Too Big to Fail. Not Too Strong.

From Andrew Mellon's nearly 11 years as Treasury secretary under Presidents Warren G. Harding, Calvin Coolidge, and Herbert Hoover to our time, when Timothy Geithner went from financial regulator at the New York Federal Reserve to Treasury secretary to investment executive, journalists have often employed the image of a revolving door to describe the flow of bankers between Wall Street and the U.S. Department of the Treasury. But few know that the White House and the Treasury are, arguably, a single building. A tunnel connects 1500 Pennsylvania Avenue with 1600. Presidents use this passageway to slip visitors in and out of the Oval Office.

All the Presidents' Bankers, does not say it in so many words. But she shows that the tunnel from the White House to the Treasury extends, metaphorically, for 226 miles to Lower Manhattan. Prins digs into presidential libraries and national archives and mines a shelf of books. She also knows Wall Street from the inside. Equipped with degrees in mathematics and statistics, she worked at Chase, Lehman Brothers, Bear Stearns, and finally Goldman Sachs, where she was a managing director. Prins created something of a sensation eight years ago with one of her earlier books, Other People's Money: The Corporate Mugging of America.

Prins's story begins in the '80s-the 1880s. Science, engineering, and mass production were transforming what had been an agricultural nation into an industrial one, creating private fortunes that would have been beyond imagining before the Civil War. Rivers of cash flowed to titans of the Gilded Age.

The rise of the Rockefeller fortune was crucial. The bounteous profits that John D. Rockefeller, co-founder of Standard Oil, generated through business acumen and suppressing competition grew larger than could be put to use in his own enterprise. So Rockefeller "began investing in banks, insurance companies, copper, steel, railroads and public utilities." Rockefeller did all this, Prins shows, with the help of James Stillman, president of National City Bank (the forerunner of what is now Citigroup), while drawing on investments made through Chase National Bank, known today as JPMorgan Chase. Prins writes of marriages of interests-not European royals sealing diplomatic ties but banking royalty cementing business alliances. She recounts, for example, the 1902 marriage of James Stillman's daughter Elsie to a Rockefeller. That merger produced James Stillman Rockefeller, who went on to become National City Bank's president and later chairman in the 1950s and 1960s. The intertwined interests among heirs to the early generations of robber barons have proved to be as strong as a spider's web, able to trap huge sums and sustain fortunes through good times and bad.

Prins notes that the bankers who mattered a century and more ago and the bankers who matter today have consistently numbered six, a group small enough to cooperate or collude during a crisis. On the overcast Thursday morning of October 24, 1929, the day of the crash that launched the Great Depression, Charles Mitchell of National City Bank, Al Wiggin of Chase, Seward Prosser of Bankers Trust (later bought by Deutsche Bank), and William Potter of Guaranty Trust (now part of JPMorgan) strolled to 23 Wall Street to meet with Thomas Lamont of J.P. Morgan and George Baker of First National Bank (later Citi), who had come in through a side door to avoid reporters. In 20 minutes, the six agreed to prop up the collapsing market; Lamont, standing in for J.P. Morgan Jr., who was in Europe, announced the plan.

In the 2008 banking collapse near the end of the George W. Bush administration, it was again the Big Six banks that set the terms. They met on September 12 and soon wrested from Congress more cash than the Defense Department spent that year. The banks' champion was Bush's Treasury secretary, Henry Paulson, who before serving in that office had run Goldman Sachs, the country's biggest investment bank.

Even those who have read Secrets of the Temple, William Greider's massive and brilliant 1987 exposé of the Federal Reserve, will find Prins's book worth their time. She presents a new narrative, one that shows how the changing cast of six has shaped America's fortunes under presidents in both parties. President Harry Truman's four-point plan to restore the world economy, for example, created new opportunities for American banks. In 1950, Truman chose young Nelson Rockefeller, a nephew of Chase Bank chairman Winthrop Aldrich, to chair an international development advisory board just as Chase Bank's international operations blossomed. Prins details how another man-John McCloy, chairman of Chase for seven of the Eisenhower years-tied together interests of big banks, oil, law, and diplomacy. McCloy was a top adviser to Secretary of War Henry Stimson, helping create what is now the CIA; he ran the World Bank after World War II, later served on the Warren Commission, and became perhaps the most powerful partner at the law firm hired by Rockefellers and Kennedys alike-Milbank Tweed-representing the "seven sisters" oil companies in Washington and Riyadh and their bankers. From Franklin Roosevelt to Ronald Reagan, he enjoyed remarkable White House access.

As one of the "six wise men" of American foreign policy early in the Cold War, McCloy signaled to the Eisenhower administration that it must not take too literally the powers of the Bank Holding Company Act of 1956. The law required bank-holding companies to sell nonbank investments and limited each bank to one state. In theory, Prins writes, the act was supposed to check expansion of the biggest banks by requiring Fed approval. But the Fed, by far the friendliest of the bank regulatory agencies that include the Comptroller of the Currency and the Federal Deposit Insurance Corporation, applied the law in ways that helped Wall Street banks, which grew through acquisitions, while thwarting an upstart rival then based in San Francisco: Bank of America. Clever bankers, Prins observes, made the Fed into more ally than regulator (a tradition that continued decades later, during Geithner's tenure as president of the New York Fed from 2003 to 2009). The regulations and policies the bankers persuaded the Fed to adopt in the 1950s effectively defeated measures designed to rein in their power-especially antitrust laws that would have forced competition. In practice, it was through the very mergers the law was supposed to corral that Chase Bank grew and grew.

No matter who has been in the White House, Wall Street banks have had access, though often in ways not obvious to the average bank customer. Big bankers exploited every opportunity, including the pending impeachment of President Bill Clinton. Prins writes that as the body politic argued over a husband lying about how a blue dress got stained, "bankers welcomed the media and political frenzy as a distraction while they focused on their own houses." Early in 1998, Sandy Weill of Travelers Insurance proposed a corporate marriage to Citibank, headed by John Reed. The creation of Citigroup just six weeks later represented a landmark violation of the Glass-Steagall Act, a New Deal law that had required retail banking, investment banking, and insurance to be performed by unconnected corporations.

In the 35 years from 1960 to 1995, fewer than 10,000 bank mergers took place. In the last half of the 1990s, when Clinton was occupied with impeachment, more than 11,000 bank mergers were consummated. Lobbyists ran up invoices, corporations and executives poured in campaign contributions, and most journalists accepted the meme that Glass-Steagall was outdated. The loophole that allowed Travelers and Citi to merge required the killing of Glass-Steagall by 1999. The inherent conflicts of interest Glass-Steagall had prevented, which few lawmakers or journalists understood, were now enabled. This in turn, Prins shows, fueled the unsound banking practices that were later to sink Bear Stearns, Lehman Brothers, and the whole economy. Meanwhile, in the early aughts Geithner proved a sightless sheriff at the New York Fed, ignoring accounting tricks, falsified warranties on mortgage securities, and weakened underwriting standards. He was told in 2005 that Fed supervision of Citigroup was inadequate but did nothing to strengthen it.

In late summer 2008, banking practices that Glass-Steagall would have barred combined with lax regulation to produce the worst financial disaster since 1929. Citigroup ended up getting a bailout of almost half a trillion dollars. The sum of money required to make good on all the bad bets and misconduct came to $12.8 trillion, Bloomberg News calculated-not much less than the output of the entire economy in 2009.

In contrast to the conviction of more than 1,000 high-level executives following the savings-and-loan scandals of the early 1990s, bankers not only avoided prosecution but turned this disaster into a boon. One major beneficiary was Jamie Dimon of JPMorgan Chase. His 2013 pay package came to $18.5 million, a 74 percent increase over 2012. He owns bank stock and options worth north of $400 million at today's prices. Chase continues in the routine business of retail banking, taking paychecks as deposits and issuing credit cards and loans. It also underwrites stocks and bonds while selling insurance, thanks to the absence of Glass-Steagall. Chase still places huge bets in the casino game of swapping derivatives, too. In spring 2012, gambling by a Chase trader known as the "London whale" lost more than $6 billion, resulting in a $920 million fine. But what does Dimon need to worry about? These risky bets are placed with the implicit backing of taxpayers should anything go wrong, as it surely will again.

Prins notes that the six big banks agreed to $80 billion in fines following the 2008 disaster. That sounds like a lot. She points out that the amount equals eight-tenths of 1 percent of their assets, the kind of insignificant penalty that The New York Times' Gretchen Morgenson dismisses as the equivalent of a rounding error.

Instead of busting up these banks, as the great reformer Theodore Roosevelt once called for because "malefactors of wealth" were holding back the economy, Washington today props them up. The zero-interest-rate policy of the Fed and its buying of tens of billions of dollars of bonds held by banks each month is a subtle subsidy that an International Monetary Fund paper shows comes to $83 billion per year. That is more than the cost of food stamps. The intent of zero interest is to boost the economy, and many progressives support the policy, but it also savages the savings of retirees and raises the costs of pensions.

Attorney General Eric Holder has said he is afraid to prosecute the biggest banks because doing so may upset the economy. In effect, Holder defends looking the other way at frauds documented by the Financial Crisis Inquiry Commission, whose report detailing Wall Street criminality Congress instantly tossed in the round file.

America has nearly 7,000 banks. Just two of the biggest-Citigroup and Chase-hold $4.3 trillion in assets, or more than 30 cents out of every banking dollar. Banking-from retail lending and the underwriting of securities to insurance, trading, and derivatives gambling-accounts for more than 40 percent of corporate profits, which are at record highs and rising. Historically, the figure was half that or less. The growth in money made from handling money comes at the expense of other activities. Banking, after all, is a facilitator, the oil that lubricates the engines of production. Banking is crucial, but bankers accumulate money from wealth created by others. Tom Wolfe wrote about this in The Bonfire of the Vanities: Wall Street bakes golden cakes, and bond traders, like the fictional Sherman McCoy, grow rich by selling and reselling slices of these cakes, pocketing the golden crumbs that fall off in the process.

Prins quotes Teddy Roosevelt saying in 1905, "This country has nothing to fear from the crooked man who fails. We put him in jail. It is the crooked man who succeeds who is a threat to this country." The easy profits in banking mislead us into believing finance is the source of our prosperity; when bad decisions threaten the banks, we must pay up, or else. Prins shows how six banks that should have been allowed to fail got their bailouts and how the new regulatory law, Dodd-Frank, is weak gruel, damaging the economy going forward. Now that the regulations that ensured sound banks are gone, presidents (and Congresses) must tap the taxpayers, or the economy really can fall into a disaster much worse than the Great Recession.

"America operates on the belief that if its biggest banks are strong, the nation will be too," Prins concludes. But the banks are only big, not strong. Indeed, the "stress tests" to determine if the banks can withstand another financial shock are designed to test only for minor upsets, rigging the game in favor of the Big Six, which all engage in unsound practices, especially trading in derivatives. They remain big because of bad laws and enablers like Geithner and because politicians desperate for campaign donations listen to the pleas of bank owners more than those of customers. So the bankers live in grand style, lavished with subsidies that cost us more than food stamps for the poor. In return for this largesse, the bankers savage our modest savings.