remember in the campaign when Obama went to this town, which then had 6.9% unemployment - but now has nearly 12%: he said 'vote for me', 'things will get better' from the offices of a drywall company. That company is now out of business, all it's employees fired.
"In the prepared remarks for a town hall meeting he held in Elyria, Ohio, on Friday, Obama declared 14 times that he's been "fighting." "
Can Obama Fight?
— White House photo/Pete Souza (Government Work).
The president is talking like a populist. But he also needs to punch like one.
— By David Corn
Close this Share Box41 Comments | Post Comment.Mon Jan. 25, 2010 2:00 AM PST
Two days after Republican Scott Brown's upset win in Massachusetts, the Obama administration proposed two new measures that would limit the ability of big financial institutions to wheel and deal. In announcing these initiatives—one of which would prevent investment banks from playing the market with their own cash—President Barack Obama got rather feisty:
What we've seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people. So if these folks want a fight, it's a fight I'm ready to have. And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform.
Ready for a fight—that was the message. White House reporters later that day grilled press secretary Robert Gibbs and economic aide Austan Goolsbee on why the administration was poking at the banks at this particular moment, implying that Obama was revving up a populist attack in response to the Democrats' demoralizing loss in the Bay State. Gibbs and Goolsbee insisted that the release of these proposals had been planned since before Christmas. Gibbs also noted repeatedly that the president was committed to "fighting for what's important to the middle class."
Whether or not the Obama crew rushed out these measures, the more important question is this: if Obama now intends to be a populist battler, how hard will he fight?
Obama and his aides certainly believe he's been pounding away for the past year—to pass the stimulus bill, to win congressional approval of his budget, to expand the children's health insurance program, to cut several wasteful Pentagon programs, to enact credit card reform, to win support for climate change action, to advance financial reform, to win passage of a jobs bill, to move health care reform through the House and Senate. In the prepared remarks for a town hall meeting he held in Elyria, Ohio, on Friday, Obama declared 14 times that he's been "fighting." He vowed, "I'll never stop fighting for you." A few hours later, Obama tweeted to his 3.1 million Twitter followers, "So long as I have the privilege of serving as your President, I'll never stop fighting for you—on #HCR [health care reform] and so much more." And in his weekly address—finalized on the same day—he decried the influence of "special interests" and promised, "I'll never stop fighting to make sure that the most powerful voice in Washington belongs to you."
Yet Obama has rarely come across as a fighter during his first year in office. He frequently seemed more preoccupied with working an insider's game than confronting the interests and legislators standing between him and his policy objectives. With health care in particular, it looked as if he was playing three-dimensional chess in a mud pit. Proceeding as a calculating operator, rather than as an in-your-face brawler, Obama has indeed won legislative tussles and remains close to sealing a deal on health care. But if he wants voters to believe he's a fighter, Obama needs to show them, not tell, them.
Obama is not naturally combative. The week before his populist eruption, he presented a less confrontational attitude toward the banks. While proposing a tax on big banks to cover the TARP bailout funds not being paid back, Obama didn't explicitly pick a fight with the financial industry. He entreated it to cooperate:
What I'd say to these executives is this: instead of sending a phalanx of lobbyists to fight this proposal, or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities. And I'd urge you to cover the costs of the rescue not by sticking it to your shareholders or your customers or fellow citizens with the bill, but by rolling back bonuses for top earners and executives.
Instead of clobbering banks and lobbyists seeking to block this initiative, Obama was attempting to convince them to back off.
That's been the typical style of this administration. On Wednesday, I asked Gibbs about a recent Wall Street Journal report that Senator Chris Dodd, the chair of the banking committee, was considering dropping the White House's proposed Consumer Financial Protection Agency. "Is that something that the President would actually get angry about," I inquired, "and has he conveyed that sentiment to Christopher Dodd already?" Gibbs replied:
He's conveyed that—well, Senator Dodd was here yesterday, as the [press] guidance suggested, and the President addresses this morning in his interview that financial reform has to include a consumer protection agency. That's what he's talked about for quite some time, and that's what he continues to want.
Not exactly mad-as-hell rhetoric. If the White House had come down heavier on Dodd, a fellow Democrat, Obama could have picked up easy points as a fighter. The soundbite writes itself: "We respect Senator Dodd and appreciate his various contributions to enacting the president's agenda. But the President is clear on this: he will oppose any Democrat or Republican who sides with the big banks and tries to prevent us from setting up an agency to protect consumers from the sleazy practices of big banks and financial institutions." Okay, maybe strike "sleazy." But it's not that difficult to display some fight.
The following day, Gibbs was asked if the White House was anticipating and preparing for a major political battle over the just-unveiled financial reform measures. He again missed an easy opportunity to exhibit White House fire:
I don't doubt that—this happened before we broke for Christmas, that when some of these activities were being voted on, that scores of lobbyists were called to Capitol Hill to generate activity in opposition to financial reform. I have not sensed a retrenchment by those lobbyists on this issue and I think the special interests, in order to protect the good that they have, will do all they can to derail what's good for the American economy.
There was nothing technically wrong with that answer. But it was not exactly loaded with passion. An hour or so earlier, Obama had proclaimed he was ready, even eager, for this fight, yet the White House did not seem to be on a war footing.
What happens in Washington—especially on complicated matters such as health care and financial reform—can, no doubt, appear like an incomprehensible swirl to voters who don't follow the ins and outs of the legislative rigmarole. To these voters, Obama's role in this jumble probably seems confusing. He's been sucked into the mess. For instance, he's overseen the generous bank bailout and stocked his administration with Big Finance insiders, while also talking about cracking down on financial institutions. He's refused to state clearly his preferences for critical aspects of health care reform, while the White House has engaged in closed-door dealmaking with legislators and industry representatives to win votes. What Obama's really fighting for can be hard to discern.
Consequently, if Obama aims to be widely regarded as a warrior for the middle class, he will have to take some mighty swings that cut through the clutter. Proclaiming "I am a fighter" will not be enough. He will have to name his foes (financial institutions, insurance companies, Republicans, and perhaps recalcitrant Democrats) and truly exchange blows. He may even have to lose a high-profile battle or two to persuade voters he is slugging away on their behalf. Muhammad Ali talked a good game, but he fought a better one. A true populist pugilist is defined not by his words, but by his actions, and a year into his presidency, Obama has not yet lost one of the more valuable presidential assets: the ability to define himself. He can still be a populist, if he acts like one.
Is Obama Really Breaking up the Banks?
Noam ScheiberSenior Editorview bioIs Obama Really Breaking up the Banks? A Clue From OMB on Health Care? More Obama-Freeze Backstory January 27, 2010 | 12:00 am
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More Obama-Freeze Backstory
Obama's Spending Freeze Judging from all the build-up, the one thing tonight’s State of the Union address is sure to include is some presidential feistiness toward Wall Street. Rhetorically, the president has spent the last week throwing elbows at his banker adversaries. Obama announced at a press conference last Thursday that “If these folks want a fight, it’s a fight I’m ready to have.” The day before, he seemed ready to initiate the beat-down whether or not Wall Street wanted any part of it. “We’re about to get into a big fight with the banks,” he warned George Stephanopoulos. During a speech on Friday, Obama used some form of the word “fight” 14 times. “I can promise you, there will be more fights in the days ahead,” he said when turning to the topic of banks.
The substance behind this verbal barrage is twofold. Earlier this month, the White House announced a nearly $100 billion tax on banks to recoup the bailout money they took during the financial crisis. Then last week, the administration dropped what seemed like a bombshell—plans to downsize the megabanks and prohibit them from using government-subsidized money to fund risky trades. The latter in particular prompted much bleating on Wall Street. It also captured the imagination of the nation’s headline writers. A Politico article blared “Obama Takes on the Banks” the way a playground instigator yells “fiiiight!”
What was less clear once you sorted through the details was whether the moves represented a bona fide policy shift, as much of the reporting described it, or a mere adjustment at the margins. In fact, while the policy changes are hardly trivial, what’s more striking is the basic continuity in the administration’s approach.
Since the reform debate began back in 2008, it’s centered around two broad theories for how to prevent a replay of the crisis. Both take aim at the so-called too big to fail problem, the idea that certain institutions are so big or interconnected their collapse would threaten the entire financial system. What’s more, because these firms know the government has no choice but to bail them out if they get in trouble, they have incentives to take on excessive risks.
The first solution to this problem is the bust ‘em up approach embraced by the likes of former IMF chief economist Simon Johnson. Johnson argues that the problem with megabanks is as much political as it is economic. At a certain point, a big bank amasses so much political power it can stiff-arm regulators and chip away at regulations, even if the original rules may be sound. To effectively rein in the banks, Johnson argues, you first have to crush their political power, which, in practice, means making them a lot smaller. (A corollary of this view is that the collapse of smaller, less interconnected banks doesn’t threaten the financial system, so a smaller bank can’t count on a bailout the way a big bank can, which means it’s less likely to take crazy risks.)
The alternative theory is that shrinking overgrown banks is itself politically impossible. But, argue proponents of this view, just because you’ve accepted bigness doesn’t mean you’ve thrown in the towel. Instead, you force banks to shoulder the cost of their own bigness—by, say, forcing them to hold a lot more capital—which dents their profits and offsets the subsidy they get from being too big to fail. To that end, Diana Farrell, a top White House economic aide, recently explained that “in some sense, the genie’s out of the bottle and what we need to do is to manage [the megabanks] and to oversee them, as opposed to hark back to a time that we’re unlikely to ever come back to.” The approach is sometimes jeered as overly accommodationist, but it need not be. Even liberals like New York Times columnist Paul Krugman have signed on to its logic in some form.
In the hours after the administration’s announcement last week, many in the media saw a shift from the second approach to the first. Politico welcomed Obama to the “’big is bad’ bandwagon” and The Wall Street Journal hailed the coming of a “policy pivot.” It’s not hard to see where they got this idea. The administration was proposing limits on the size of certain financial institutions. And, perhaps more evocatively, it was vowing to stop banks that receive certain benefits from the government (like deposit insurance) from making bets for their own bottom line, a practice known as proprietary trading. At his press conference, Obama dubbed this proposal “the Volcker rule,” after the iconic former Fed Chairman Paul Volcker, who spent the last several months drumming up support for the idea.
But here’s the catch: When you talk to administration officials, it soon becomes clear that their underlying theory of reform hasn’t changed. Which is to say, they still believe that the most practical way to prevent big banks from taking destructive risks is by regulating them aggressively--and arming regulators with more powers--not breaking them up. For example, one of the key pieces of the reform proposal the administration unveiled last summer is known as resolution authority, which would allow regulators to liquidate a troubled megabank in an orderly way, so that the government wouldn’t face the choice of either bailing it out or letting it bring down the financial system. Every administration official I talked to about this told me resolution authority is still the way they intend to deal with the problem of too big to fail. The latest ideas simply won’t shrink the banks by nearly enough to make it safe for them to fail on their own (even if, as one official allows, the big banks may “shrink a bit”).
Many of the press accounts describe how Volcker persuaded members of the Obama economic team to back his approach—most famously during a two-hour Christmas Eve lunch with Treasury Secretary Tim Geithner. There’s an element of truth to this. But when you ask administration officials exactly what they were persuaded of, it’s not that their theory of reform was wrong--that, say, bank size was a major cause of the financial crisis, or that proprietary trading did the banks in. They were mostly persuaded that they could append Volcker’s ideas to their original approach while keeping its essence intact. “Our view is it’s not counterproductive,” says an official.
That’s not to say they view it as pointless. At heart, the Volcker rule reflects the principle that big banks shouldn’t be allowed to gamble with taxpayer-subsidized money. Whether or not that gambling was a cause of the crisis, it’s still offensive. It became infinitely more so as the banks parlayed their subsidy into grotesquely large profits so soon after the crisis. The perversity of this gradually earned the ire of several members of the economic team, which made it easier to persuade them it was a principle worth enforcing. And, of course, standing up for such a principle can yield political benefits--not unhelpful in the current environment. “The perception that somehow this president, this administration, was showing favoritism toward Wall Street was a problem even though it was wrong,” says another official. “Changing that perception is not why you do this. But I'd be lying if I said people weren't aware of that benefit."
Ironically, then, the practical upshot of the Volcker rule may be to advance the administration’s original reform agenda. “It’s helped turned the tide a bit,” says an official. Whatever its substantive merits, the original idea was simply too hard to sell as an ambitious reform measure. “People in a lot of ways had gotten caught up in the complexity of the issue. … It’s not black over here, white over here.” That dynamic had allowed the banks to muddy the debate and gave the GOP cover to do their bidding. The beauty of throwing the Volcker rule into the mix, by contrast, is that it forces political opponents to choose a side. “Now that we’re taking the fight to the Republicans,” the official says, “it should help get this thing done.”
Noam Scheiber is a senior editor of The New Republic.
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