Reich: Why Obama Must Take on Wall Street

Robert Reich warns Democrats of the political consequences of failing to enact tough financial reform:

Why Obama must take on Wall Street, by Robert Reich, Commentary, Financial Times: It has been more than a year since all hell broke loose on Wall Street and, remarkably, almost nothing has been done to prevent all hell from breaking loose again. ... Bankers are still making wild bets, still devising new derivatives, still piling on debt. The big banks have access to money ... cheaply..., courtesy of the Fed, so bank profits are up and bonuses as generous as at the height of the boom. ... And, of course, American taxpayers are out some $120bn, while millions have lost their homes, jobs and savings.

All could be forgiven if the House and Senate ... were about to come down hard on the Street and if the Obama administration were pushing them to. But nothing of the sort is happening. ... The bill that has already emerged from the House is hardly encouraging. ...

What happened to all the tough talk from Congress and the White House early last year? Why is the financial reform agenda so small, and so late? Part of the answer is that the American public has moved on. A major tenet of US politics is that if politicians wait long enough, public attention wanders. With the financial crisis appearing to be over, the public is more concerned about jobs. ...

Yet if the president and Congress wanted to, they could help Americans understand the link between widespread job losses and the irresponsibility on Wall Street that plunged America into the Great Recession. They could make tough financial reform part of the answer to sustainable jobs growth over the long term.

True, financial regulation does not make a powerful bumper sticker. Few Americans know what the denizens of Wall Street do all day. Even fewer know or care about collateralized debt obligations or credit default swaps. To the extent Americans have been paying attention to the details of any public policy, it has been the healthcare reform bill. But that only begs the question of why financial reform has not been higher on the agenda of the president and Democratic leaders.

A larger explanation, I am afraid, is the grip Wall Street has over the American political process. The Street is where the money is and money buys campaign commercials on television. Wall Street firms and executives have been uniquely generous to both parties, emerging as one of the largest benefactors of the Democrats. Between November 2008 and November 2009, Wall Street doled out $42m to lawmakers, mostly to members of the House and Senate banking committees and House and Senate leaders. In the first three quarters of 2009, the industry spent $344m on lobbying – making the Street one of the major powerhouses in the nation’s capital.

Money is powerful. Talk is cheap. ... But the widening gulf between Wall Street and Main Street – a big bail-out for the former, unemployment checks for the latter; high profits and giant bonuses for the former, job and wage losses for the latter; buoyant expectations of the former, deep anxiety and cynicism by the latter; ever fancier estates for denizens of the former; mortgage foreclosures for the rest – is dangerous. Americans went ballistic early last summer when AIG executives got big bonuses after taxpayers had bailed them out. They will not be happy when Wall Street hands out billions in bonuses very soon. Angry populism lurks just beneath the surface of two-party politics in America. Just listen to Sarah Palin or her counterparts on American talk radio and yell television. Over the long term, the political stakes in reforming Wall Street are as high as the economic.

I think people understand the connection between what happened on Wall Street and job losses better than he implies (which bolsters his political argument).