Wall Street Runs for Congress

Given its outsize role in our city, it is no surprise that Wall Street believes it should be entitled to its very own member of Congress. As our mayor likes to say these days, Wall Street is to New York what oil is to Texas.

And in Texas, everyone knows, the oil oligarchs get a fistful of congressmen, at least one senator, and usually the governor as well. Why should mighty Wall Street settle for any less?

In the past, this has not been a problem because elected representatives are usually persuaded to press whatever legislation the investment powerhouses say is in their immediate interest. The persuasion comes the old-fashioned way, via vast campaign donations. This is how New Deal–era financial safeguards came to be discarded a few years ago, replaced with anything-goes regulation.

Unfortunately, those changes almost wrecked the economy. Now that we are picking through the debris of that fiasco, it is harder for Wall Street to command the kind of political loyalty to which it has been accustomed. The same leaders (if you are not already, think Senator Charles Schumer here) who once insisted that we do best by giving Wall Street free rein are now siding with those like the Obama White House, who insist that new rules of the road are required.

This kind of ingratitude has some of the city’s biggest tycoons fuming and in search of replacement material. Schumer may be too big a target, given his own vast campaign coffers. But what better place to start teaching fickle friends a lesson than the old Silk Stocking congressional district of Manhattan’s East Side and western Queens?

This is where the titans of finance have embraced the insurgent candidacy of a young hedge fund lawyer against the veteran incumbent, Carolyn Maloney, who has apparently strayed from the true path of Wall Street advocacy.

Maloney, 64, has represented the district since 1993 and has long described herself as a supporter of the financial services industry. She proved this in 1999 when she went along with the push for new loosey-goosey banking rules, the ones that freed the industry to dig us into our current economic hole. But she went the other way on the money moguls last year when she championed reforms to rein in the Wild West of credit card abuses. Maloney railed against bankers who upped interest rates without warning, exacted hidden fees, and preyed on vulnerable credit-seekers, including the poor and the young.

Her legislation passed overwhelmingly, and President Obama hailed it as “common-sense reform.” Maloney took one of the pens Obama used for the bill signing back to her office and proudly mounted it in a frame. She also picked up the phone when a call came in from a contributor and banking magnate. “You’re legislating too much,” said the banker before hanging up.

A few months later, those on the losing side of the credit card fight began writing fat checks to Maloney’s newly minted Democratic primary opponent, a 34-year-old woman named Reshma Saujani.

The challenger has an impressive personal narrative: Her Indian immigrant parents were expelled from Uganda by the wretched Idi Amin. At high school in Chicago, she organized against discrimination after enduring schoolmates’ taunts. She won a master’s from Harvard and a law degree from Yale. She has worked at a top law firm and several investment funds, where, in between her corporate duties, she labored pro bono for endangered immigrants and on behalf of Democratic candidates. She also boasts the kind of brilliant smile and good looks that win votes in any campaign.

It all adds up to very promising potential, but is still pretty thin stuff for a would-be member of Congress with no notable claim to fame. Much of her pitch is aimed at younger voters and the district’s growing South Asian community. “You couldn’t have made a better district for me,” she said last week. But it’s her clarion defense of her investment colleagues that has drawn the most attention: “Congress needs to stop demonizing Wall Street,” she wrote in February on the Huffington Post. The candidate talks a lot about the need for “smart reform” of the finance industry. This is presumably as opposed to the other kind. Pressed for specifics, she said that, like Mayor Bloomberg, she doesn’t want to force banks to shed their profitable derivatives markets—the ones that spun out of control in 2008. She ducked a question about whether bonuses awarded by bailed-out banks should be taxed.

She is also vague about her employment history. Her official campaign biography mentions her work as an associate at Davis Polk & Wardwell, but cites only her admirable help for asylum seekers. And she lists only one of the three hedge funds where she worked, Fortress Investment Group.

Asked for a copy of her résumé, Saujani’s campaign initially refused. “People don’t typically ask for it,” said Saujani, who is promoting innovation and new ideas as a top campaign theme. After loud squawks were made, she relented. The résumé spells out her tasks at Davis Polk (defending securities fraud cases), and her later duties at two other hedge funds.

One of them was Carret Asset Management, where she was chief operating officer of a fund aimed at Indian investment. The fund was partly controlled by Hassan Nemazee, who pled guilty in March in Manhattan federal court to a decade-long Ponzi scheme in which he looted $292 million from banks. The money went for a yacht, a Maserati, a Cessna, vacation homes, and generous donations to a slew of Democratic candidates, including John Kerry’s 2004 presidential campaign, where he met Saujani.

“He wanted to do an Indian fund, and I was active in the South Asian community,” she said. She said she saw no signs of wrongdoing and pointed out that other Democrats, including Hillary Clinton and Maloney, were happy to accept campaign gifts from him in the past. She said she omitted mentioning her work for the fund on her campaign bio because “it wasn’t that important.”

Saujani also skipped over two years spent with the Carlyle Group, the global investment giant with interests ranging from defense contractors to nursing homes. She was associate general counsel for an affiliate, Carlyle–Blue Wave Partners Management, investing in mortgage-backed securities. The firm pulled the plug on the fund when the market collapsed in 2008.

Fortress Investment, where Saujani went next, has also had its headaches. The hedge fund caught reams of bad ink in 2007 when it was revealed to own a subprime mortgage lender that foreclosed on New Orleans homeowners who fell behind on their payments after Hurricane Katrina. She said she was “personally unaware” of the problem. “My work there was very valuable. I learned a lot. I was there when the world was blowing up,” she said, referring to the 2008 meltdown.

Her financial colleagues clearly believe the lessons took. Her campaign filings read like a Wall Street who’s who: There is Steven Rattner; Morgan Stanley’s John Mack; Goldman Sachs’ Gary Cohn. Saujani estimates that about one-third of the $800,000 she has raised has come from the financial industry. That’s a pretty hefty proportion, although a review suggests that the figure is closer to 40 percent.

Whatever the number, it’s a dramatic endorsement for a first-time candidate up against a veteran whose only apparent failing is to have offended the financial powers-that-be. Saujani counters that she has refused all PAC money, while Maloney has hauled in more than $500,000 from the committees. “Look,” she says, “Obama got $1 million from Goldman Sachs, and he’s been tough on Wall Street. People write checks for different reasons.” Including to send a message.

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