Gently, Gently

Why Barack Obama wasn’t that tough on Wall Street.

President Obama gave his big speech about financial reform in New York City today. If he had wanted to be as dramatic as he was in his State of the Union address in January, when he called out the Supreme Court justices for their ruling allowing more corporate money in campaigns, he had opportunity. Lloyd Blankfein, the CEO of Goldman Sachs, was in the audience. Goldman has spent $1.15 million on lobbying in the first quarter of 2010, compared with $670,000 in the first quarter of 2009. Imagine if the president had turned to Blankfein and said, “Lloyd, knock it off.” Sure, Blankfein leads a firm whose employees have given a lot to Obama and Democratic politicians. But that would only have added to the drama.

It didn’t happen. Yes, Obama took note of “the furious effort of industry lobbyists” and asked “the titans of industry” to stop “fighting us.” But it was all very collegial. In the end, Obama was pretty soft on Wall Street bankers. “Some on Wall Street forgot that behind every dollar traded or leveraged there is a family looking to buy a house, or pay for an education, open a business, save for retirement,” he said. “What happens on Wall Street has real consequences across the country, across our economy.” In the scale of Obama opprobrium this is less of a rebuke than his recent treatment of Sen. Mitch McConnell, or his comments about the Supreme Court’s ruling on the Citizens United case.

Obama’s concern Thursday was pretty much just getting this legislation passed.  Wall Street must be responsible and stop trying to block the legislation, he said. Once new regulations are in place, according to the logic of his speech, those on Wall Street who ignore or forget the consequences of their actions will pay a price. Largely missing from his speech, however, was any notion that Wall Street bankers should seek a higher standard whether or not there’s a referee on the field.

Maybe this would have sounded like lecturing, and it’s almost certainly naive. Also, in an economic downturn, it’s probably wise not to beat up on Wall Street too much (which is why Obama was at pains throughout the speech to point out that he believed in the market).

But Obama’s inaugural address was all about a “new era of responsibility”—and so at some point, he should call for it. In this case, isn’t the natural request to ask Wall Street banks not only to stop lobbying but to avoid waking up the day after the legislation is passed and looking for loopholes? Or to spend a little less time and effort on financial instruments that, as Andrew Ross Sorkin pointed out this week, have zero social good?

A senior administration official argues that Obama has made this moral case before but that at this point it was important not to heap on the abuse but to make a call for a very specific kind of responsibility:

We are in the final push for legislation to rein in the worst practices and abuses and problems in the system. The financial industry is putting up a fight against that, both in service to their interests and out of a fear of changes that are actually pretty reasonable. So this was an opportunity to focus on that. The most important act of responsibility they can display in the very near term—the way they can prove they get it and are willing to do their part—is by joining us rather than fighting us. That’s the responsibility he called for right now.

But saying we need a higher moral standard is obviously not inconsistent with saying we need better regulation. Obama is a very good writer. He could have gotten the message across without sounding as preachy as I do. And the message isn’t just intended for the people who work on Wall Street. The White House pointed out that the speech was attended by non-Wall Street people affected by the downturn in the economy. They were listening, too. At a time when Americans distrust large institutions and reasonably don’t see much reason to sacrifice when the game is rigged for the powerful and connected, this was an opportunity for the president to show that he gets it. Long after the legislation passes, there will continue to be obligations.

One benefit to Obama’s approach is that he did not look excessively political. In a campaign where Democrats are sure to portray Republicans as protectors of Wall Street, the president can’t be accused of bludgeoning bankers for political gain. (Democrats in tough races don’t see this as a benefit, of course.)

So Obama didn’t follow the Woodrow Wilson model, as some helpfully suggested. Nor did he follow the model of another predecessor, who said:

Ultimately, the ethics of American business depend on the conscience of America’s business leaders. We need men and women of character, who know the difference between ambition and destructive greed, between justified risk and irresponsibility, between enterprise and fraud. … Responsible business leaders do not jump ship during hard times. Responsible leaders do not collect huge bonus packages when the value of their company dramatically declines. Responsible leaders do not take home tens of millions of dollars in compensation as their companies prepare to file for bankruptcy, devastating the holdings of their investors. … CEOs set the ethical direction for their companies. They set a moral tone by the decisions they make, the respect they show their employees, and their willingness to be held accountable for their actions. They set a moral tone by showing their disapproval of other executives who bring discredit to the business world.

That was George W. Bush, whose administration Obama blames (along with the Wall Street banks) for the failures that created the current situation. Maybe Bush could have proposed more of the legal constraints and restrictions Obama now favors. And maybe Obama could have showed a little of his predecessor’s moral outrage.

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