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Mixed Signals: Will Obama Be Hard Enough on Wall Street?

Obama knows he needs to be more populist when it comes to the banks, though it remains to be seen how hard he'll fight.

What a week!

As many progressive critics have been arguing for the past year, if President Obama did not cease behaving as the ally of Wall Street, the right wing would emerge as populist champion of the forgotten American. The election results in Massachusetts have now provided the exclamation point.

The loss of Ted Kennedy's former senate seat seems to have gotten the president's attention. Obama is belatedly getting in touch with his anger, as it were. He has turned up the rhetorical heat against the banks. But will he walk the talk?

Are we seeing a true shift in the Obama presidency where he revises his theory of change and discovers that political progress sometimes requires confrontation before you reach consensus? Or are these simply gestures of expediency and desperation?

So far, the signals are mixed. With the State of the Union Address getting drafted and re-drafted, debates are still raging inside the White House: Should Obama, after the Massachusetts wake-up call, be more conciliatory, or more feisty; more progressive or more centrist?

On the banking front, Obama has begun signaling a welcome populism. First, even before the Massachusetts vote, he called for a surtax on bank profits -- a relatively small and symbolic gesture than neither brings in a lot of money nor alters the banks' toxic business models, but a start.

Next, he intervened with Senate Banking Committee Chairman Chris Dodd to prevent Sen. Dodd from compromising away the House-passed consumer financial protection agency, one of the few provisions of the House version of financial reform that has some teeth. Literally the day before the president acted, Dodd had put out the word that he would have to throw the proposed agency under the bus in order to get Republican support for other provisions.

The agency has been a favorite of Obama's since last June, when it became part of the administration's June 17th White Paper on financial reform, despite skepticism from Geithner and Summers, only because Obama personally insisted on it. What's interesting about Obama's move last week is not just that he is supporting tough reform legislation, but that he got involved personally, calling Dodd to the White House and extracting his support. Until now, Obama has been mostly hands-off when it comes to financial reform, leaving the details to Tim Geithner and Larry Summers.

Even more significantly, Obama resurrected Paul Volcker as a senior adviser and embraced a Volcker proposal to revive the Glass-Steagall Act, an idea that Summers and Geithner have been resisting all year.

The 82-year old Volcker turns out to be one of the best organizers in Washington. In addition to forcefully speaking out about the need for a new Glass-Steagall, to keep commercial banks out of the business of speculating in securities, Volcker enlisted several other financial Brahmins to add their voices of support, including the Republican former chair of the SEC, Bill Donaldson, and the former CEO of Citigroup, John Reed.

Though Obama's public embrace of Volcker and Glass-Steagall was unveiled as part of the post-Massachusetts damage control, it has been in the works since before Christmas.

Geithner, who is again in political trouble because of investigations about his role in insisting that the government's bailout of AIG flow through to Goldman Sachs and other banks at 100 cents on the dollar, had his office quickly put out the word that Geithner had really been in support of Volcker's plan all along. But that's total malarkey.

The support for Volcker came mainly from Vice President Biden and from chief political adviser David Axelrod. In the White House debates, it was often Obama against most of his economic team, which has done its best all year to keep Volcker far away from Obama. Some dissenters on the economic team, such as Austan Goolsbee, sided with Volcker.