The Politics of Change

The poll results are in on why President Obama has begun a ‘War on Wall Street.’ A majority of Credit Writedowns readers believe President Obama’s recent populist turn and harsh rhetoric directed toward Wall Street is a political stunt. And to the degree CW readers believe otherwise, they see the latest salvos as only a start. Only 5% of you believe Obama’s change of tack is the real deal. More people backed Wall Street and thought the recent proposals were off base than thought the proposals substantive and not politically motivated.

The poll results are below.

Marshall’s recent posts are spot on regarding the politics behind these moves.

First, Marshall’s comments about the Bernanke re-confirmation over the weekend go to the heart of why many see the War on Wall Street as more political than real change.

Obama should not be going to bat for Bernanke like this – just as he should go the whole hog and and fire Geithner and Summers. Obama has belatedly realized after losing the New Jersey and Virginia gubernatorial races by a mile and the losing in Massachusetts – also by a mile relative to expectations – that his cottoning to Wall Street has cost his party far more than the Democrats ever imagined.

Now Obama looks like a fake when it comes to change. He has a huge credibility problem with his base – HUGE. So how does he overcome it? Going out there with Volcker and giving anti-banker speeches isn’t going to get it done. People don’t believe him. Backing Bernanke gives them reason not to believe him. It’s a HUGE tactical mistake. Obama is still playing games on the change issue – and the electorate will smell it out.

Then, there are Robert Reich’s words in Marshall’s post “Robert Reich gets it.”

A third political party is emerging in America. Call it the I’m-Mad-As-Hell party.

It’s a mistake to see the Mad-As-Hell party as just a right-wing phenomenon – the so-called Tea Partiers now storming the gates of the Republican Party. There are plenty of mad-as-hellers on the left as well – furious at Wall Street, health insurers, pharmaceutical manufacturers, and establishment Democrats.

Mad-as-hellers don’t trust big government. But they don’t trust big business and Wall Street, either. They especially hate it when big government gets together with big business and Wall Street – while at the same time Main Street is in shambles and millions of people are losing their jobs and homes.

See Marshall’s post “President Obama, are you listening?” for how one Mad-as-heller took action in Massachusetts last week to send a message.

The Obama Administration has proved time and again that it is not “change you can believe in.” And for it to act as if somehow it has been on the right side of the issues all along without admitting point blank that it is changing tack reduces credibility.

Now, I know Goldman Sachs (GS) is unpopular these days. But, I have been saying all along that it is not just about Wall Street. Government sets the pre-conditions and ground rules which aligns Wall Street’s and Main Street’s incentives. In my July post “Forget about Goldman,” I said:

It’s the U.S. government we should be pointing fingers at. While Goldman is crying out thank you sir, may I have another as everyone piles on, the U.S. government, which often seems bought and paid for by Wall Street and is the one actually running things here, is getting off scot-free.

Here’s a question for you, if Goldman made out like bandits from the AIG fiasco, who do you think allowed that? Government.

When Goldman’s Lloyd Blankfein was the only person in the room from Wall Street as AIG’s fate was debated, who do you think allowed him? Government.

When TARP funds were disbursed to re-capitalize Goldman and other banks, who made that decision? Government.

When Goldman repaid its TARP funds, paving the way for them to then hand out record bonuses, who do you think allowed this? Government.

When Goldman sold asset-backed securities to investors when it was net short the mortgage-backed market, whose rules do you think allowed this? Government.

Forget about Goldman Sachs. Start worrying about government.

They are the ones who regulate the financial services industry. Government is the one which makes laws governing how financial services companies can and cannot operate. Government is also the one which can change the ground rules going forward to help prevent a recurrence of this sort of financial crisis in future.

As my good friend Marshall Auerback says the advantages firms like Goldman have are “symptomatic of the problem, but they are not the problem.” The problem is Government and its cozy relationship with the industry it is supposed to regulate and control. The government is captured by the financial services industry, plain and simple. This is why the global financial system is a shambles.

My argument now is largely the same. And I hope events over the past six months since I wrote that makes you see the argument even stronger today. The Obama Administration wants you to think the financial crisis is Wall Street’s problem alone because many of the bad actors have been there. It has been 16 months since Lehman Brothers (LEHMQ.PK) collapsed. Three years since HSBC’s surprise credit writedowns began the subprime crisis. If Wall Street alone were the problem, by now we would already have seen a flurry of criminal prosecutions at a minimum. It is telling that we have not.