Former banker and White House Chief of Staff William Daley lives in Chicago, where he sees firsthand the effect that business as usual in Washington has on U.S. business — and it's bad.
Gridlock inside the Beltway has fueled Americans' doubts about the economy, Daley said Tuesday at the Raymond James Bank Conference in Chicago.
Consumers believe "our system doesn't work," Daley said, reminding his audience about Congress' failure to overhaul the federal budget last year. S&P's downgrade of the U.S. prompted the second-biggest drop in consumer confidence in history, he said.
Lawmakers are aware of their souring image but get easily distracted, Daley said. "They are aware of it when they go home, but I think they get caught up in the milieu of Washington," he said.
The inability of politicians to compromise is what ultimately pushed him to leave the White House in January, Daley says. His past jobs include Midwest chairman of JPMorgan Chase (JPM) and commerce secretary under President Clinton.
Uncertainty about the presidential elections and fights on Capitol Hill over capital gains and other tax issues has made it harder for bankers to plan for the future — especially in deciding whether to sell their bank, buy a bank or stand pat till next year, industry experts have said.
Many bankers are holding off on making decisions about mergers and acquisitions, Daley said in an interview after his speech. Once the election is done and pressing fiscal issues are addressed, bank M&A activity could increase, he said.
"It is weighing on everybody, and they are waiting for clarity," Daley said. Once they get that clarity, "they can stop worrying about what the politicians are doing."
Daley predicts his former boss President Obama will be re-elected but said that Romney's debate performance and fundraising could make it a tight race.
If President Obama is re-elected, he would probably act quickly to cut a deal with Republicans regarding the debt ceiling and the budget, Daley said in his speech. If Romney is elected, lawmakers might wait until after the inauguration to act, he said.
If lawmakers are unable to come up with a plan for "long-term fiscal soundness," the country could be in dire straits, Daley warned.
"If they can't get this straightened out, good luck with your business," he said. "You'll need it."
He also offered advice to bankers who are hoping for rollbacks of the Dodd-Frank Act.
"Let dogs lie," he said. "We came to this because there was a problem."