Obama, banks and Republicans

Fascinating stuff related to President Obama's reform of the banking system; a long but very worthwhile article by New York Magazine about the relationship between Obama, the banks and the Republican party. Paul Krugman in the New York Times has a very much shorter article about the same subject here. The Democracy in America column in the Economist covers both articles here.

In essence, the Obama administration prevented the collapse of the global banking system in 2008-9 by bailing them out to the tune of billions of dollars through the Troubled Asset Relief Program. The administration resisted calls for radical change from the left, and have proposed changes which are significant, in that it is designed to prevent a repeat of the 2008 experience, but not revolutionary. This has annoyed large numbers of the American people who are bitter because of massive unemployment and a weak recovery, and has also annoyed the banks who wanted to return to business as usual.

After supporting candidate Obama in the 2008 election to the tune of millions of dollars, they have turned to support the Republicans again, to the tune of millions. To quote Krugman:

So far this year, according to The Washington Post, 63 percent of spending by banks’ corporate PACs has gone to Republicans, up from 53 percent last year. Securities and investment firms, traditionally Democratic-leaning, are now giving more money to Republicans. And oil and gas companies, always Republican-leaning, have gone all out, bestowing 76 percent of their largess on the G.O.P.

These are extraordinary numbers given the normal tendency of corporate money to flow to the party in power. Corporate America, however, really, truly hates the current administration.

This is a problem for the GOP because Obama's reforms will be supported by a large number of Americans because the new law will be seen as punishing the banks for their past misdemeanours. The Republicans have a problem because they are traditionally in favour of big business not being stymied by too much government oversight, and are being tarred as being in the pockets of the big banks.

This is why the party discipline that was so much in evidence on the right over Obamacare, and which narrowly came to bring the administration's momentum to a halt at the end of last year, has wilted under the pressure. Populist movements are "anti-socialist" medicine and anti-bank. The GOP has a problem as the November mid-terms, and the 2012-race approach.

I'll quote the last paragraph of the NY magazine article:

...Wall Street, too, is engaged in some seriously perilous (and mildly deranged) thinking, which reflects not just its political naïveté but its all-distorting insularity from … reality. The populism now stirring in America is bipartisan, ecumenical. No politician of any stripe can afford to ignore it. The Republicans running in 2012 will be contending with or catering to it, too; they’re unlikely to offer Wall Street any safer harbor than Obama has. Yet the best barricade against the pitchfork platoons is an improving economy. And if it comes, not only will Obama stand a good chance of reelection, Wall Street’s amnesia may well kick in—just in time to fall in love all over again.

In Krugman's analysis there is also a problem for the Democrats in November too; populist sentiment against them thanks to health-care reform, balanced against the left's annoyance that a revolutionary change in Wall Street hasn't happened. In his analysis Obama has to occupy the middle ground between Wall Street and populist reformers. Fascinating stuff as the mid-term elections approach.

Useful background for anyone contemplating decline or renewal of parties (both are being buffeted by the populist left and right, which are in fact the "base" of both parties, and this has an effect on the policies of both), party discipline in health-care reform and bank reform votes, and in Presidential power.