Cross-posted from Smirking Chimp
It was good to hear President Obama say that reining in Wall Street's high-risk behavior is an "unfinished piece of business." It would be even better if this observation were quickly followed by action -- the kind of concrete action he can take immediately, with or without Congress's cooperation.
The President made his remarks in an interview with host Kai Ryssdal on public broadcasting's "Marketplace" program. Ryssdal was surprisingly (and effectively) confrontational at several points, as when he asked the President this question:
"The Dow today sits plus or minus 17,000, right? Record highs. Banks' profits are up; the big banks are bigger than they were during the financial crisis; their appetite for risk is growing, as we've seen; and all of this is happening after Dodd-Frank -- the financial reform bill that we were told was going to prevent all these things from happening. It was going to rein in the banking system.
"So how do you look at the American people and say, 'You know what? 'Too big to fail' has been taken care of. What happened in 2008 is not going to happen to you again.'"
In his response, the President began by arguing that Dodd Frank's "goal ... was to prevent another catastrophic financial crisis," which seem to be a significant downsizing in ambition for a bill which was originally intended to reform a corrupted and counterproductive banking system.
But Obama soon warmed to the topic, giving an eloquent if circumscribed outline of the flaws in our banking system. He talked about the overgrowth of banking profits as a percentage of the economy, adding that "more and more of the revenue generated on Wall Street is based on arbitrage -- trading bets -- as opposed to investing in companies that actually make something and hire people."
"And so, what I've said to my economic team, is that we have to continue to see how can we rebalance the economy sensibly, so that we have a banking system that is doing what it is supposed to be doing to grow the real economy, but not a situation in which we continue to see a lot of these banks take big risks because the profit incentive and the bonus incentive is there for them. That is an unfinished piece of business ..."
These are not the kinds of words which President Obama says often. They were conspicuously absent, for example, from his most recent State of the Union address. It's a message he should have been delivering all along, and one which deserves more attention than it's likely to get from a daytime radio interview given during the summer doldrums, a day or two before a holiday weekend.
And for all its eloquence, there were some significant omissions from the President's remarks. Nothing was said, for example, about his own Justice Department's failure to indict bankers who bet illegally, defrauding customers and investors in the run-up to the 2008 financial crisis.
The President's stated goal of deterrence, along with basic principles of justice, called for prosecutions. Instead this president and his then-Treasury Secretary publicly proclaimed that bankers were innocent, against all evidence and without investigation.
That failure to prosecute was especially conspicuous when the President said this:
"Some of the work to get that done, though, involves restructuring the banks themselves -- how they work internally. Right now, if you are in one of the big banks, the profit center is the trading desk, and you can generate a huge amount of bonuses by making some big bets; you will be rewarded on the upside. If you make a really bad bet, a lot of times you've already banked all your bonuses."
That's absolutely right, and it's to the President's credit that he says so. It's especially true when the bonuses in question were earned by engaging in illegal behavior.
But President Obama has a great deal more power to change the situation than one might be inclined to believe from this brief interview. He can challenge Mary Jo White, his appointee to run the SEC, for her attempts to eviscerate some of Dodd Frank's reforms. (David Dayen has further details.) He can direct his Justice Department to crack down on ongoing abuses of the f raud-enabling MERS mortgage database.
The President can also invite William Dudley, President of the New York Federal Reserve, over to the Oval Office to explain why he has said that "There is evidence of deep-seated cultural and ethical failures at many large financial institutions," and that Wall Street banks display an "apparent lack of respect for law, regulation and the public trust," along with "deep-seated cultural and ethical failures."