WASHINGTON -- President Barack Obama's response to JPMorgan Chase's spectacular trading failure underscores a persistent tension in his presidency -- the need to win favor from a public still angry with Wall Street's risk renegades, while courting those same, ever-so-sensitive financiers for campaign cash. It's most often been a lose-lose proposition: Reform advocates find the president too soft on Wall Street, while bankers take offense at any criticism or hint of federal oversight.
Obama's opponents on Wall Street have never forgotten a single remark that the president made during a 60 Minutes interview back in 2009 as evidence of a supposed hostility toward the banking industry.
"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street," Obama said.
Since then, articles quoting financiers making wild claims about the hardships Obama has imposed upon them have become a journalistic genre unto themselves, with wealthy critics comparing Obama to Hitler and the suffering of the American economic elite under the president's rhetorical lash to civil rights injustices. By Tuesday, CNBC was decrying the "war on Wall Street."
Obama enjoyed big banks' favor during his 2008 campaign, with coalitions of employees from Goldman Sachs, JPMorgan Chase and Citigroup among the top 10 donors to his campaign. JPMorgan employees gave more than $800,000 to Obama's effort, while Goldman's topped $1 million.
This campaign cycle, the fundraising data tell a different story. Overall, the Obama campaign has outraised Romney by roughly two-to-one, according to the Center for Responsive Politics. But Wall Street has shown Romney a lot more love -- his six largest campaign contributors are all coalitions of employees from too-big-to-fail banks, with Goldman Sachs employees giving more than $500,000 to the Romney camp, and JPMorganites dropping over $350,000. Formal campaign donations are just part of the picture -- anonymous super PAC donors are funding brutal airwave ads attacking both candidates.
The persistent wail of the 1 percent has drowned out much of Obama's other banking comments -- his defense of hefty bonuses paid to Goldman Sachs CEO Lloyd Blankfein and JPMorgan Chase CEO Jamie Dimon after both firms were bailed out by American taxpayers, for instance. When Obama invokes populist themes in speeches and interviews today, he eschews frontal assaults on finance in favor of broader platitudes about income inequality and calls for wealthy Americans pay their "fair share" in taxes.
In an era in which Wall Street's approval rating is below 20 percent, beating up on the banks that drove the economy into recession makes one kind of political sense. But it also comes with drawbacks for politicians, especially in the post-Citizens United era. Like Willie Sutton eyeing his own ethically dubious windfalls, politicians from both political parties are typically reluctant to criticize the financial sector, "because that's where the money is" -- and successful political campaigns depend on lots of it.
Obama may be losing the battle for Wall Street cash, but he still has plenty to lose from irritating the banking elite -- his campaign's top bundlers include dozens of major financiers, from UBS Americas Chairman Robert Wolf, to embattled former MF Global CEO Jon Corzine, to private equity magnate Deven Parekh, Goldmanite Bruce Heyman, investment bankers Blair Effron, Brian Mathis and Charles Meyer, and Orin Kramer, winner of a Hedge Fund Industry Award in 2010 -- all of whom bundled more than $500,000 on behalf of Obama.
Romney has not released a list of his campaign's top bundlers. "People who are supporting Mitt Romney do so because they support his pro-growth, pro-jobs agenda for the country," a Romney spokesperson said in an emailed statement that didn't directly address the role of Wall Street bundlers. The Obama campaign emphasized that 98 percent of its donors gave $250 or less, but declined to comment further.
And so Obama's response to JPMorgan's $2 billion trading debacle has been characteristically dualist, with the president praising the company even as he held it up as an example of what he wants to see change on Wall Street.
"JPMorgan is one of the best-managed banks there is," Obama told ABC's The View, adding, "It's going to be investigated, but this is why we passed Wall Street reform."
Financial reform advocates emphasize that Obama is right -- two of the top structural reforms in the 2010 law should safeguard against the type of bet JPMorgan botched. Hundreds of pages of Dodd-Frank were devoted to bringing more oversight and transparency to the derivatives market -- where JPMorgan's epic bet was placed. The Volcker Rule, meanwhile, would ban banks that accept federally insured deposits from engaging in proprietary trading. Trades would only be permitted on behalf of clients. Speculative bets for the banks own account would be verbotten.
JPMorgan argues that its trade started out as a type of hedge -- something that would have been permitted under the Volcker Rule -- but morphed into something resembling proprietary trading.
"We agree with the intent of the Volcker rule, if that intent is to eliminate pure proprietary trading and to ensure market making is done in a way that won’t jeopardize a financial institution or its clients," CEO Jamie Dimon wrote in a letter to shareholders.
Nevertheless, the bank has lobbied against the rule aggressively. Financial reform advocates reject the notion that the bank's failed bet resembled a hedge.
"Hedging is not about profits, it's about reducing risk," said Marcus Stanley, policy director at Americans for Financial Reform, a coalition of consumer, small business and labor groups that backs financial reform. "If you look at [JPMorgan's] Chief Investment Office, they were going like gangbusters. JPMorgan was making quite a lot of money off of this trade for quite a long time. And when you see that happening, it's not a hedge."
More than four years after Bear Stearns collapsed, the Volcker Rule is not even in effect. Other critical new rules are yet to be written, much less enforced. And as regulation after regulation has been delayed and watered down by agencies, the administration has either stayed out of the fray, or openly aided in the weakening process.
Obama's own Treasury Department resisted the Volcker Rule when it was proposed in early 2010, and has opposed other reforms to the derivatives market that were demanded in the wake of the 2008 meltdown. When regulators proposed their first draft of the Volcker Rule earlier this year, the result was a 300-page mess of loopholes and exemptions.
"Sometimes agencies reflect the views of the particular industries they regulate," former Federal Deposit Insurance Corp. Chairman Sheila Bair told HuffPost in January. "One of the big reasons this rule is so complex is to accommodate all the lobbying for exceptions. Now the lobbyists are arguing against the rule because it is too complex!"
The proposal left Volcker himself, and the provision's Senate sponsors, aghast. The Obama administration was silent, and remained so even as regulators announced they would not meet the congressional deadline to finalize the rule.
And according to former bank regulator William Black, the sheer size and riskiness of the JPMorgan trade -- a $100 billion bet tied to complex derivatives linked to pools of corporate loans -- should have set off alarm bells at regulators watching general bank safety and soundness, even without the Volcker Rule.
"It's a demonstration that [banks] intend to have business as usual and that the regulators are absolutely letting them do so," Black, now a professor at the University of Missouri at Kansas City, told HuffPost. "You used to have to wait at least a decade for this kind of behavior to repeat ... What in God's name is going on at both the Federal Reserve and the Office of the Comptroller of the Currency?"
The Romney campaign is holding its fire. Instead of ripping Obama for leaving the financial system vulnerable and failing to enforce basic regulations, Romney has held himself up as a defender of the Wall Street establishment and cited JPMorgan's debacle as an example of capitalism in action, resisting calls for stronger regulation.
"The leadership of that company will be held accountable for this trading loss, but we don't want to punish companies," Romney said Tuesday on NBC's Today. "There was no taxpayer money at risk. All of the losses went to investors, which is how it works in a public market."
Romney defended the financial establishment even more explicitly during an interview with CBS affiliate WBTV in Charlotte, N.C., following a lively protest of Bank of America's annual shareholders' meeting. According to National Journal, Romney dismissed the protests as scapegoating of the bank, rather than a legitimate claim against allegations of foreclosure fraud -- allegations which have also plagued JPMorgan -- or excessive political power.
"Unfortunately, a lot of young folks haven’t had the opportunity to really understand how the economy works, and what it takes to put people to work in real jobs, and why we have banks, and what banks do," Romney said. "It's a very understandable sentiment if you don't find a job, and you can't see rising incomes. You're going to be angry and looking at someone to blame."
Throughout the Republican primary, Romney and his fellow GOP contenders cast Obama as a bureaucratic micromanager strangling the business world with red tape. That image is hard to square with that of a president eager to leave big banks to their own devices.
And when Romney's congressional surrogates discuss the JPMorgan trade, they generally stick to the line that Dodd-Frank is an example of over-regulation, rather than a solution insufficient for the problem at hand.
Speaking on Fox News Sunday, Sen. John Thune (R-S.D.), an early Romney endorser, said "Dodd-Frank was a sweeping, far-reaching regulation, much of which is still trying to be interpreted by the regulators, and I think we need to give them an opportunity to do the job before we reach any conclusions about moving forward with additional regulations."
A few hours later on ABC's This Week, Rep. Marsha Blackburn (R-Tenn.) said,"Bear in mind, the Dodd-Frank bill, 2,300 pages, they've already had 400 rulemaking sessions, and this is where you have so much government regulation coming in that you can't see the forest for the trees." Not one word about Obama's reluctance to stand up to big finance.
The message to Wall Street is clear: If you're angry at Obama, fat cats are welcome.