Obama's Wall Street Problem

Friday, November 2, 2012 3:38 AM

Even if they love him, 99% of voters have to admit that Obama deserves to lose.

Simply put, President Obama was handed the perfect issue on a silver platter. Had he seized upon it at any point in his four-year term, he would sweep on Tuesday to reelection in landslide fashion; instead, he let the opportunity slip. For that, he may well lose his job, and even if he does still win it will likely be a narrow victory with no mandate to repair rifts in a fractious society.

A populist politician facing an inherited economic crisis of epic proportions, the President worked across party lines to push through emergency measures that pulled the country - and maybe the Western world - back from the brink of fiscal disaster. The extraordinary steps taken to stabilize the economy testify to how desperate the situation was, and to how much power the President and the Executive branch had at the time.

But when it came to Wall Street and the big banks, the President blinked.

Obama supporters will point to the endless stream of fines that agencies have meted out, punishing banks for egregious behavior and reckless management. The President’s team will cite the shackles of new regulation that now constrain banks. And they will argue, fairly, that the situation could have turned out worse: had the government not acted decisively to backstop the financial system, the crisis of confidence might have stretched into 2010 and beyond, with more banks failing and chaos in the streets. Yes, it could have been worse, but that’s not good enough.

“The bailouts turned a profit!” the President and his team are happy to boast. But leaning forward to make their point, they show their cards, and voters don’t like what they see.

By suggesting the government acts like just another trading desk making bets with other people’s money, the White House demeaned itself and ceded the moral high ground needed to fix the system. Taxpayers didn’t want to win one hand and raise the stakes for the next. They wanted the casino shut down and the players at every table reassigned to community service, or sent to prison, or both.

This issue united Americans of all walks of life, across racial lines, rich and poor, educated and not, people who pay tax and people who don’t. They were not the now-famous 47%, but the more important 99%. It should have been a populist politician’s dream.

The President could have, and should have, demanded criminal justice for responsible individuals. It didn’t happen. Instead, serial financial settlements have been agreed with offending banks, with pipsqueak payments all absorbed by shareholders, not the executives whose conduct was to blame, who kept their money and avoided charges under terms whereby banks “neither admit nor deny” real guilt. Free pass.

The President could have, and should have, demanded that the big banks pay retrospectively for insurance that for so many years made possible their fabulously profitable businesses. No, the policies had never been written nor signed, but the big bonuses all flowed from implicit taxpayer guarantees and the banks would have settled if called upon to do so. They weren’t, so they didn’t. Free pass.

The President could have, and should have, made the big banks’ staff work at union wages until they had earned back their right to operate as independent businesses. If they refused, the President could have barred them from government deals, or whacked them with other sanctions. Instead, the banks cynically dodged limits on bonuses by doubling employees’ salaries. They should have been vilified, but they weren’t. Free pass.

And even now the big banks are reporting record results in their bond trading departments, profits largely derived from the gift of the Fed’s quantitative easing, a money pipeline from taxpayers to bankers, a dubious policy at best, and one that necessarily depletes the value of pensions now and in the future. Why doesn’t the Treasury department shut out the bankers and hire Blackrock who have done such a great job for taxpayers on crisis-related asset disposal? Why doesn’t the President demand the banks do the work for free? He didn’t. Free pass.

None of this is to say that Mitt Romney deserves to be elected. Maybe he does and maybe he doesn’t. And we can all hope that in a second term, should one happen, Obama may finally show resolve to stand up to the special interests at the center of the financial crisis. But the reality is this: on Obama’s watch there has been no meaningful reform of the big banks, and there has been neither the justice people wanted nor a restoration of fairness that people have a right to expect.

A populist politician, gifted as Obama is, should have done better and he didn’t. Whatever his merits on foreign policy or health care or anything else, if he had embraced the 99% he would be winning on Tuesday with heady margins and a mandate to forge coalitions that could set a meaningful course for America’s future. He didn’t, and he should have.