The Big Split

In May 2007, when Barack Obama was but an upstart challenger of Hillary Clinton, he attended a gathering of several dozen hedge fund managers hosted by Goldman Sachs at the Museum of Modern Art in New York. It was not a fund-raiser, just a chance for Obama to introduce himself to the investment wizards who had helped turn the hedge fund sector into the most lucrative and alluring corner of the financial universe. And the first question for Obama was as blunt as one would expect from this crowd. “If you’re elected president,” asked one guest, “what will you do to the taxes on the people in this room?” “I’ll raise them,” Obama fired back. “Which I admired,” recalls one of the attendees, Leon Cooperman, head of Omega Advisors. “And half the guys in that room voted for him.”

Obama surely knew that brusque candor would serve him well. He had gone to college and law school with these hyper-successful types and had raised money from some of them for his 2004 Senate run. He proceeded to rake in large sums from them for his presidential effort—$1.5 million, more than double John McCain’s take. This was in part because savvy investors like to pick winners, and, as the race developed, Obama’s campaign looked like a winner. But many fund managers also felt a personal connection with Obama. Just as they had carved out a successful niche within finance by thinking big and against the grain, Obama had risen by promising to transcend conventional bounds of race and politics. “They loved the guy,” says a Washington lobbyist who has represented the hedge fund industry. “He was an exciting, bright guy—like they are. He went to the best schools because he was the best student, not because daddy got him in there. Many of them are the first generation to have wealth, and they view it from a meritocratic standpoint—they made a phenomenal amount of wealth and they feel they earned it. They felt that he’s earned his success as well. It resonated with them.”

Four years later, that bond is broken. The hedge fund community has overwhelmingly shifted its backing to the Republicans: Mitt Romney has so far outraised Obama by a four-to-one ratio among hedge fund employees, pulling in more than $500,000—not to mention the seven-figure checks his super PAC has received from several top fund managers.

It makes sense that Obama would lose support from traditional Wall Street. The banks feel aggrieved at having been singled out for blame for the financial collapse—above all in the Dodd-Frank law, which is already crimping their profits. But Obama’s deep unpopularity in the hedge fund world is harder to figure. For one thing, hedge funds may actually benefit from Dodd-Frank. They will have to register more information with regulators—a departure for an industry defined since its beginnings in the late 1940s by its exemption from oversight—but they could also get new business as a result of restrictions on proprietary trading by banks. For another, while the hedge fund sector has shrunk since the crash, the top 40 managers still made $13.2 billion combined last year. And yet, the antipathy that many fund managers are now exhibiting toward Obama is more intense even than what he is facing from bankers. “They hate him now,” says one former Obama administration official.

Trying to trace this shift of support leads one deep into the collective mindset of an industry that defined pre-crash America like no other—into a complex web of motivations where political philosophy, self-interest, and ego intersect. The lobbyist, for one, chalks it up to a romance gone bad. “A lot of people’s love of Obama was not completely balanced, and their dislike of him now is not completely balanced,” he says. “Maybe that’s what happens when you fall in love.” Bill Daley, who served as Obama’s chief of staff last year, attributed the hedge funders’ change of heart to a failed “leap of faith.” “The 2008 campaign was something that a lot of people who had traditionally not been supportive of a Democratic candidate came to,” he told me. “They were tired of Bush and nobody was really enthusiastic about McCain, ... so they attached to the president. What he said in the campaign wasn’t that dramatically different than what he ended up doing, but they either didn’t listen, or they didn’t believe him.”

Omega’s Cooperman (who wound up backing McCain in 2008) put the shift in more caustic terms. Many of his fellow masters of the universe had been snookered by Obama, he argues. Obama’s election “was wonderful for the minority and black population, but in my opinion he’s been the worst president in history.” He added that a mantra has been making the rounds among fund managers lately: “If you voted for Obama in 2008 to prove you’re not a racist, don’t vote for Obama in 2012 to prove you’re not an idiot.” The more people in the hedge fund world whom I talked to, the more visceral critiques that I heard, the more I began to suspect that what had happened was not purely rational. The revolt of the hedge funders, it turns out, is a phenomenon that goes deeper than finance or politics.
 

THE FIRST HEDGE FUND manager to break very publicly with Obama was Clifford Asness, the holder of a doctorate in economics from the University of Chicago who, to the dismay of his professors, quit a promising career in academia and went on to found AQR Capital Management, a fund that manages $16 billion. Asness leans libertarian, but gave generously to the Democrats in 2006 and 2008, including a maximum personal donation of $2,300 to Obama. But, just months into Obama’s presidency, Asness flipped—hard. After Obama chastised hedge funds for refusing the administration’s offer to Chrysler bondholders as part of the auto industry bailout, Asness fired off a testosterone-fueled public letter in early May 2009 attacking Obama’s “backwards and libelous” remarks. “This is America,” he wrote. “We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.”

Last July, a Rutgers business professor spotted Asness dining with Republican Representative Paul Ryan at Bistro Bis on Capitol Hill. The professor, Susan Feinberg, couldn’t resist going over to their table and asking Ryan how he could reconcile ordering two $350 bottles of Pinot Noir at a time when he was proposing to slash safety-net spending. Ryan mumbled a response—“Is that how much it was?”—but Asness tore into Feinberg, capping his rant with a “fuck her.” “He seemed genuinely pissed off,” Feinberg told me. “He started keying up the rhetoric—‘You go and tell your liberal friends ... .’ Doing that thing where you point your finger really hard.” Asness remains aligned with the left on social issues—last year, he gave heavily to the gay marriage cause in New York. But, otherwise, he has shifted his political giving entirely to the right, including a $30,800 check to the Republican National Committee in October.

Given Asness’s libertarian leanings, perhaps it was inevitable that Obama would eventually arouse his ire. But the president has also fallen out of favor with hedge funders with whom he has a more personal connection. Take Ken Griffin, who runs the Chicago-based Citadel, a behemoth with hundreds of employees and more than $12 billion under management. Griffin was the ultimate wunderkind. He was still a teenager when he started a stock-trading partnership with a computer salesman in Boca Raton—a man whom his mother had asked to tutor Griffin on his new PC—and he set up a satellite dish atop his Harvard dorm to keep trading there. “He’s way smarter than [Mark] Zuckerberg,” the former salesman, Rush Simonson, told me. Over the years, Griffin had established himself as a major figure on the Chicago scene—among other things, he and his wife donated $19 million for a new wing at the Art Institute of Chicago (and Griffin plunked down $80 million for a Jasper Johns of his own). He played both sides politically, but, when his state’s new senator decided to run for president, Griffin’s hometown pride kicked in. He invited Obama to speak to Citadel employees and raised tens of thousands of dollars for him. (As you might expect, he also hedged his bets by raising some money for McCain.)

But, after Obama took office, the Chicago bond began to fray. Griffin, whose funds had taken a beating in the financial collapse, testified in favor of the rules in the Dodd-Frank bill intended to make derivatives trading more transparent. But Citadel also lobbied heavily against the Democrats’ efforts to close tax loopholes benefiting private-equity firms and hedge funds. In the last two years, Griffin and his wife have given $800,000 to American Crossroads, the super PAC co-founded by Karl Rove, and, in December, he gave $100,000 to the super PAC supporting Romney. His hometown ties have kept him loyal to one Democrat—Rahm Emanuel, whose mayoral campaign received $200,000 from the Griffins. But he lambasted Obama in a recent interview with the Chicago Tribune in which he said that the country was drifting toward Soviet-style central planning, that the administration had “embraced class warfare” as a “political tool,” and that wealthy people have “insufficient influence” in politics. “Those who have enjoyed the benefits of our system more than ever now owe a duty to protect the system that has created the greatest nation on this planet,” Griffin said.

The sharpest turn of all belongs to Dan Loeb, the head of Third Point, a $9 billion Midtown fund. Loeb is a Santa Monica native and a dedicated surfer and yogi, but he runs his fund with the opposite of California chill. Third Point is known for activist investing—seeking to reform management in companies it takes a stake in—and Loeb is notorious for his lacerating critiques of corporate leaders. He’s also picked fights with other fund managers—including Griffin, whom he accused of poaching rival employees in a 2005 e-mail that concluded: “Good luck extracting exorbitant management fees and generating mediocre returns with your bloated organization and ego.” (They later reconciled when Loeb sent Griffin a diet and exercise book.)

Politically, Loeb was a standard-issue Wall Street Democrat. He serves on the board of Third Way, the centrist Democratic group; he is a contributor to Michelle Rhee’s education reform organization and sits on the board of a network of three new charter schools in Brooklyn; and his wife is active in the abortion-rights movement. In 2008, he raised between $100,000 and $200,000 for Obama, his fellow 1983 Columbia graduate. He came to Washington for the inauguration and was still within the fold in late 2009, when, visitor logs show, he visited the White House with other Third Way board members to chat with Ron Klain, then Joe Biden’s chief of staff, and to catch up with his old friend Rahm Emanuel.

But Loeb cut loose in the summer of 2010, blasting the administration in his quarterly letter to investors. The Securities and Exchange Commission’s action against Goldman Sachs, he wrote, was “designed to fracture the populace by pulling power and capital from the hands of some and putting it in the hands of others.” Obama’s push to raise taxes on fund managers sent a “vivid message that this Administration is operating from a playbook quite different from the one we are used to as American business people; a thought that chills all participants in these free markets.” The language got more personal in last summer’s investor letter, issued during the debt-ceiling showdown: “There has been much said about who is allegedly ‘the adult in the room,’ but President Obama has yet to speak to Americans as adults, insisting instead on his preferred technique—stirring up class warfare.” Loeb remains on the board of Third Way, and he also gave to the New York gay marriage effort. But, since 2010, he has given more than $60,000 to the Republican Senatorial Campaign Committee and $50,000 to Crossroads.

NEITHER ASNESS nor Griffin nor Loeb would speak to me about their turn against Obama. But it wasn’t hard to find people to expound on the shift, because I was far from the only one puzzling over it. Several former administration officials with ties to the financial community told me that the decaying relationship between Obama and the masters of the universe had been the bane of their existence. “I should’ve gotten paid by the hour to hear these people whine,” says one, whom I’ll call “Former Official A.”

I started out by taking a closer look at the economic policies that had apparently ignited the hedge funders’ outrage. Former Official A told me that things began to turn south not long after Obama began his term, in the spring of 2009. There was the showdown over the Chrysler bailout, when Obama pressed the company’s bondholders to take a major haircut. And there was the president’s decision to push forward with ambitious plans for health care reform and energy and climate legislation. For fund managers who’d suffered big losses, this seemed an indulgent diversion from the task of fixing the economy. It didn’t help that, to the extent that the White House was focused on this task, it wasn’t making the fund managers feel part of the effort. Another former administration official—“Former Official B”—recalled a “big hedge fund supporter of ours, really thoughtful, very knowledgeable on the issues” who had produced a white paper on the housing crisis and given it to Larry Summers’s office. But, when the hedge fund manager came to the White House on another matter, he discovered that Summers’s team hadn’t bothered to look at the paper. “It was that sort of ‘We know better than you,’” says Former Official B. “The manager was just like, ‘Ah, forget it’”—and has since cooled in his support.

The first big confrontation came over taxes. Obama had campaigned on raising the top marginal rates back to Clinton-era levels and increasing the 15 percent tax on capital gains. The fault line that emerged was over the treatment of carried interest, the “hedge fund loophole,” which allowed partners in investment firms to have their compensation—typically, a 20 percent cut of profits—taxed at the 15 percent capital gains rate instead of the 35 percent top rate for ordinary income.

Despite its name, the loophole benefited private-equity partners more than most hedge fund managers, who often trade on too short-term a basis to qualify for it. But hedge funds and private-equity firms alike bucked as it became clear that Congress was intent on closing the loophole in such a way that would hit all of them in a place that hurt: their profits, should they decide to sell stakes in their firm. Tax reformers had worried that, if the loophole was closed, managers would respond by selling shares in their firms to a third party. The money they gained from the sale—essentially, up-front payment for the firm’s expected cut of investment gains—would be taxed at a lower rate as capital gains. In order to prevent one loophole being replaced by another, the emerging legislation would tax part of the sale of a stake in a firm at the much higher rate for ordinary income.

To many fund managers, this approach, which they dubbed the “enterprise value tax,” was pure expropriation: They had built their firms from scratch and felt they deserved to have any sale taxed as capital gains. In his letter in 2010, Loeb declared the proposal an “arguably unconstitutional Bill of Attainder.” The lobbyist who has represented hedge funds says: “The biggest thing that’s infuriating to the hedge fund industry—the single biggest thing—is this enterprise-value tax. They feel they’ve been singled out. ... [It] is what they’re metaphysically upset about.”

To the dwindling number of hedge fund managers still sympathetic to Obama, the tax rebellion was dismaying. “People have different perspectives, but my own view is that, for those who have been lucky in life, it’s not appropriate to vote for president based on what he would do for your business and your income,” says Boston Provident’s Orin Kramer, Obama’s chief fund-raiser in the hedge fund world. “It’s such a crock,” says a former fund manager who is supporting Obama. “I’ve pocketed millions from my profits being taxed at fifteen percent.”

By 2011, the tax issue had become entwined in many fund managers’ minds with the fiscal crisis. At a hedge fund conference in Las Vegas in May 2011, Griffin appeared on a panel with Obama adviser David Axelrod and lashed out at the rising national debt. “The embracing of the Democrats [in 2008] was a hope, a wish, to return to the policies of President Clinton,” Griffin said. “The frustration,” he went on, was that Obama had magnified Bush-era spending by “some multiples,” which was making fund managers “greatly concerned about the fiscal instability of the U.S.” Axelrod explained that the recession had forced the administration to spend more than it liked, but Griffin shot back: “We acknowledge the challenges that you inherited,” but “the very defensive rhetoric that comes back implies that you are not listening.” Ezra Mager of Torrey Funds, who remains supportive of Obama, told me this was a common refrain among his fellow fund managers, who view the debt as “a huge goddamned number” and believe Obama has shown that “he is not the one to solve that problem.”

This is where the hedge funders’ policy criticisms begin to make less sense. Surely such sharp economic minds understood the need for counter-cyclical spending in a downturn? And, if they were really so worried about deficits, why were so many of them incensed about proposals to raise their taxes? A senior partner at a Midtown fund had a simple explanation. “Their whole life is wrapped up in their money and their whole identity is in their money,” he says. “If someone takes five percent more of your money this year, it’s directly attacking your manhood. They really want to maximize their net worth, and, if you’re taking five percent more out of their profits, they’ve got to do ten more good trades to get it back.” Daley, who worked for J.P. Morgan Chase before coming to Obama’s White House, notes that, for many managers, tax hikes mean losing huge amounts of money. “Do not underestimate the impact [the carried-interest proposal] has made,” he says. “If you make four billion dollars, the difference between fifteen percent and thirty-five percent is a big deal.”

More often, though, as Mager told me, fund managers did not mind being asked to pay more—they just didn’t like being held up as the primary revenue target. (In truth, closing the hedge fund loophole will raise only a tiny fraction of the budget shortfall; raising the capital gains rate or the top marginal rates on ordinary income will raise a whole lot more, but still less than what’s needed.) “If [Obama] simply said, ‘We’re in a difficult environment and all of us have to pay more,’ I’d sign on one hundred percent,” says Omega’s Cooperman. “Rather than trying to create a sense of equal opportunity, he’s shitting on people who are successful. ... He creates this impression that wealthy people don’t pay taxes. Who the fuck doesn’t pay taxes?”

I heard this complaint about Obama’s rhetoric over and over. To really understand why Obama had lost the hedge funders, I realized I needed to focus less on what he was saying than on how he was saying it.

FORMER OFFICIAL A says the problems started early, with the “narrative” of the financial collapse. The fund managers, he says, wanted Obama to approach the crash the way he had his 2008 speech on race: “This is what they liked about him. He said, ‘History is history,’ he described the history, and said, ‘Let’s move on.’ A good speech [on the crash] in their mind was, ‘We all screwed up, everyone had a hand in creating this mess, ... but this is not a time to cast blame, blah blah blah.’ Instead, in their view, Obama told a different story, a counter-narrative that this problem originated basically in Manhattan ... and painted a story in which they were the bad guys.”

This was particularly offensive to the hedge fund managers, because they saw themselves as far less culpable than the bailed-out banks and subprime lenders. At the same time, the managers were absorbing the anti-administration sentiments coming from the bankers they dealt with in the course of their trading. “It was all sort of a self-reinforcing machismo,” says the former hedge fund manager supporting Obama. “I’d say, ‘Have you guys been listening to Rush Limbaugh? Where are you getting this stuff?’”

In December 2009 came Obama’s flip remark that he “did not run for office to be helping out a bunch of fat-cat bankers on Wall Street.” It was a transparent attempt to acknowledge the furor about the latest round of big bonuses at bailed-out banks. But, even though it referred to bankers, fund managers took offense. “I might be a fat guy, but I am not a fat cat,” Asness huffed in 2010. The managers weren’t inclined to interpret the comments as just part of a calibrated political balancing act. Says a former Democratic fund-raiser: “What Obama didn’t understand was that he couldn’t play an inside-outside game—tell them on the one hand, ‘We don’t hate you, but the politics are what the politics are.’ ... These people really freaked out about being villainized.” Kramer, Obama’s chief ally among the managers, observed drily, “There are people in the world of finance who have a limited understanding of the national mood.”

Former Official A hoped Obama would strike a more conciliatory note when he signed the Dodd-Frank bill in July 2010. But, instead, the White House political team settled on the usual themes. The finance chieftains “were waiting for him to send some signal that he was over it,” says Former Official A. “Instead it was more of ‘these guys are bad guys.’” After that came the debt-ceiling showdown of 2011, when Obama built his argument for raising revenue around ending the hedge fund loophole and the tax break for corporate jets.

By this point in the first term, there was recognition that rhetoric like “fat-cat bankers” had done real damage. Administration officials received talking points for how to discuss Wall Street and wealth, according to one businessman with ties to the White House. But alarm bells clanged again when Obama spoke out against Bank of America’s new $5 monthly fee in early October, in the middle of the Occupy Wall Street protests. “You don’t have some inherent right just to, you know, get a certain amount of profit if your customers are being mistreated,” Obama said. This, recalls Former Official A, “set everyone ablaze again. They said, ‘The spinmeisters had it covered up, but then he took the mask off.’” Put it all together, the former official says, and it’s a body of quotes that financial titans can rattle off like a baseball lineup. “They have unbelievable memories,” he explains. “They remember every phrase he ever said that’s given comfort to the rabble.” 

I FOUND IT hard to fathom that such enormously successful men could really have such thin skins. After all, Obama’s harsher criticisms of Wall Street had, in reality, been rare. In fact, countless critics on his left had pleaded with him to strike a more populist tone toward Wall Street and attributed the Democratic wipeout in the 2010 midterms partly to his failure to do so.

To get to the bottom of this contradiction, I did some reading—from Loeb’s recommended list. The books that “everybody has to read,” he told an audience at New York’s Jewish Enrichment Center in 2009, included several tomes on investing, but also two others that stood out from the mix. One is Reminiscences of a Stock Operator, Edwin Lefèvre’s 1923 novelization of the life of Jesse Livermore, a legendary investor who got his start as a teenager picking stocks in “bucket shops.” (He later lost most of his fortune and ended up committing suicide in 1940.) To modern hedge fund managers, the Livermore character, the book’s first-person narrator, is their idealized precursor, who by his brilliance and gumption manages to thrive on the volatility that overwhelms weaker men: “If the unusual never happened there would be no difference in people and then there wouldn’t be any fun in life.” Livermore couples this exceptionalism with a forthright claim to just rewards for the exceptional: “When a man is right he wants to get all that is coming to him for being right.”

The other book that stood out on Loeb’s list was more surprising to me—The Power of Story, a self-help tract by a sports psychologist named Jim Loehr. Loehr counsels that the key to success is telling ourselves the right story of our own lives. “Since our destiny follows our stories, it’s imperative that we do everything in our power to get our stories right,” Loehr writes. “To edit a dysfunctional story, you must first identify it. To do that, you must answer the question: In which important areas of my life is it clear that I cannot achieve my goals with the story I’ve got? Only after confronting and satisfactorily answering this question can you expect to build new reality-based stories that will take you where you want to go.”            

I went back to scrutinize Obama’s most direct confrontation with the masters of the universe, a CNBC town hall in September 2010 where he was challenged by Anthony Scaramucci, head of Skybridge Capital and a regular CNBC commentator. Scaramucci began by reminding Obama that they had played basketball together at Harvard, but then informed him that he and his friends in finance “have felt like a piñata. Maybe you don’t feel like you’re whacking us with a stick, but we certainly feel like we’ve been whacked with a stick.”

Obama responded with a distinctly cool tone. “I have been amused over the last couple years [at] this sense of somehow me beating up on Wall Street. I think most folks on Main Street feel like they got beat up on. And I’ll be honest with you: There’s probably a big chunk of the country—hold on a second—there’s a big chunk of the country that thinks that I have been too soft on Wall Street. That’s probably the majority, not the minority.” Obama continued: “When I hear folks say that somehow we’re being too tough on Wall Street, but, after a huge crisis, the top twenty-five hedge fund managers took home a billion dollars in income that year. A billion. That’s the average for the top twenty-five! ... It is a two-way street. If you’re making a billion a year after a very bad financial crisis where eight million people lost their jobs and small businesses can’t get loans, then I think that you shouldn’t be feeling put upon.” He then zeroed in on the resistance to closing the carried-interest loophole. “I have no problem having that argument with hedge fund managers, many of whom I know and went to school with. And I respect their business acumen. But the notion that somehow me saying, ‘Maybe you should be taxed more like your secretary when you’re pulling home a billion dollars or a hundred million dollars a year,’ I don’t think is me being extremist or me being anti-business.”

In one sense, the rhetoric was restrained—Obama never declared of the plutocrats, as Franklin D. Roosevelt did in 1936, “I welcome their hatred.” Yet it wasn’t hard to imagine a fund manager discerning a declaration of sorts in the answer to Scaramucci and in other moments over the past few years, one that was less aggressive than Roosevelt’s but potentially more upsetting. Namely, that Barack Obama, the man with whom the managers had once felt a true bond, simply did not think very much of them. That, in between his relatively measured lines about tax codes and financial reform, he was delivering an unmistakable moral judgment about the worth of the profession they had chosen. That the story they were telling themselves about their own lives was highly questionable.

The former Democratic fund-raiser reminded me that masters of the universe rarely get much guff in their daily routine: “The guy at the top, the name on the door who raises all the money and makes the big decisions: How’s that guy treated? How many times does someone tell that guy that he might not be a good guy, that, you know, you’re kind of a dick? These guys are not used to getting dinged at all.” And it wasn’t just anyone knocking them—it was the president of the United States, notes Eugene Fama, a legendary finance professor at the University of Chicago and Asness’s former mentor. “Lots of [hedge fund managers] started out poor, and made a huge amount of money, and created thousands and thousands of jobs in the process. They’re used to being the American Dream, and now you have the president who looks at them and sneers at them like they’re bad guys.”

For all the brashness and bravado that goes with their world, it seems the managers are oddly insecure about their purpose. For years, “most people in the financial service sector were viewed with enormous, out-of-the-box respect and adulation,” says Daley. “These guys were on pedestals, and now that pedestal’s gone, and now, in a lot of people’s minds, the industry doesn’t have that glow, and that bothers them, and now they join that with the president and his theoretically bashing the wealthy. They’ve got to blame somebody, and they blame him because he is representative of that group of people who ‘aren’t us.’” Former Official B told me, “Whether it’s [former Fed Chairman Paul] Volcker saying there’s been no financial innovation worth a shit since the ATM or the president saying his thing, they’re hypersensitive.” Former House Financial Services Committee Chairman Barney Frank was more scathing: “They don’t just want us to represent their interest, they want to be told that what they do is very good. They want to be honored for what they do for society. And Obama has hurt their feelings. Raising their taxes is not simply a blow to their income. It is a blow to their psychic income, a failure to recognize the enormous good they do for the world.”

Whether the hedge funders were right to take such umbrage seems dubious. But they may be on to something when it comes to Obama’s attitude toward them. Precisely because he knew their type, went to school with them, and could have chosen a similar career path, he was in a position to hold their choice in lower esteem. Former Official A told me that Obama really does see the issue of extreme wealth in less nuanced terms than is typical for him: “When he talks about the economy, it’s not about red, white, and blue America; it’s about black and white. It’s ‘I’m against people who rip off the system.’ If you walked into this system today from some other planet, you’d say it’s insane. ... I’m sure the president feels that ... this is a nutty, crazy system—and that the people who are so successful should stop whining so much.” Daley echoes this view. “In [Obama’s] world, they’re not the be-all and end-all,” he says. “And, in other people’s world, the Republican side, they would still be the masters of the universe.”

FOR A WHILE, the White House tried to patch things up with meetings organized by Valerie Jarrett, Obama’s liaison to the business community. But, says Former Official A, the meetings “became completely pointless because [the financial titans] can’t help themselves. They can’t help but whine about it all, and [Obama] doesn’t take it very well. The meetings ... became counterproductive and pretty much stopped.” Accelerating the split was Daley’s January departure, which the hedge funders took as a bad sign, just as they had taken as a bad omen the earlier departure of Emanuel.

What remains is a small group of major fund managers still firmly by Obama’s side, most of whom gathered at the White House for a meeting last March. But the Obama campaign and the super PAC supporting him, Priorities USA Action, appear to have given up hope of raising serious sums from this world—especially since the campaign is expected to go hard after Romney’s finance background. “I wouldn’t say we’re building our budget projections around people who may or may not give from Wall Street,” says Bill Burton, the PAC’s co-founder. “There are other places with high-net-worth Democrats who want to make a difference in this election.” If it holds, this would represent a significant turn in a 20-year alliance between high finance and the Democratic Party, an alliance that, despite powerful boosters such as Robert Rubin and Chuck Schumer, has always suffered from inherent tensions that a financial collapse and a “spread the wealth” president may now be laying bare. Such a prospect is cheering to those on the left who wonder if Obama will be free to clamp down harder on Wall Street in a second term. “I’m sort of hopeful about the whole thing,” says a top official at a national union. “He’ll be in a position to do something for regular people.”

To Barney Frank, it is mind-boggling that fund managers who three years ago supported Obama and other Democrats are now writing big checks for the other side. It was the Democrats who led the way in 2009 in protecting the financial system from total collapse, and yet the fund managers are now helping to elect a party whose base firmly believes that the tottering edifice should have been allowed to fall. As confounding is that the managers, after playing a pivotal role in supporting gay marriage in New York, are now shoveling money to help elect people “who are making gay people miserable.”

And yet, many of the masters of the universe are not that excited about Romney, either. For one thing, they worry that all the attention on Romney’s personal use of the hedge fund loophole will bring even more scrutiny to the tax code. At the same time, the senior partner at the Midtown fund told me that many hedge fund managers view a private-equity guy like Romney as a breed apart—“the Bain Capital world is the stodgy corporate relationship world.” Not to mention that Romney is from Boston and abjures the macho, profane shtick in which the hedge fund guys like to traffic. Their idol is Chris Christie, the tough guy across the river. Former Official A recently met with a major hedge fund executive who was “waxing poetic” about the New Jersey governor. “It’s the great man theory of history,” the former official says. “They believed Obama was a great man, and—lo and behold—Washington is a complicated place, and they blame it all on him, and now they believe it’s going to be a former prosecutor who’s going to solve all their dreams.”

There is a chance that some aggrieved managers will slink back into the Obama camp if his reelection odds continue to improve. The former fund manager who is supporting Obama was heartened that his New York fund-raisers in early March were far more successful than one he held there last fall, when the campaign couldn’t even sell all 60 tickets. “The mood was so much better,” he says. “We raised 5.4 million fucking dollars in one night.” This has left the deserters in a tough spot. “These guys have kind of painted themselves into a corner,” says the former manager. “They see what’s happening in the Republican Party, and they’re trying to figure out how to save face and come back to our side. I have seen certain signals that they are approachable for Obama. They just have to figure out how to explain it to people.”

But Bill Daley is sure that, for many masters of the universe, even the prospect of an Obama reelection will not be enough to make them hedge their bets. “Very few will,” he says. “For most of these guys, it’s more of an emotional thing.”

Alec MacGillis is a senior editor at The New Republic. This article appeared in the April 5, 2012 issue of the magazine.