Obama's Bank Smackdown Is About Economics As Much As Politics
It’s simplistic, cynical and disingenuous to conclude that President Obama announced a set of controversial proposals to crack down on big banks simply to divert attention from the Democrats senatorial defeat in Massachusetts and his declining poll ratings.
Few Americans other than the Wall Street-Washington community, the journalist-pundit corps and the people of Massachusetts give a hoot about the senatorial outcome in the Health Care State.
What’s more, it is not like the president—in the wake of defeat—gathered his economic team and asked what controversial proposal can we quickly unveil that will cause an uproar and make me look tough on Wall Street.
It’s also true the proposals on big banks have a populist tint, but that’s a very real part of Obama’s politics and policies. Just because you don’t like it, does not mean it is without value or merit. Populism does not always entail pandering.
It’s also true that financial reform has been a big cause for the president and it makes some sense for him to move on to the next big thing if the first one isn’t playing out as planned. (George W. Bush had no such encore after the demise of his social security reform plan.)
On the other hand, if Obama did not have an encore, critics would accuse him of obsessing or sulking about health care reform. It’s not like health care reform is the only thing we need to do. Obama has a long too-do list, and as the first Type-A president since LBJ, he will work his way through it, even if not always successfully or thoroughly.
Finally, it’s also true that Obama and his team are genuinely frustrated that they cannot successfully micromanage the economy and erase double-digit unemployment, while convincing the citizenry to be patient about the recovery in the meantime.
There is only so much the government can do to intervene in the real economy to help people.
What’s frustrated—and perhaps angered—the president and his team is that a wealth of government intervention—well beyond the headline grabbing TARP—very much helped the financial firms, which contributed mightily to the crisis.
Good times—and big bonuses—have returned for the big firms, faster than probably anyone ever imagined. The masters of the universe would like to think that the recovery is largely a result of their brilliance and not government largesse.
Their principal argument—that by repaying the TARP money all is square—is disingenuous. It was more than the TARP that aided them. Any number of other programs with acronyms starting with the letter “T”, as well as the stress tests, helped. Cheap money continues to help--big time—and seemingly no one else.
Shareholders, of course, have benefited, but that does not an economic recovery make. Proprietary trading units have benefited. Borrowers and savers have not benefited. Uncle Sam has not benefited.
Some in Congress have been complaining about the lack of lending for two years. The Obama administration has been doing so for a year. It wisely figured out ways to stir lending to real people without the help of the banks by having the Fed buy up agency debt and mortgage-backed securities and turning Fannie Mae-Freddie Mac and the FHA into an alternative Bank of America or Uncle Sam’s Savings & Loan. Sure, it’s a bit excessive and expensive and ultimately tenuous. It will try to do the same with small business lending.
Obama and others in his administration—not too mention the electorate in general and the jobless in particular--may have tired of hearing about Wall Street’s recovery, big earnings and fat bonuses without even so much as a thank you of late.
Wall Street firms such as Goldman Sachs turned a deaf ear to the criticism and cajoling and showed a shocking lack of restraint and discretion—even if you believe that the money is justified.
It’s hard for many to believe that the new restrictions will hurt the economy more than salaries and bonuses.
The lesson here in Obama’s Wall Street smackdown is that you can’t fight the feds.