President Obama is being touted for a)eliciting opinions from all players in the policy room and b)allowing (if not encouraging) contrarian opinions in policy debates. This is what the Obama Contrarian series of postings will be about. This first posting is about the kid glove treatment the Financial Community appears to be getting from the Obama Administration.
Back in the last few months of the Presidential campaign, Candidate Obama spoke of rescinding the Bush Tax Cuts for the wealthy as a means to help finance his ambitious programs. In addition he called for careful reregulation of the Financial sector whose opaque transaction, hidden leveragings, complex financial instruments and unprecedented greed really precipitated and drove the Financial crisis. [Quick aside: the Economist magazine, in a feat of propaganda leger-de-main is currently blaming Spendthrift Consumers, Lax Regulators, Government Encouragements, and “some” Financial Elites as being equally complicit in causing the deepest Worldwide Recession in 80 years. By this time next year, I expect the Economist will have the role of the Financial Community down to “a few rogue risktakers”.]
I mention the aside because the Obama administration appears to be following the Economist line. To wit
1)despite the need for as much revenue as possible the Obama Administration is forgoing and hence not rescinding the Bush tax cuts for 2009 and 2010 leaving over $150 billion on the tables of the wealthiest 5% of the population;
2)despite Obama’s promise to reregulate the financial system, the Obama/Geithner team has postponed financial regulations now to the Fall citing the need to solve the immediate credit crisis as of higher priority. Even more alarming, advisers like Senator Chris Dodd, Senator Charles Shumer and Economics Advisor Larry Summers, all of whom have received substantial payments in the last 2 years from the Finance Community, have not been compelled to recuse themselves from “advising on Financial Reregulation”.
3)Having pledged to stem excesses of Financial Executive Compensation which was one of the key factors in the excessive risk taking by financial institutions, the administration has quietly walked away from any caps or regulation on financial executives compensation a)first only covering TARP-taking financial institutions; and b)now completely backing off any caps or restrictions on financial executive compensations except what has been given to a Pay Czar who has very limited reach and authority. This is occurring despite the acknowledment in the Finance Community itself that this was one of the major contributing factors to the meltdown.
Why This Financial Kid Glove Treatment?
1)The Obama team is still pre-occupied with the economic recovery.
2)The Obama team is concerned by the mischief that the Financial community, aroused by regulations, could cause.
3)The Obama team is convinced of “diminishing returns” for any of these actions.
4)Obama himself has a low regard for “settling accounts” – witness no action against Bush Admin for torture, Warrantless Wiretapping, WMD deception, etc.
5)Obama team is making a hidden political trade off – Healthcare and Energy reform for Financial Community immunity from a)prosecution for Meltdown misdeeds, b)minimal intrusions into their current practices and securitization methods plus c)”ne touchez pas” regarding all their compensation methods.
6)Only the Shadow knows what evils lurk in the Corridors of Power.
So given this Financial Kid Gloving, what can the World and and American public expect from the Obama team.
1)Financial misdemeanors on a massive scale and their perpertrators will largely go “Scott Free”. The markets will be declared “to have worked” as Bear Stearns, Lehman Brothers, Bernie Madoff and all their investors got wiped out. As well, all of the financial community saw their investments go way down by 20-50% “just like everybody else”.
2)Since none of the government financial regulation institutions like SEC, CFC, FTC, FDIC, FRB, etc will merged and streamlined users will have to rely on new administrators to inject new rigor and discipline into the financial community. But this bottom approach can be easily sidelined if it becomes “too meddlesome”. 3)Antitrust and DOJ -based financial scrutiny, already at very low ebbs from Bush Administration days, may or may not be strengthened. But perhaps the States Attorney Generals, already strapped for cash, will pick up the slack.Yeah, right.
4)the middle class which was to achieve some sort of rebalancing of Net Worth[the top 5% of US house holds hold 59% of the total US Net Worth while the bottom 80% hold just 15%], will have to wait until after 2010 to see any rebalancing really start.
5)But the Financial Community can continue with a)status quo largely in place, b)Brobadingnangian compensation/bonus policies restored and b)Moral Hazard Insurance(heads we win, tails John Q., you lose) fully renewed – their bubble growing exploits.
6)The World – now what were you really expecting ????
Who would have guessed it. I need a 5th to understand this part of “Yes We Can”.