President Obama’s ‘Wall Street’ speech on Thursday was good news for the future of capitalism and for civilisation as we know it. He seems to mean business, urging finance leaders and their Republican servants to accept the main elements of the bill now being prepared for the Senate. This includes: a ‘resolution authority’ that would seize and liquidate collapsing firms, paying out creditors from a fund the banks would be forced to contribute to; a transparent clearing house for derivatives; an independent Consumer Finance Protection Agency to stamp out predatory lending; and a mechanism to increase shareholder influence over executive salaries.
He probably wouldn’t fight the battle if he couldn’t win, and until recently there had been deep pessimism as to his resolve. In particular it was assumed that the Senate bill would be a severely diluted version of the House bill passed in December. Jeff Maddrick was certain that the CFPA would be ditched and that the clearing house requirement rendered useless by exemptions. Paul Krugman has consistently complained that the Federal Reserve is the wrong body to regulate the industry. Matt Taibbi, who coined the marine invertrebrate nickname in an expose of Goldmann Sachs, had later concluded that the President himself was a creature of the investment banks, especially Citibank.
But there has been a strong turnaround. Instead of watering down the House bill, the Senate will be voting on an even stronger one — although this outcome is disturbingly arbitrary, as Noam Scheiber’s analysis of the political machinations makes clear.
The SEC charges against Goldman Sachs may have been the tipping point. Then there was Clinton regretting his role in the deregulation of financial markets, especially the repeal of the Glass-Seagall Act in 1999, for which he blamed bad advice from Summers and Rubin.
It isn’t as if the banks themselves have become compliant or leaned any lessons. On the contrary, they’ve been rampant with profit announcements and bonuses. But this display of arrogance and ingratitude may have been their undoing. The SEC’s decision to prosecute Goldman Sachs has been a propaganda blow against the whole industry, although in principle other Wall Street firms might have used this to attribute the crisis to a few bad apples, and argue that the real problem was the SEC’s lax enforcement of existing regulations (as in the case of Bernie Madoff) rather than inadequacy of the law itself.
Now that they’re on the nose they continue to be shameless, but no longer brazen. In fact they’ve switched to more covert tactics — using ‘Main street’ and astroturf lobbies as fronts, their own media mouthpieces having fallen silent. Jonathan Chait notes that conservative media radio and press have fallen silent on the subject of financial reform and attributes this to ‘a lack of a coherent conservative analysis’. Scheiber (in the piece linked above) tells how the US Chamber of Commerce flew a delegation of industry executives to Washington, calling themselves the ‘Coalition for Derivatives End-Users’, and purporting to protest that restraints on derivative trading will damage their businesses (which they manifestly won’t). Justin Elliot discovered (link via Krugman) that a group called ‘Stop Too Big to Fail’ was influencing ‘liberal’ opinion by masquerading as a champion of financial accountability.
Krugman wishes Obama’s rhetoric had been less conciliatory: he wants the banks, and the public, to know that they will be worse off. Scheiber hears the ‘unity’ theme as code that Obama intends to get his way. Chait thinks it wasn’t as conciliatory as all that in any case, if you know your history.
Anyway, it all seems positive. ‘Yes, we can!’ no longer has the mocking resonance it had a few months ago, although it now seems more a reference to the art of the possible rather than an exhotration to hope for miracles. Nonetheless, there is still a long way to go. For the time-constrained, Anthony Leonard offers a very handy digest on the factors that will determine the fate of capitalism and civilisation as we know it in the coming weeks.