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COLUMBUS, OHIO (Reuters) - As Lehman Brothers spiraled to its doom in the summer of 2008, John Kasich could not help but worry. After all, Kasich, a former Ohio Congressman turned investment banker, had a chunk of his personal wealth invested in the free-falling firm.
"I would make a few calls to friends of mine, like one guy in Chicago, and we would just sit there and say, 'Is the stock going to go any lower?'" Kasich, 58, said during an interview at his gubernatorial campaign headquarters in Columbus, Ohio, the city where he ran a two-man investment banking office until after Lehman's bankruptcy on September 15, 2008. "I didn't really fixate on it. You just kept doing your job and you saw crazy things happening."
In the wake of Lehman's demise, some of its 26,000 employees found new jobs with Barclays, Nomura Holdings or other surviving rivals. Others headed for the unemployment lines with the tarnished Lehman name atop their resumes.
Kasich had other plans.
After a brief stint with Barclays, he returned to the campaign trail to lead the Republican ticket in Ohio's crucial November elections. He is facing off with Democratic incumbent Governor Ted Strickland in a race that, given Ohio's role as a perennial battleground state, could set the stage for the 2012 presidential election.
If Ohio Democrats have their way, the contest will be a referendum on Wall Street. Lehman quickly came to symbolize the feckless behavior that brought the entire financial system to the brink of collapse, triggering a deep recession that has buffeted the economies of heartland states among many others.
Kasich's opponents have painted a scarlet "L" on his chest. They are also spending millions of dollars on an advertising blitz intended to tap widespread resentment over the taxpayer bailout of U.S. banks. One ad by the Strickland campaign -- here -- closes with the pointed question: "Does Ohio really need a Congressman from Wall Street for governor?"
Ohio Democratic Party Chairman Chris Redfern laid out the strategy in an email to the party faithful the morning after the May primary election. "This election will be a battle between Wall Street and Main Street," he wrote. "Let me ask you this: When is the last time you received millions of dollars in bonuses for bankrupting a company? If you answered never, then you're part of the more than 99 percent of the country we're fighting for."
As he and his fellow Democrats know, there is a lot riding on the mid-term elections. Come November, U.S. voters will elect 435 members of the House of Representatives and fill 37 of the 100 seats in the Senate. Thirty-seven states will also pick a new governor.
The man Ohio Democrats are fond of calling "the Congressman from Wall Street" joined Lehman Brothers in 2001 after a mutual friend put Kasich in touch with Chief Executive Dick Fuld.
Political critics allege that Kasich, who represented Ohio for 18 years in Congress, subsequently opened doors to Ohio pension funds for Lehman salespeople. Kasich has said his introductions did not amount to any business, but Ohio's public funds still lost hundreds of millions of dollars on Lehman products.
In an interview at his Columbus campaign headquarters earlier this month, Strickland described Kasich's Wall Street ties as a clear negative.
"Ohioans may not know a lot of the specifics about what led up to the recession, but they intuitively understand that what happened on Wall Street led to the tragic economic circumstances we have been living through," he said.
For his part, Kasich makes no apologies for his time at Lehman. He has also fired back with his own campaign ad -- here#p/u/8/e1b0fsRK0Ek -- that makes clear he was but one of 700 managing directors at the firm and had nothing to do with running it.
Kasich told Reuters that blaming him for running Lehman into the ground is akin to blaming a gas station owner for the BP oil spill.
"It is like there are ghosts or goblins in the closet, but when you open it, there's nothing there," he said.
So far, Kasich's Wall Street ties do not appear to have hurt him, though it is still early days in political terms. He leads Strickland by 48 to 39 percent among likely voters, according to a Reuters/Ipsos poll released this week.
Still, the poll showed an underlying anger toward Wall Street -- bankers and Wall Street were seen as the biggest culprit behind the economic downturn, with 93 percent holding them mostly or partially to blame, compared to 88 percent who faulted Americans spending beyond their means and 86 percent who fingered the Bush administration.
As for Kasich, a majority of respondents said they knew very little or nothing at all about him. Told about his Lehman Brothers experience, 58 percent of registered voters said Kasich's Wall Street experience would make no difference in whether they would vote for him.
The bad news for Kasich: Nearly 1 in five registered voters said they are less likely to vote for him because of his Wall Street past. And among crucial independent voters, an even larger number -- 36 percent -- say they probably won't go for a former investment banker.
That anti-Wall Street bias, said University of Akron political scientist John C. Green, could "make a difference in a close race."
Strickland isn't the only politician in the region who has taken a bludgeon to Wall Street. Ohio Attorney General Richard Cordray, who is on the ballot in November, has become one of the biggest Wall Street watchdogs, suing financial giants like American International Group Inc and Bank of America Corp.
U.S. Senator Sherrod Brown, who has branded himself as a champion of manufacturing, has proposed a Wall Street bonus tax. And U.S. Representative Marcy Kaptur, a Toledo Democrat, led a petition drive earlier this year calling for a criminal investigation of Goldman Sachs Group Inc.
Outside of the heartland, several Republicans and Democrats alike are fending off claims about their ties to financial firms. For example, Meg Whitman, a Republican candidate for California governor, has faced questions about her time as a Goldman Sachs board member. And in Florida, opponents are making hay out of the fact that Democrat Alex Sink, a candidate for governor, once led the Florida operations of Bank of America.
Before the financial crisis, jumping from finance to politics was fairly unremarkable. Among the most notable recent examples are Democrats Rahm Emanuel and Jon Corzine.
Emanuel, a former adviser to President Bill Clinton, joined investment banking firm Wasserstein Perella before returning to Congress. He is now President Obama's chief of staff. Corzine, the one-time chief of Goldman Sachs, became a U.S. senator for New Jersey and the state's governor, before returning to the private sector this year as the chief of MF Global when he lost his bid for reelection.
Even in the Ohio governor's race, Republicans last month tried to turn the tables on Strickland, pointing out that he has taken about $1.5 million in Wall Street donations since 2005 as state agencies doled out business to financial firms. The total includes money he received from local insurance agents.
"It's silly," Strickland said. "They are grasping for straws if they are trying to paint me with the same brush that has covered John Kasich."
Strickland's Wall Street message might be muted by a rising tide against incumbents across the country and concerns about subpar job creation, said Green, the University of Akron political scientist.
"The governor's race is an interesting conflict because on the one hand there is a lot of concern about unemployment," said Green, the director of University of Akron's Bliss Institute of Applied Politics. "At the same time, there is concern about Wall Street, big banks, bailouts and the housing crisis. Those two things of course are connected, but many people see them as different issues."
Still, Democrats in Washington and Ohio see political opportunity in the lingering anger stemming from the bailout of leading U.S. financial services firms, a list that included AIG, Goldman, Bank of America, JPMorgan Chase & Co, Citigroup Inc, and Morgan Stanley.
President Barack Obama last month signed historic financial regulatory reform legislation, a package that promised sweeping changes on Wall Street, underscoring the frustration directed at bankers and traders.
The frustration goes both ways, it seems. Wall Street and its financial allies gave Republicans over two-thirds of their campaign contributions in June as Democrats pushed financial reform forward in Congress, according to preliminary findings by the nonpartisan Center for Responsive Politics in a report issued Tuesday.
The report suggested that industry spending shifted sharply toward Republicans last October and crossed the 50-50 line a month later, as the House neared approval of its version of financial reform.
Green said he expects that Democratic leaders are using the Ohio governor's race as a test to see how their Wall Street message plays on the national level. "If it works here, it'll likely work at the national level," he said.
Not so fast, say Republican leaders in Democratic strongholds like Cleveland and Toledo. They say attacking Kasich for his Wall Street ties is not paying off and misses the point.
To hear them tell it, local voters have more immediate concerns on their minds than Wall Street. Ohio has lost more than 300,000 jobs since Strickland took office and the unemployment rate was 10.4 percent in June, higher than the 9.5 percent national average.
"I don't see people focused on what an investment bank was doing," Rob Frost, chairman of the Cuyahoga County Republican Party, said in an interview in suburban Cleveland. "We have had a governor in charge for three and a half years and all we have got is class warfare."
Frost said Ohioans know little, if anything, about Dick Fuld and instead are asking, "Dick who?"
Born in McKees Rocks, Pennsylvania, Kasich rose to prominence on the national political stage when he used his role as chairman of the House Budget Committee to help balance the federal budget. But it was not enough to get him serious consideration when he sought the Republican nomination in the 2000 presidential primary.
When his short-lived campaign came to a close and he left Congress in 2001, venture capital impresario Wilber James put Kasich in touch with Dick Fuld. By the fall of 2001, Kasich had offices set up in Columbus and New York and was well on his way to becoming a banker. According to Kasich, he struck a deal in which he would spend about 80 percent of his time working for Lehman and the rest could be used for appearances on Fox News, speaking appearances, or for writing his books. Non-fiction inspirational works, the books include one titled: "Stand For Something: The Battle for America's Soul."
In a short time, he developed a rapport and respect for Fuld, the onetime vaunted banking chief who has since become an object of ridicule.
"Fuld is an awesome guy," Kasich told New York Observer for a September, 2001, story. "He is the kind of guy you want to go into battle with," the article quoted Kasich as saying. "He is a great leader."
After Lehman's demise, Fuld quickly emerged as one of the chief villains of the financial crisis. He was even rumored to have been punched in the face while exercising in the Lehman gym around the time of the company's bankruptcy.
Kasich backed away a little from his association with Fuld during his Reuters interview, saying: "I called him a good leader because of what he did after 9-11."
Kasich, though, was interviewed for the story before September 11 and the piece made no mention of the attacks, which destroyed Kasich's New York office.
"Fuld had his thing to do and I had my thing to do," Kasich added.
Pressed on the issue, spokesman Rob Nichols said Kasich's comments in 2001 reflected his belief that Fuld was a good leader. But after Lehman's collapse, Nichols said Kasich was "very disappointed" in Fuld.
When Wilber James, the managing general partner of RockPort Capital, introduced Kasich to Fuld, he hoped that the politician turned banker would become an asset to Lehman Brothers.
By most accounts, he was just that. Those who worked closest with Kasich said he quickly became a guy that Lehman could count on in Ohio. "He learned so much at Lehman that it is going to make him one effective governor," James said.
Jai Chabria, a longtime Kasich associate who worked with him in politics and was the other half of Lehman's two-man shop in Columbus, recalled late nights working on deals, especially during a grueling first year on the job.
"He would fly around the country to meet with the clients," Chabria said. "That's what a banker's life is like."
The Columbus office managed a roster of dozens of clients, a list that included venture capitalists in California and steel magnates in the Midwest. Kasich's relationships with Google executives helped Lehman get a small piece of the company's 2004 initial public offering, co-workers said. Kasich also helped Lehman win a leading role in the IPO for DSW, an Ohio-based shoe-retailer.
"My strength was that CEOs and boards that I got to know and venture capital firms, they trusted me," Kasich said.
Soon after joining the firm, Kasich helped arrange meetings for Lehman bankers in 2002 with the Ohio Police & Fire Pension Fund and the Ohio Public Employee Retirement System, his campaign has acknowledged.
In addition, political opponents have raised questions about whether Kasich made other calls for Lehman and whether he played any role in Lehman pitching its risky products to Ohio funds in the firm's waning days -- an accusation that Kasich denies.
Among the executives who pitched to Ohio funds during the firm's last months were chief financial officer Erin Callan. Kasich said he was not aware of her communications with Ohio officials. "When people came to Ohio, they didn't report to me," he said, reiterating that none of the introductions he made on behalf of colleagues at Lehman resulted in any business for the firm.
Throughout his career at Lehman, Kasich's boss was Gary Weinstein, who was global chief administrative officer of investment banking. Weinstein would come to Columbus once a year to meet with Kasich and discuss business.
Weinstein said Kasich "had a real desire to not be just someone who introduced people."
But still, Weinstein said Kasich could not offer much more than an introduction with Ohio agencies because he was not intimately familiar with the products being pitched.
"He worked for investment banking," Weinstein said. "He would have never gotten paid for any of those introductions. He was just trying to do the right thing for the overall employer."
Kasich has been especially tight-lipped on the topic of how Lehman paid him. He has refused requests to discuss how much he made while working for Lehman, but released information to Ohio media in April showing that he made $1.4 million in 2008, including his Lehman pay and compensation for appearing on Fox News and speaking appearances around the country.
That pales in comparison to top Lehman executives like Fuld, who took home an estimated $466 million in compensation between 1993 and 2007, according to Equilar, a compensation research firm. Fuld was awarded $22 million for 2007, the year before the firm's bankruptcy. Still, it was well above the median household income in Ohio of about $48,000.
Like other Lehman employees, Kasich said the firm's collapse was costly to him personally -- though he won't say specifically how big a hit he took.
"How much did I lose?" said Kasich, who has two children. "I try not to think about it."
"The way I operated was, basically, I saved a lot," Kasich said. "I didn't live a high lifestyle because I always wanted to be debt free and in control of my own destiny and future."
Say this for Kasich: he is hardly running from his time as an investment banker.
He still relishes telling stories of visiting a Designer Shoe Warehouse with his sister at Christmas and feeling pride because he advised the retailer on its initial public offering, helping it to employ Ohioans.
"You go in there and there are people working and you say, 'Isn't that fantastic?'" he said.
A reflective Kasich described his time working for a Wall Street bank as his "walk in the woods" -- a chance to clear his head and have a very different experience.
"This experience has been fantastic and will make me a much better governor," Kasich said. "Thank God I spent that time."
Reporting by Steve Eder; editing by Jim Impoco and Claudia Parsons