Tactical Error: Health Care vs Finance Regulatory Reform
By Barry Ritholtz - September 9th, 2009, 7:15AM
I believe the brain trust behind the Obama White House has made a huge tactical error.
As Rahm Emmanuel likes to say, one should “never waste a crisis” — and the White House has done just that.
There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the WH tacked in a different direction top pursue healthcare reform.
This was an enormous miscalculation.
I’m not sure who to blame, but the leading suspects (in order) are Larry Summers, Rahm Emmanuel, and David Axelrod. Instead of getting a populist clean up of The Street (ala Eliot Spitzer circa 2,000), they allowed a smoldering resentment to take place. The massive taxpayer wealth transfer to inept, corrupt incompetent bankers has created huge resentment amongst the populace, regardless of political affiliation.There was widespread popular support for a full reform. What the White House should have pursued was the reinstatement of Glass Steagall, the repeal the Commodity Futures Modernization Act, overturning the SEC Bear Stearn’s exemption (allowing leverage to exceed 12 to 1), regulating the non bank sub-prime lenders, pursuing misplaced compensation, etc. could have been accomplished int he first 6 months of the Obama administration. The consumer protection stuff could have been tossed in as well, though it was not the cause of the collapse.
What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — who fiddled while the economy burned.
Such dithering can be fatal to an administration.
This was a colossal screw up. A successful Reform legislation would have fulfilled the campaign promise of “Change” and created legislative momentum. It would have provided a healthy outlet for anger of the Tea Parties and Town Hall meetings. It might have even led to a “throw the Bums out” attitude in the mid-term elections, forcing the most radical deregulators from office.
Also wasted: The enormous anti-Bush attitude throughout the country that swept team Obama into office,. They should have tapped into that same wave to force the greatest set of Wall Street and Banking regulatory reforms seen since the 1930s.Instead, we have a White House that appears adrift, and the most importantly, may very well have missed the best chance to clean up Wall Street in 5 generations.
Never waste a crisis, indeed . . .http://www.ritholtz.com/blog/2009/09/finance-reform-vs-health-care-reform/
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