By Jackie Calmes – New York Times January 21, 2010
The tougher approach to financial regulation that President Obama outlined on Thursday reflected a changed political climate, the rebound in big banks’ fortunes after their taxpayer bailout and a shift in power within the administration away from those who had been seen as most sympathetic to Wall Street.
Paul A. Volcker, the former Federal Reserve chairman, had urged the president to restrict behavior at banks that led to the crisis.
In calling for new limits on the size of big banks and their ability to make risky bets, Mr. Obama was throwing a public punch at Wall Street for the third time in a week, underscoring the imperative for him and his party to strike a more populist tone, especially after the Republican victory Tuesday in the Massachusetts Senate race.
In announcing his proposals Thursday at the White House, Mr. Obama said if the financial industry wanted a fight over new restrictions, it was a fight he was ready to have.
The new approach was welcomed by the White House political team and Vice President Joseph R. Biden Jr., and delivered by a less enthusiastic economic team on orders last month from Mr. Obama.
It was also a victory for Paul Volcker, the former Federal Reserve chairman and outside adviser to Mr. Obama. Until Thursday, when he stood beside the president at the White House announcement of the new policy, Mr. Volcker truly had been on the outside of administration decision-making — and, in frustration, increasingly vocal about the need for the administration to clamp down on what he described as the same sort of casino-like operations at the big banks that nearly destroyed the financial system in the first place.
In adopting the tougher line, Mr. Obama set aside a more limited approach to regulation that had been championed since last year by his economic team, led by Treasury Secretary Timothy F. Geithner.
Yet even Mr. Geithner of late has been moving toward a tougher stance on Wall Street, in part out of anger that big banks, having ridden a taxpayer bailout back to comfortable profitability, are now rewarding themselves with big bonuses and fighting harder in Congress against the administration’s initiative to tighten regulation of the financial system.
The issue reignited speculation, common in the administration’s early months, that Mr. Geithner and perhaps Lawrence H. Summers, the senior White House economic adviser, were not long for the Obama world given broad public perceptions that they remained too close to the financial industry.
But numerous administration officials said that Mr. Geithner especially had earned the trust and confidence of Mr. Obama, who believed they had not received credit for stabilizing a financial system that by all accounts was on the verge of collapse when the president first took office.
His pique on that score came through in his televised interview with ABC News on Wednesday, after the loss in Massachusetts, even as Mr. Obama empathized with Americans’ anger about the bailout effort, the Troubled Asset Relief Program, that he inherited from George W. Bush.
“Now if I tell them, ‘Well, it turns out that we will actually have gotten TARP paid back and that we’re going to make sure that a fee’s imposed on the big banks so that this thing will cost the taxpayers not a dime,’ that’s helpful,” Mr. Obama said. “But it doesn’t eliminate the sense that their voices aren’t heard and that institutions are betraying them.”
To change that, he added, “We’re about to get into a big fight with the banks.”
That fight is sure to continue testing Mr. Geithner, as well as Mr. Summers and lesser-known members of the economic team who are seen by others in the West Wing as politically tone-deaf. Yet Mr. Geithner, in an interview, said he foresaw no problems.
“Just because things seem populist doesn’t mean they’re not the right thing to do,” he said.
The administration’s new tack suggests just how much big banks have miscalculated Americans’ intensified resentment against the bailout — anger stoked by persistent high unemployment, banks’ stinginess in lending to small business and the revival of Wall Street’s bonus culture.
They have become the perfect foil for the White House as it tries to lead the Democratic Party out of its post-Massachusetts morass — and to change the channel from the seemingly unending debate over health insurance. As the White House hopes to define the fight, the enemy is not big government but big money.
One problem for the Obama team, as some Congressional Democrats lament, is that its moves of late look poll-driven and overly reactive to the Democrats’ implosion in the Bay State race. To be sure, worse for the White House than Scott Brown’s win is the fact that the Republican won as an agent of change just as Mr. Obama did in 2008 — only this time, of course, the change was not from Bush administration policies but from Mr. Obama’s.
Despite the timing, however, all three of Mr. Obama’s recent policy stands have been in the works for some time. That is not to say they were not politically motivated; for some months the administration has been concerned about Mr. Obama’s slipping support in the polls and many Americans’ perception of his administration as too cozy with Wall Street.
The president’s proposal last week for a tax on about 50 of the nation’s biggest banks to recoup any losses from the bailout began taking shape at the Treasury Department last August for inclusion in the budget that Mr. Obama will send to Congress in February, administration officials said.
Aside from its value as a way to raise $90 billion over 10 years, a time frame in which Mr. Obama is eager to cut deficits, the bank tax helped mute long-running criticism of Mr. Geithner for his opposition last summer to European leaders’ calls for taxing bank bonuses and transactions.
Earlier this week, with action heating up in the Senate over legislation for regulating banks, administration officials spread the word that Mr. Obama’s proposal to create an independent consumer protection agency was “non-negotiable.” Industry lobbyists have made killing the agency a priority, while liberal groups have made its creation a test of Mr. Obama’s leadership.
Mr. Obama personally weighed in with a lengthy meeting at the White House on Tuesday with the panel’s chairman, Senator Christopher J. Dodd, a Democrat from Connecticut.
Until now, the president has had a low profile on the banking bill, though the House debated its version most of last year before passing it in December. Some Democrats complain that the White House was too absorbed by the health care issue, but they acknowledge the banking issue was widely seen as an insider’s game over arcane issues like derivatives trading that have little resonance with the public.
Now that has changed. As Thursday’s call for new bank limits showed, the president personally is taking the lead as First Populist. “Never again,” he said, “will the American taxpayer be held hostage by a bank that is too big to fail.”
Last updated 24/01/2010