translated Economic Power into Political Power in the 1990s Christine Eggestad http://www.duo.uio.no Print: Reprosentralen, University of Oslo IV V VI Abstract This Master’s thesis explores the question of how Wall Street, as a special interest group in American political life, was able to translate economic power into political power in the 1990s. The theoretical basis of the thesis is pluralism in policymaking – particularly biased pluralism: the observation that some groups in society have an amount of political influence that is disproportionate to their numbers. Moreover, the more recent body of scholarship in financialization theory serves as an important framework for this my analysis of the rise of Wall Street’s influence towards the end of the twentieth century. As opposed to explaining the U.S. financial sector’s increased political influence in terms of monetary capital and lobbying activity targeting the legislative branch, this thesis seeks to develop an understanding of the evolving relationship between the financial sector and the executive branch over the course of American history, and the ways in which the relationship between the two help shape economic policy within time-specific contexts. Importantly, the thesis attempt to explain how and why the most substantial and consequential financial deregulation efforts of the twentieth century occurred in the 1990s, under a Democratic administration. The thesis considers the extent of influence Wall Street has over regulation of the financial services industry as an indicator of how much political power the financial sector holds. To this end, I examine long-term structural changes in the U.S. economy, historical changes in the relationship between the federal government and the financial sector, the rise of financialization as a political, economic, and sociocultural process, the revolving door of between Wall Street and Washington that trade-specific expertise necessitates, and the emergence of a political ideology of self-regulating free markets that became hegemonic by the 1990s. Moreover, the thesis examines the relationship between President Clinton and his administration and advisors in order to understand why the most comprehensive and far- reaching financial deregulation efforts of the twentieth century occurred in the 1990s. A historical primary source-based method is used to analyze certain defining events in this decade that shaped President Clinton’s economic agenda and the administration’s relationship to the financial sector. The thesis sees the intersection of politics, economic and culture as a «structure» that shifts in time. The 1990s saw a structural shift, and it consequently shaped political conversations, conflicts, and policy-making during the Clinton presidency from 1993 to 2000. VII VIII Acknowledgements I would like to thank my advisor Mark Luccarelli for his patient and thoughtful guidance in writing this thesis. Without his encouragement and belief in my abilities, especially at times when I was filled with doubt and overwhelm, this work would not have come to fruition. Not only do I appreciate the time he invested in being my master’s thesis advisor, but also everything that he has taught me as a professor in various courses in American Studies at the University of Oslo since 2014. My deepest thanks to my family and loved ones for giving me time and space to complete this work, for distracting me from the work when needed, and for tolerating me at my worst during the stressful last three months. I am greatly indebted to Camilla Eggestad and Karoline Heien for reading drafts and providing feedback, to Elisabeth Lio Rosvold for being both my academic idol and my biggest cheerleader, and to Katinka Aaberge for camaraderie (in misery) over the past fifteen months of planning and writing our theses. Special thanks to the late, great Finn Erik Berg who always championed my academic aspirations, and who would have been a frustratingly active discussion partner on this topic. IX X Contents 1 Introduction ....................................................................................................................... 2 1.1 Topic ........................................................................................................................................ 2 1.2 Research Questions................................................................................................................. 3 1.3 Scope & Limitations ............................................................................................................... 4 1.4 Methodology & Sources ......................................................................................................... 5 1.5 Theoretical framework ........................................................................................................... 6 1.6 Thesis outline ........................................................................................................................ 17 2 The Evolution of the U.S. Banking System ................................................................... 20 2.1 Introduction to chapter ........................................................................................................ 20 2.2 From Bank Wars to a Federal Reserve System ................................................................. 21 2.3 Banks and Regulation .......................................................................................................... 32 2.4 Conclusion ............................................................................................................................. 38 3 From Bretton Woods to the Great Inflation ................................................................. 40 3.1 Introduction to chapter ........................................................................................................ 40 3.2 The U.S. in the World Economy .......................................................................................... 40 3.3 Bretton Woods and the Nixon Shock .................................................................................. 42 3.4 The Great Inflation ............................................................................................................... 44 3.5 The Transformation of Finance .......................................................................................... 46 3.6 Conclusion ............................................................................................................................. 49 4 Stories of the Roaring Nineties and the Placating of Wall Street ............................... 52 4.1 Introduction to chapter ........................................................................................................ 52 4.2 The Clinton Administration ................................................................................................ 54 4.3 When ‘Regulation’ Became a Bad Word ............................................................................ 68 4.4 Repealing Glass Steagall ...................................................................................................... 74 4.5 Conclusion ............................................................................................................................. 80 5 How Wall Street was able to translate economic power into political power in the 1990s ........................................................................................................................................ 82 5.1 Introduction to chapter ........................................................................................................ 82 5.2 Paradigm shifts ..................................................................................................................... 83 5.3 Finance on the Rise ............................................................................................................... 88 5.4 Different Forms of Capital ................................................................................................... 92 5.5 The Legacy of the Economic Experts of the 1990s .......................................................... 104 5.6 Conclusion ........................................................................................................................... 107 6 Conclusion ...................................................................................................................... 110 Bibliography ......................................................................................................................... 118 Primary Sources ........................................................................................................................... 118 Secondary Sources ........................................................................................................................ 120 Appendix A: List of abbreviations ....................................................................................