The Democrat Debacle in Massachusetts offered a rare gift to President Obama: a premonition of the rout that was about to rack his own party in the mid-term congressional elections nine months from now.
Forewarned, Obama had the chance to adjust way ahead of time, reshaping his tax-and-spend onslaught, scaling back his health plan and learning the upside of compromise.
Instead, Bam is losing it. He is squandering this gift in favor of a damaging, intensified attack on big banks—the very engine of economic growth he needs to revive the economy and get himself re-elected.
Worse, he alienates even some stalwart supporters on Wall Street and in business. Real estate mogul Mort Zuckerman, an Obama supporter, said as much moments ago on Power Lunch, saying the President is “playing games with the financial system. . . It’s more about politics than policy.”
In so doing, the President has shed his usual, becalmed visage of judicious intelligence and what-me-worry confidence. In its place is an unpleasant portrait of a sulking, vengeful politician lashing out at Goldman Sachs , J.P. Morgan Chase, Bank of America , Citigroup and their brethren on Wall Street—the only target that, his polls say, might resonate with the voters who are forsaking him.
The Obama folks “don’t accept that banks perform a necessary function in the system: to get the economy going again,” says one senior executive at a Wall Street giant. “This business has a social benefit, and it’s how we make money. The two are not exclusive.”
Yet the White House is deaf to complaints that burdensome new rules would hurt bank profits and hamper the recovery. “When you tell them that reduces our profits, they just don’t care,” this exec complains.
That’s the big problem: All of us, especially the Obama Posse, should care a lot about profits at the banks. Healthy banks provide the fuel for a healthy economy. They line up hundreds of billions of dollars a year in syndicated loans for businesses and directly loan out hundreds of billions more.
Obama’s bank-bashing bent is an ominous sign that Rahm Emanuel and the politicos have taken over the White House, infecting sound economic policy with poll-motivated invective and restrictions that could thwart a strong rebound.
Former Fed head Paul Volcker had prescribed this straitjacket months ago but got nowhere, as Treasury Secretary Tim Geithner and economic adviser Laurence Summers opposed the idea.
Then the Democrats lost in Massachusetts on Tuesday, and suddenly the “Volcker Rule” is top priority.
Obama’s new proposal to ban banks from trading for their own accounts cracks down on a practice that contributed, in no way whatsoever, to the housing bubble and the tumultuous tumble that followed. A recent Goldman Sachs report shows that, simply put, faulty and loose bank lending practices caused 98 percent of all losses, not the banks’ proprietary trading.
“No one believes proprietary trading caused the meltdown,” says an official at another big fat bank. “This is purely a piece of political theater designed to win grass-roots support from people who don’t know better.”
This exec adds: “One of the stupidities of the legislation is that it pre-supposes you can use retail deposits to support” a bank’s bets in capital markets. “It’s already against the law. This is really a very strange piece of legislation.”
This latest anti-bank tantrum will have unintended—and sometimes stupid—consequences. Obama wants to spend billions on green energy, so guess the identity of one of the largest owners of wind farms in the U.S.? J.P. Morgan, which would be banned from that role in this poorly conceived crackdown.
It also would raise troublesome questions about the kinds of investing banks would be allowed to pursue. If a bank helps a client buy $10 million worth of stock in a particular company, would these new restraints block the bank from then placing a bet on the other side of that trade to hedge its exposure? Maybe—and that would be bad for reducing risk.
President Obama doesn’t care about any of this. He is down in the polls, he was humiliated in Massachusetts, and he’s trying to start a fight in an empty room to get himself out of this mess. Yesterday he declared that if Wall Street fat cats want a fight, he’s happy to give them one.
But the better point was made on Power Lunch today by BB&T bank CEO Kelly King. He says he is surprised the President is “looking for a fight—we’re looking for consensus.”
More Kneale ...
- The Real Deal on the Massachusetts Debacle
- The Real Numbers on Wall Street Pay
- Why I Fear an Obama-tastrophe
- Obama, Banks and the 'F' Word
- Pay Czar Cuts as Punishment
- Let's Skin Ken, We'll All Feel Better
Follow Kneale at twitter.com/denniskneale