Banking Bailouts, AIPAC, & Structural Power in American Politics

A fun thing about being a student at a large research university is that smart people come and give talks with some regularity, and these talks are free to attend. This week’s noteworthy iteration of that phenomenon was a presentation by Pepper Culpepper (what a name) entitled, “Bank Bailouts and Structural Power in the UK and US.” In it he argued that the commonly understood narrative of the banking industry bailouts, in which the UK succeeded in imposing punitive terms on its banks while the United States graciously gave every institution generous handouts as a result of profound regulatory capture, is wrong. If regulators’ goals are (more properly) understood as effecting a bailout on terms that generate the best deal for taxpayers, then in fact the United States emerges as the country with regulators more capable of achieving them. Since American banks still do much of their business in the domestic market, they couldn’t afford to tell Hank Paulson where he could put it in response to Treasury’s desire to impose a bailout on all banking entities, whether they needed it or not. By comparison, HSBC in the UK was in relatively decent shape and generated much of its revenue from Asian markets, meaning it could realistically threaten to sue the British government if it was forced to take part in a bailout it didn’t want.* The result was in the United States a mandatory bailout on which the taxpayer ultimately made money, and in the United Kingdom a voluntary bailout on which the taxpayer ultimately lost money.

Culpepper uses this understanding of events to claim that while banks in the United States do possess to a substantial degree of what he terms instrumental power (that is, the ability to access and shape the regulatory process via lobbying), this instrumental power is in fact powerfully constricted in certain ways by the structural characteristics of the industry at large. In fact, while making this point he suggested more broadly that American political analysis suffers from an unhelpful propensity to view instrumental power (as channeled by things like campaign donations, lobbying, pressure groups, etc.) as all-powerful and from an unwillingness to consider the import of structural power.

As he made this (offhand, in the wider context of his lecture) comment, I hit on another area in which this analytical failure is unfortunately prominent – that of America’s relationship with Israel. First, it must be acknowledged that money in American politics does not come close to having a definitive effect on outcomes, a fact usefully illustrated by Eric Cantor’s surprising primary defeat this summer. Hysterical (from the left, at least) reactions to Citizens United notwithstanding, a model of American politics in which the Koch brothers nefariously fiddle a tune to which the rest of us can only helplessly dance just doesn’t seem to match reality all that well. Consequently, we should prima facie be skeptical of claims that American policy towards Israel is “skewed” by an otherwise unnatural allegiance to the policy preferences of rich Jewish donors like AIPAC. In fact, a point Jeffrey Goldberg (and Michael Oren) has never tired of making is that American politicians evince consistently strong support for Israel because American citizens do the same. In the same way that lamenting the supposed Wall Street-Washington coziness in the world forgets the fact that American banks must preserve their access to the domestic market at all costs, so to is a focus on AIPAC’s nebulous ability to (the way some people tell it) practically write policy for the White House entirely ignorant of the important structural factors (e.g. American public opinion) that delimit viable policy scenarios. Whether it’s banking bailouts or Middle East policy, we could all do with paying a little more attention to what actual choices are available to the actors in question, and a little less attention to the size of the checks they’re receiving and writing.

*In both cases the idea being that having to accept bailout money was a sign of instability and would provoke a run (either in the traditional sense or I suppose on the institution in question’s short-term commercial paper – see Bros., Lehman). As long as banks had discretion in whether or not to accept the bailout, doing so indicated weakness