The politics of financial regulatory reform are simple. After the meltdown and the bailout, many Americans—perhaps most Americans—are inclined to see Wall Street as predatory and all-devouring. Striding into the lion’s den and calling the beast to heel, as President Barack Obama did Thursday, was a move without a downside.
Perhaps Obama could have scored more popularity points if he had ordered a few financiers to be led out of the Cooper Union auditorium in handcuffs. Then again, in terms of candidates for a perp walk, there were pretty slim pickings: Many of Wall Street’s leading luminaries stayed away, perhaps out of pique at the notion that mere elected officials would have the gall to tell Masters of the Universe how to run their affairs.
“Unless your business model depends on bilking people, there’s little to fear from these new rules,” Obama said. Yet there is so much fear abroad in the land, or at least up and down Wall Street, that the big financial institutions are shelling out millions to try to torpedo the reforms. According to the Center for Responsive Politics, JPMorgan Chase spent $1.5 million on lobbying during the first quarter of the year, Citigroup spent $1.4 million and Goldman Sachs spent $1.15 million—for Goldman, a 70 percent increase over what the firm spent on lobbying during the first quarter of 2009. Reasonable people might ask: Why all the worry?
Obama’s tone was not that of a sword-wielding avenger—he doesn’t do fire and brimstone—but of a stern parent explaining to party-hearty teenagers why their driving privileges are being curtailed.
The president obviously doesn’t want to take the keys away for good, however. While he correctly described the gigantic, largely opaque derivatives market as “highly leveraged, loosely monitored gambling,” he went out of his way to say that he believes derivatives are useful instruments and that what he wants is to make the market transparent and accountable—not shut it down.
An effort in the Senate, spearheaded by Blanche Lincoln, D-Ark., would put a much tighter straitjacket on derivatives trading than the president or Treasury Secretary Timothy Geithner would like. JPMorgan Chase CEO Jamie Dimon and other absent Wall Street titans should have done Obama the courtesy of attending his address. The president’s moderation may be all that stands between them and the righteous anger of a most ungrateful nation.
Obama didn’t really need to make a hard sell. It’s already apparent that despite the usual party-of-no bluster from Senate Minority Leader Mitch McConnell, Republicans realize that opposing tougher regulation of the finance industry is an untenable position. Sen. Charles Grassley has already defected, and there is no enthusiasm among the GOP rank and file for taking the side of Wall Street against, basically, the rest of the country.
In terms of demagoguery, the best the Republicans have been able to come up with is a weak complaint that the Democrats’ proposals will not eliminate, for all eternity, the possibility of new bailouts of failing firms. “That makes for a good sound bite, but it’s not factually accurate. It is not true,” Obama said. “A vote for reform is a vote to put a stop to taxpayer-funded bailouts.”
The truth is that the Republicans’ no-bailouts pledge is absurd and that Obama’s no-bailouts pledge is less absurd but hardly ironclad. No one should believe anyone who says the U.S. government will never, ever, spend a dollar of the taxpayers’ money to rescue another financial institution from its own greed and stupidity. Democrats want the financial industry to put its own money into a $50 billion “resolution fund” to wind down failing firms. But if another November 2008 moment should arrive, heaven forbid, and it looks as if a wave of imminent failures will crash markets around the world, the White House and Congress will surely do whatever it takes to avert catastrophe.
After regulatory reform passes, Wall Street is still going to be a gambling den—less highly leveraged, more closely monitored, but still essentially a betting house. Anyone expecting truly fundamental change is going to be disappointed.
What has definitely changed, though, is the political atmosphere. The president is on the offensive now; his opponents are scrambling to decide how to react. Obama should thank the misbehaving lords of Wall Street, because they have given him a way to get his mojo back.
Eugene Robinson’s e-mail address is eugenerobinson(at)washpost.com.
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