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Obama's Populist Turn--Skeel

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.


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Comments ( 3 )

The Democrats are trying to regain the message. The Supreme Court decision gives them the perfect opportunity because the majority of the country thinks of corporations as being associated with the Republican party. I have friends that are unable to realize that the Hollywood studios and the newspapers are also corporate entities. Corporations, in their mind, is always Big Oil or Big Finance or Big Insurance. If Obama can get this to stick it will put him back in control of the message.

A friend and former student sent me an email that suggests a very interesting, and plausible, reason why the administration seems to be resisting any suggestion that Geithner step down: "I have been reading that Obama has not fired Geitner because he think he could not get another nominee through. The Republicans have blocking so many candidates, that Obama thinks he can't risk not having a Secretary. He probably would have fired him by now if it were not for the Republicans blocking so many nominee (See e.g., TSA nominee blocked because of unclear stance on unionization of TSA; numerous DoTreasury nominees such as head of Tax division, federal judge nominees etc.)"

You don't just fire the former head of the NY Fed.