Sunday, January 24, 2010

Frank Rich wrote his column too early this week

Credit Frank Rich with warning Obama early and often to get "in front of the anger roiling a country where high unemployment remains unchecked and spiraling foreclosures are demolishing the bedrock American dream of home ownership," as he puts it in today's column. He's been sounding this note since last spring. The event has proved him right. He may be our most astute reader of media memes, popular mood, and political posturing.

Today he's at it again. But he seems to have written his column before Obama proposed his "Volcker rule" banning proprietary trading and internal hedge funds - and then gone back and just inserted a brief allusion to it after the event, without at least partially recasting the column as the Thursday event required.

Here's Rich's brief acknowledgement of the turn to Volcker:
Obama needs more independent economists like Paul Volcker, who was hastily retrieved from exile last week after the Massachusetts massacre prompted the White House to tardily embrace his strictures on big banks.

 And here's his prescription -- as if that turn hasn't happened:
When it comes to economic substance, small symbolic gestures (the proposed new bank “fee”) won’t cut it. Nor will ineffectual presidential sound bites railing against Wall Street bonuses beyond the federal government’s purview. There’s no chance of a second stimulus. The White House will have to jawbone banks on foreclosures, credit card racketeering and the loosening of credit to small businesses. This means taking on bankers who were among the Obama campaign’s biggest backers and whose lobbyists have castrated regulatory reform by buying off congressmen of both parties. It means pressing for all constitutional remedies that might counter last week’s 5-to-4 Supreme Court decision allowing corporate campaign contributions to buy off even more. 
And then, to seal the thesis, a well-worn journalistic cudgel -- unfavorable comparison with a supposed virtuoso performance by a great predecessor:
J.F.K. was infuriated by the U.S. Steel chairman’s decision to break a White House-brokered labor-management contract agreement and raise the price of steel (but not wages)....
The young president called out big steel for threatening “economic recovery and stability” while Americans risked their lives in Southeast Asia. J.F.K. threatened to sic his brother’s Justice Department on corporate records and then held firm as his opponents likened his flex of muscle to the power grabs of Hitler and Mussolini. (Sound familiar?) U.S. Steel capitulated in two days. The Times soon reported on its front page that Kennedy was at “a high point in popular support.”

Can anyone picture Obama exerting such take-no-prisoners leadership to challenge those who threaten our own economic recovery and stability at a time of deep recession and war? That we can’t is a powerful indicator of why what happened in Massachusetts will not stay in Massachusetts if this White House fails to reboot.

Rich seems not to have registered that Obama has just proposed stripping the remaining Wall Street titans and the glboal megabanks of their highest octane, highest risk profit centers, or forcing them to restructure to preserve them.  That's a good deal more substantive than "jawboning" them to increase lending, as Rich prescribes. Herbert Hoover tried that - repeatedly.

Say what you like about the proposed rule's likely efficacy in reducing bank size and systemic risk -- evaluations are predictably all over the lot. But the proposal drove down the stock market -- moved mainly these days by bank stocks -- 4% in two days. Goldman Sachs, which derives 10% of its revenue and a higher percentage of its profit from proprietary trading, dropped 4.2% by market close the day of the announcement.   According to JP Morgan analysts cited by Bloomberg, "A curb on proprietary trading would cost Goldman Sachs, Morgan Stanley, Credit Suisse Group AG, UBS AG and Deutsche Bank AG about $13 billion in revenue next year."  And as malign coincidence would have it, the Supreme Court on the same day empowered banks to sink unlimited funds into political advertising venting their wrath.

Perhaps the rule will never get through Congress. Perhaps it will change beyond recognition in any financial regulatory reform bill that passes. Perhaps it's not even a good idea.

But no one can say that Obama has not taken on the banks head-on.  Hitting Goldman Sachs in its prized profit center dwarfs Kennedy's verbal spanking of U.S. Steel in import and potential impact.

No comments:

Post a Comment