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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.

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So Obama seems to get that he needs to be more populist both in tone and substance when it comes to the banks, though it remains to be seen how hard he'll fight. But banking reform is only one piece of the battle. Obama went the other way when it came to trying to salvage the re-nomination of Ben Bernanke to chair the Fed for a second term.

By the middle of last week, it looked as if the same popular revolt that gave Republicans Ted Kennedy's senate seat could take down Bernanke, who has emerged as a lightening rod for populist anger. Rejecting Bernanke's confirmation is an easy vote for senators who want to whack Wall Street, and there were murmurings of mass defections in the Senate Democratic caucus.

But with Bernanke's support crumbling, the White House pulled out all the stops. By Saturday, both Harry Reid and Dick Durban, the top two Democrat leaders in the senate, who have been wavering, pledged to vote aye. It now looks like Bernanke will survive, with more Republicans voting no than Democrats, and Democrats again looking like the party of high finance. The White House concluded that another political defeat for the president would be worse than the association with the unpopular Bernanke, who epitomizes the Obama alliance with Wall Street.

Even more ominously, Obama thus far is on the wrong side of the deficit-versus-jobs debate. Budget Director Peter Orszag and other deficit hawks in the administration have long been urging Obama to support a proposed fast-track commission that would bypass usual legislative procedures and compel an up-or-down vote on a compulsory deficit-reduction package designed to slash Social Security and Medicare spending.

This is, of course, appalling politics. It signals: we had to spend a ton of taxpayer money to rescue the banks and prop up the ruined economy. Now, gentle citizen, though you have paid once through the reduced value of your retirement plan and your house, you will pay again through cuts in Medicare and Social Security.

Since Christmas, Obama has been negotiating with the two key sponsors of the commission, Senators Judd Gregg (R-NH) and Kent Conrad (D-ND). Last week, it looked as if they were close to a deal to have the White House appoint a more moderate version of such a commission, but after signaling support for the deal Gregg went out of his way to disparage that idea. Mercifully, it now appears that the deficit hawks in the Senate don't have the votes, since it would require some tax hikes as well as spending cuts, and most Senate Republicans won't touch anything that raises taxes. But on Friday, Obama himself said that he'd support a legislated commission, reversing his earlier position. The only hopeful sign is that he doesn't seem prepared to spend much political capital on it.

The politics of the deficit commission are all tangled up with the politics of how much to spend on a new jobs bill. In December, the House, with no assistance from Obama, narrowly passed a $154 billion jobs will, which also provides fiscal relief to the states and extends unemployment and health benefits for jobless workers. But the word from the White House is that Obama will not support that high a number, and will give more prominence to deficit reduction. So despite the rhetoric about Obama getting past the health-bill morass and emphasizing jobs, jobs, jobs, he hasn't yet put his money (ours, actually) where his mouth is.

Then there is the matter of the carcass of health reform, and the related question of whether Obama is willing to get tough with Republicans as well as bankers. The early signs are not encouraging. In a Wednesday interview with ABC's George Stephanopoulos, Obama said that he'd look for areas of common ground, and by week's end, it appeared that the White House would be trying to get some kind of face saver that stopped far short of even the weak Senate bill.