President Obama’s attempt to shame top bankers on Monday convinced no serious observers that lending will suddenly flow freely and financial institutions will quit lobbying to undermine regulatory reform. The fact that three of the nation’s top bankers literally phoned it in from New York because of early morning fog in Washington only heightened the sense that Wall Street’s not too worried about being pushed around by Washington. Their absence spoke louder than Obama’s scolding. As Andrew Ross Sorkin pointed out in The New York Times, Lloyd C. Blankfein, the chief executive of Goldman Sachs; John J. Mack, chairman of Morgan Stanley; and Richard D. Parsons, chairman of Citigroup, could have taken a flight the night before – or even the train — if they really had felt it was important to meet with the president of the United States, who had asked them to come.
The meeting was always just going to be political theater. Wall Street bankers were supposed to play their part on the public stage in Washington, and submit to a scolding from the president about bonuses and the need to start lending more to help get the economy moving.
But inevitably public perception will issue its harsh ruling, and it goes something like this: If the meeting were really that important to Mr. Blankfein, Mr. Mack and Mr. Parsons, they would have found a way to get there.
Well, they didn’t. But it’s time to move on. Maybe Obama would have gained more ground calling in for a harsh lecture the 27 members of the New Democrat Coalition — a group of moderate, “pro-growth” House Democrats — who voted against his financial reforms. Via Naked Capitalism, Marshall Auerback, a fund manager and investment strategist who writes for New Deal 2.0., said the fact that some Democrats got away with fighting against their own party’s financial overhaul package shows the Obama administration isn’t really serious about reform, regardless of its populist posturing.
Even positive aspects of the bill, such as the establishment of the Consumer Financial Protection Agency, were significantly watered down. New Democrats — the people we used to call “Republicans” — won concessions that give federal regulators more scope to preempt state consumer-protection laws deemed to “significantly interfere with or materially impair a national bank’s ability to do business.” The change was sponsored by Congresswoman Melissa Bean, the most bought and paid for member of the House (not an inconsiderable political achievement amongst our current political profiles in courage). Bean justified the change on the basis of having “robust national standards and enforcing them uniformly”, which sounds good until one considers the history of federal regulators, none of whom have historically moved when they plainly should have done so. How many federal regulators do you recall actually blocking the most egregious excesses in the mortgage market over the past 15 years? Preventing the states from moving proactively means that we will likely repeat the experience of the 1990s. Historically, the reform impetus has emanated from the states, not the federal government — Governor Eliot Spitzer’s administration being a prominent illustration.
More and more voters are beginning to believe this façade of reform is deliberate — a cynical act of kabuki theatre by the President to mask his own reticence to deal with the problem in an honest manner.It was clear to many of us that the president may not have been serious about reform when he picked Tim Geithner and Larry Summers as the leaders of his economic team a year ago, and essentially relegated any genuine progressive to the Cabinet equivalent of Siberia, as Matt Taibbi recently highlighted.
In the end, on Friday, as Auerback pointed out, bank stocks actually rose, after the administration-backed, high-profile effort to enact the most sweeping financial regulations since the Great Depression passed the House.
That should tell you how worried Wall Street is about the prospects for reform from Washington, where its New Democrat friends are strong enough allies that a scolding from the president means little more than a quickly forgotten moment in the news cycle.