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.

Obama and Bank reform

So, Obama has managed to get through his reform of the Banking industry through the Senate, and this bill will go through the reconciliation service following on from a similar, but different, bill passed by the House in December. Ultimately, he has managed a remarkable thing; getting some very radical changes to fundamental parts of American life through Congress in the first few years of his presidency.

Great analysis of the core parts of the bill from Robert Peston here. Interestingly, the Senate vote largely went along party lines, except for 3 Republicans who jumped ship (the vote was 59 to 39). It was close – a vote to decide to end debate and vote on the bill only passed by 60-40. There will be plenty of haggling yet to come, but the most useful part for G&P students will be the points-of-view from the two main sides in the debate – Republicans, largely on the side of the Banks, and the Democrats who claim largely to be on the side of the American public (“main street, not wall street”).

Of course, there is the argument that what benefits the banks, and what give them the ability to make money and grow will benefit the American public in the long-run. Set against that is the problem that these banks have been bailed out to the tune of billions of not trillions of dollars thanks to the Troubled Asset Relief Program, or TARP, which was made necessary by the credit crunch.

Banks have been doing their best to prevent the bill from coming in to being effectively (according to this piece in the left-leaning Observer), and Republicans have been saying that Obama’s plan will severely hit bank’s ability to make money in creative ways because government oversight will limit it. This piece by the Wall Street Journal suggests that it’s all a piece of political theatre by the Democrats to shore up their vote in November’s mid-terms, and not really valuable as an exercise in banking reform. Although, arguably, it’s just another strand in the stop-the-bill movement. The extraordinary right-wing commentator Rush Limbaugh claims here that it will drive business out of the country, and also gives regulatory power to the executive from the legislature.

Essentially, big business = good, big government = bad.

By contrast, Democrat Senator for Montana writes in the left-leaning Huffington Post that the Bill is a win for “main street” against the banks too big to fail. He trumpets the benefits of the Bill, and also reveals that he was against the bailouts of the banks (“because I don’t believe in bailouts”) despite the fact that this action possibly saved the global banking system from collapse.

In short, big government = good, big business=bad.

Elsewhere, the NY Times writes that some on Wall Street are phlegmatic about the whole thing, happy that the reform won’t be too punitive and can be softened, while accepting that some reform was inevitable.
All of which is useful for G&P students when answering a question on the opinions of the two different parties, on Congress and the passage of law, and on the power of the Presidency.