Rahm Emanuel, Barack Obama’s Chief of Staff in the first term, famously declared that a crisis is too important to waste. Unfortunately the newly elected president’s political philosophy is best described as Hamiltonian Federalist versus Jeffersonian Liberal, in the old sense of the term celebrating the individual and distrusting concentrated power. It was an unfortunate bias for him to have because it left him unprepared to give the bank system the required reset of the century. Andrew Jackson’s reset by not renewing the charter of the Bank of the United States in the 19th and FDR’s with Glass Steagall in the 20th century were long lasting break ups of financial power and concentration. The Dodd Frank Act, on the other hand, doesn’t and dams the economy to less than optimal growth.
Fox news and right wing punditry aside, The Administration has many indices headed in the correct direction for those of us wishing for less government and more liberty. The economy is growing with private employment up and government jobs down. The deficit is decreasing. We are disengaged from the war in Iraq and soon will be from Afghanistan as well. Other foreign events have been dealt with a clear head and in partnership with our allies. Finally the legislative momentum has been brought to a crawl thereby reducing the prospect of further harm being done as the country mends itself. His legacy will be of competent leadership.
This is from a President who entered office with a challenge for which he had neither the economic nor philosophical framework to understand, much less decide what to do at the cusp of the Great Recession. That Tim Geithner, his Secretary of the Treasury, was a master mechanic of the broken status quo was not recognized. Fearing a cascading effect, Treasury did not want to draw blood in Wall Street and decided to protect even the untenable banks. Unfortunately Bank of America harbored Angelo Mozilo, the great criminal of the recession whose Countrywide Financial operation perpetrated a massive fraud on banks throughout the world. Citigroup reached its nadir through sheer incompetence but Treasury compelled it’s resentful competitors to prop it up. By this sweeping of financial misdeeds under the rug the newly elected President’s goodwill turned to ashes within his first thirty days in office.
It ignited Rick Santelli to famously rant on CNBC Business News television against protecting irresponsible borrowers. That the tirade began the Tea Party was really the least of Obama’s problems because Santelli shifted the blame to the borrowers rather than duplicitous lenders. On the other hand, banks that had acted correctly and prudently felt betrayed by the Administration for holding water for those who acted badly and recklessly. By summer of 2009 the bad feeling in the banking community was so that none of the major players would attend a Wall Street presentation that the President gave. The impression that took over that first year was that Obama abandoned the little guy and let Wall Street off the hook.
Dodd Frank requires a rewrite to one simple precept, that every financial institution, be it Bank, Insurance Company or Investment Firm which reaches one percent of Gross Domestic Product in assets under their control divest into smaller completely separate entities. The end result is an act that commands rather than micromanages. It eliminates systematic risk. Those institutions that game the system are bankrupted by free markets that determine the ersatz services and benefits they offer are worthless. Fewer bonuses for those duping their customers and a slow regression to the mean in the country’s income distribution. Unfortunately with the Financial Lobby’s current vise grip on Washington there is no chance for passing such a simple act until the next crisis.
Bill Clinton wished for the opportunity to have lead in a dire time and thereby put him in the pantheon of the Great Presidents. Barack Obama’s bad luck in this regard is that he had the crisis but let it slip through his fingers by not having the trust busting instinct of a Teddy Roosevelt who made Standard Oil divest into five distinct competitors, a courageous battle that makes TR a Great President, despite the progressive baggage. Obama, on the other hand, is the nation’s first President of African descent where he proves American Exceptionalism with his every living breath and for that will be remembered.
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