Obama & Wall Street: 'Moderation in the Pursuit of Justice'

The Limits of Triangulating

Now that Congress has passed financial reform legislation, aren't people upset about past Wall Street abuses just being scolds and cranks?

Shouldn't they -- we -- just get over ourselves?

My answer is "no," because the abuses aren't past.

On the contrary, shockingly little has changed (never mind accountability for misdeeds).

Financial Reform Scorecard

To review, here is a litany of all the things that went wrong leading up to the crash:

Wall Street actively encouraged subprime lenders to lower their already low standards — and then bought those loans knowing they were likely to default, but not caring. Traders up and down Wall Street made millions in bonuses selling products that were “ticking time bombs.” Moody’s, one of the three big credit ratings agency, quadrupled its profits in seven years by handing out triple-A ratings like candy. Regulators ignored impassioned entreaties to investigate fraudulent lending practices and excessive leverage. These were not anomalies. This was standard operating procedure in the years before the crisis.

--Joe Nocera, "Still Stuck in Denial on Wall Street"; The New York Times (10/2/2010)

So all that's different now, right?

Not exactly.

The big banks aren’t being broken up, the way they were in the 1930s. Bankers aren’t being hauled off to jail. No serious effort has been made to rein in executive compensation — or even to claw back millions of dollars in bonuses that were based on what turned out to be illusory profits. Most of the financial practices and products that brought us to the brink remain legal under the new Dodd-Frank legislation — though they will, finally, be regulated.

--Joe Nocera, "Still Stuck in Denial on Wall Street"

Splitting the Difference

When confronted with knotty social issues -- gays in the military, abortion, immigration policy, etc. -- splitting the difference (dubbed "triangulating" in the Clinton years) is smart politics.

When confronted with overwhelming evidence of egregious lawbreaking and greed, the consequences of which have cost millions of people their jobs, homes, and savings -- triangulating is a terrible political strategy.

FDR understood that when he said, "“Wall Street is unanimous in its hate for me — and I welcome their hatred."

So did Barry Goldwater, that bleeding heart Socialist, who famously said: 'extremism in the defense of liberty is no vice. And moderation in the pursuit of justice is no virtue.'

1930's vs. 1990's

Fascinating Juxtaposition

The two photos above, from today's New York Times, present a fascinating juxtaposition.

The photo on the left shows FDR signing legislation -- known as The Glass-Steagall Act -- separating the nation's investment banks from its commercial banks. It was the latter that held ordinary Americans' savings deposits, and it was the former's plundering of same that played a big role in causing The Great Depression.

The photo on the right shows Bill Clinton signing legislation in 1999 dismantling Glass-Steagall.

Study in Contrasts

But for the fact that the people in the two photos are exclusively older, white males, the contrasts couldn't be more startling.

The Congressmen and senior government officials surrounding FDR look sombre, if not grim. Their demeanor suggests that they had just witnessed a horrific financial accident (if not crime) -- one which they are determined not to ever let happen again.

Of couse, they had, and they (mostly) did. To their credit, their efforts to safeguard the nation's financial system succeeded for more than three-quarters of a century.

By contrast, Bill Clinton and the officials around him -- luminaries such as Fed Chairman Alan Greenspan, SEC Chairman Arthur Levitt, Texas Senator Phil Gramm, and Treasury Secretary Robert Rubin -- look like they're re-filling the punch bowl at an especially raucous party.

Which of course, they were.

Less than 2 years later, the stock market cratered.

Less than a decade later, a lethal combination of investment bank risk and leverage -- just like in The Great Depression -- created the greatest financial crisis since the 1930's.