In the Arena

Obama the Populist Cont.

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In my print column this week, I made the argument that Barack Obama hasn’t been a very convincing populist, given the fact that he turned over his economic policy to Financophiles Tim Geithner and Larry Summers. In fact, he blew the opportunity to restructure a diseased financial system that emphasizes financial deal-making over productive investment to the detriment of the American economy.

In today’s New York Times, Jim Stewart advances that argument in great and compelling detail… He shows how the regulations governing the so-called Volcker rule–which limits the ability of commercial banks to play private investment games–have ballooned from 10 pages to 200, and that those 200 pages are…incomprehensible, and probably unenforceable. He quotes an all-star team of sane banking experts–Paul Volcker, former Senator Ted Kaufman, investment legend Henry Kaufman (no relation)–saying that these regulations can’t possibly work and favoring a straight, simple division of commerical and investment banking; in other words, a return to the Glass-Steagall regulations.

Amen and hurrah. That Barack Obama did not take this far simpler path remains one of the great mysteries, and one of the biggest mistakes, of his presidency. Breaking up the 10 biggest banks, which control 70% of all U.S. assets, is where financial reform begins. As Simon Johnson and others have argued, any bank that controls more than 5% of all assets is probably too big to fail, and therefore exists in the realm of “moral hazard.” That is, the government will probably have to save the bankers from their greedy gamesmanship when the next bubble pops, as it inevitably will.

Advisers to the President have told me they believe that financial reform issues are too difficult for the public to follow. I disagree. I think the millions of people who do their banking at Citibank, Bank of America, Chase, Wells Fargo and so forth would appreciate it if the government could hang a “No Gambling Allowed” sign over the entrance. Gambling–within reason–is the province of investment banks. We need an updated version of Glass-Steagall as soon as possible, lest the amoral greedheads who runs the proprietary trading desks at the big banks blow up the economy yet again.