What Should Be in Obama's State of the Union

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Contrary to what Republicans, Rubinite Democrats and corrupt bank lobbyists will tell you, fixing the U.S. banking system isn't really all that complicated. The two most critical reforms are utterly intuitive, but Obama will have to go to the mat for both of them if he wants to see them enacted.

We all know what "too-big-to-fail" means. If a bank is so bloated that its failure would wreak havoc on the entire economy, then it's too-big-to-fail. That status encourages banks to take crazy risks in the capital markets casinos, and allows them to build political power to gouge consumers on credit cards, mortgages and anything else they can get their hands on.

How do you fix something that's too big? Make it smaller. Before the really crazy deregulation hit in the 1990s, banks were able to fuel healthy economic growth without putting millions of jobs in jeopardy. That's why even technocratic centrists like former IMF Chief Economist Simon Johnson and Kansas City Federal Reserve President Thomas Hoenig have suggested going back to the kind of banking we did before merger mania took hold in 1994. Back then, the biggest banks had total assets of about 1 percent of GDP. Today, that's about $150 billion, a cap that would require breaking up all of the multi-trillion-dollar bailout barons.

As anybody who uses a credit card can attest, the existing federal bank regulators only care about protecting bank profits. If banks can make money by screwing you over, the regulators don't care. The solution is simple: We need a new Consumer Financial Protection Agency that answers only to consumers, not bank balance sheets.

The bank lobby has been fighting both of these tooth-and-nail. The State of the Union address is a perfect opportunity to push back.

Health Care Reform

With no precedent since the passage of Medicare in the 1960s against which to measure President Obama's success on health care reform, there's no easy judgment to make on the administration's role in this tumultuous legislative process.

There's much not to like, especially the president's willingness to yield on his expressed support for a public health insurance plan, and his insistence on courting Republican members of Congress who never had any intention of supporting a health care reform bill. And the ascendancy of an anti-choice corps of Democrats can be partly laid at the president's feet, given his appointment of such anti-choice activists as the Rev. Jim Wallis to his own Office for Faith-Based and Neighborhood Partnerships, a move that likely emboldened the likes of Rep. Bart Stupak of Ohio and Sen. Ben Nelson of Nebraska, both of whom successfully sponsored anti-abortion measures in their chambers' respective versions of the bill.

Obama's overall style seems rooted in the anticipation of limitations to his actions imposed from the outside, and then a thrust for movement within those limitations. In light of that fact, last week's special election in Massachusetts, in which Republican Scott Brown defeated Democrat Martha Coakley for the seat long held by the late Sen. Ted Kennedy, may prove more a boon than an obstacle to the passage of a health care reform bill.

Lacking any pretense of a 60-vote "supermajority" capable of breaking a Republican filibuster in the Senate, the White House and congressional Democrats will be forced to play a craftier game in order to get health care reform passed, and that game could yield an unexpected bonus or two—like the reintroduction of a public option, or the return of a Medicare buy-in for people under 65.

That's because the Democrats will now be forced to used a Senate procedure called reconciliation in order to get any semblance of an acceptable bill passed in the end, since reconciliation requires only a simple majority. The catch is that it applies only to measures that are specific to the budget—and the creation of a new, government-run health insurance plan arguably fits the bill, as does the expansion of an existing government program such as Medicare.