It’s hard not to think of Franklin Roosevelt (Roosevelt-and-water, perhaps) as President Obama criticizes the Wall Street banks, welcomes Paul Volcker (who argues that the banks should be partially broken up) back into his inner circle, and condemns the Supreme Court’s new campaign finance decision as a threat to democracy. Roosevelt did break up the banks (a successful reform), and he wanted to “pack” the Supreme Court with new New Deal friendly justices (a disaster).
I think the President’s bank proposals will be much more difficult for Republicans to simply reject than healthcare. If the tax were called a “penalty for bigness” instead, and designed to force the too-big-to-fail banks to slim down, it would fit perfectly with a commitment to competition in the marketplace. The proposal to “break up” the banks—actually to prohibit deposit taking banks from owning hedge funds and the like—is more debatable, but is also defensible. I would reduce the ability of deposit taking banks, which enjoy a government guaranty, to gamble with the taxpayer’s money. If the President were to go one step further, and abandon his proposed resolution authority (with would mean more bailouts in the future), he would have a package that Republicans ought to support. And if they didn’t, they could be the ones on the wrong side of the current populist outrage in the fall.
It remains to be seen, of course, whether the populist turn will amount to more than just words. In my view, a key indicator is the future of Treasury Secretary Tim Geithner, whose fingerprints are all over the bailouts, especially AIG. If the President is serious about reform, he will replace Geithner with a Treasury Secretary who is less committed to Wall Street and bailouts. If Geithner remains, it is unlikely that the new populism will achieve its promise.