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Monday, July 4, 2011

Presidential Leadership Standing up to Wall Street

“What haunts the Obama administration is what still haunts the country: the stunning lack of accountability for the greed and misdeeds that brought America to its gravest financial crisis since the Great Depression. There has been no legal, moral, or financial reckoning for the most powerful wrongdoers. Nor have there been meaningful reforms that might prevent a repeat catastrophe. Time may heal most wounds, but not these.”
 “After the 1929 crash, and thanks in part to the legendary Ferdinand Pecora’s fierce thirties Senate hearings, America gained a Securities and Exchange Commission, the Public Utility Holding Company Act, and the Glass-Steagall Act to forestall a rerun. After the savings-and-loan debacle of the eighties, some 800 miscreants went to jail. But those who ran the central financial institutions of our fiasco escaped culpability (as did most of the institutions).”

“The weak Dodd-Frank financial-reform law that rose from the ruins remains largely inoperative, since the actual rule-writing was delegated to understaffed agencies now under siege by banking lobbyists and their well-greased congressional overlords.”

“Rather than purge the crash’s crimes, Wall Street’s leaders are sticking to their alibi: Everyone was guilty of fomenting this “perfect storm,” and so no one is. Too-big-to-fail banks are bigger than ever, and ­Masters of the Universe swagger is back.”


 The hegemony of the moneyed interest in any republic renders the public weal subject to a plutocracy—rule by wealth. In the wake of the credit crisis of 2008, U.S. Senator Richard Durbin of Illinois observed that the banking lobby still owned Congress even as the public regarded the banks as at least partially culpable for the crisis. Durbin made his remark after the Senate defeated his amendment that would have allowed foreclosure judges to modify mortgages in trouble. Even though mortgage companies had written steep interest rate hikes into the subprime mortgages that the mortgage writers must surely have known the borrowers could not afford, the servicers stood by the vaunted sanctity of contract doctrine—a faithfulness conditioned, no doubt, by the article serving their interests. Financial influence over elected representatives enabled the U.S. Government to provide cover, or at least to refrain from going after the financial institutions that had been so culpable. That government also refused to break up the banks too big to fail, whose very concentrations of wealth, increased by the TARP program, stood even more as systemic risk.

 Historically, Americans have looked to independently-minded occupants of the U.S. Presidency to stand up to powers of the day to protect the viability of the states. Andrew Jackson, for example, stood up to the moneyed interest before his reelection in 1832 in depleting the Second National Bank of the United States of funding (the bank ended in 1836). Doubtless Jackson spent many nights before the election worried that standing up to money might cost him the election. Of course, he won and enjoyed distinct respect.

 I suspect that Barak Obama did not enjoy respect in the wake of the credit crisis precisely because he did not stand up to the banking lobby. Relatedly, he caved to the demands of the health insurance industry lobby that he no longer push for a public option and resist a mandate for guaranteed customers. I suspect that people sense a lack of political courage and recalibrate their respect accordingly. The political weight of such a collective judgment at the ballot box is an open question; the reward such as Jackson received in 1832 is likely more certain even as it is thought less. Herein occupies the political trap wherein the path of least resistance may gain the upper hand in a president’s political calculation. Faith in the people rewarding courage against concentrated interests can be difficult to embrace even as such reward is perhaps germane to the office as it was designed and intended. Americans seem to innately know this, even as their collective judgment is difficult for politicians to discern.

 In the want of a Jacksonian presider standing for the public weal against being overrun by the private moneyed interest, the historical answer would have been to look to normative, even religious, constraints. Frank Rich includes this type among the more contemporaneously popular legalistic and economic ones where he writes, “There has been no legal, moral, or financial reckoning for the most powerful wrongdoers.” Even so, he concentrates on government regulation as essentially the only means available to constrain the unrepentant greed of Wall Street. Historically, ethical constraint against greed was thought to depend on religious, and specifically Christian, auspices. Frank Rich’s focus alone may be read as rendering a verdict on the efficacy of Christian ethics in countering the fundamental desire for more. Yet how many Jackson’s have the States seen that we may rely on presidential leadership and any ensuing regulation to constrain the moneyed interest?  Moreover, what if greed is so entrenched in human nature that virtually any bulwark must ultimately be found wanting?  


 Frank Rich, “Obama’s Original Sin,” The New Yorker, July 3, 2011.

Related essay: “Godliness and Greed