One of the things I love about politics is the outsized credit people who are involved with presidential campaigns take for what happens. Don't get me wrong: competent campaigns are important, and a campaign with big flaws can easily blow it. In 1988, 2000, and 2004, a better Democratic candidate/campaign could have won those races -- and a worse Republican campaign would have lost them. The more competitive the underlying dynamics of the race, the more important a campaign operation is. But in general, presidential elections are decided on very big things.
The 1980 election broke for Reagan at the very end, but no field organizer I knew was predicting a Carter victory because of a disinterested Democratic base and a bad economy -- Reagan basically had to reassure swing voters he wasn't a radical, and if he succeeded at that the election was his no matter what Carter's campaign did. Once the economy started improving in 1984, Reagan was not going to be defeated. All of us Clinton campaign staffers like to pat ourselves on the back for our brilliance, but the first George Bush in '92 had the same problems as Jimmy Carter in '80, and it would have taken a bad campaign to mess that one up. In '96, once Clinton won the big showdown with Newt and the economy started improving, there was no way Bob Dole was going to beat Clinton absent some major screw-up. And while my friends in Obamaland deserve credit for running a great campaign -- especially for beating a truly formidable Hillary Clinton in the primary -- there was no way we were going to lose the 2008 general election after the September financial meltdown.
What I said above applies a lot more to general election presidential campaigns than to primaries, of course. On the other hand, it applies with special abundance to incumbent presidents running for re-election. It is almost always the underlying big dynamics, rather than particular campaign tactics, that determine whether a president gets re-elected: how the economy is doing, the big decisions made and crises that are dealt with, the kind of image the other party's nominee has coming out of their primary fight, etc. Because most political reporters tend to overrate the importance of the short-term tactical stuff campaigns do, the importance in particular of the big policy decisions a president makes and how they shape a race's underlying political dynamics tends to be vastly under-rated. Jimmy Carter's political coalition was shredded by his spurning Teddy Kennedy on health care reform, pushing deregulation so hard, and not lifting a finger to help labor get labor law reform passed; George H. W. Bush destroyed his political coalition by violating the no new taxes pledge; Bill Clinton went from 10 points down to 10 points up against Bob Dole when he won the fight against Gingrich in the 1995 budget showdown.
These big decisions are absolutely central to the re-election chances of an incumbent. Here's the interesting thing to note, though: some of these big decisions by a president are high-profile fights, telegraphed well in advance, like the Clinton-Newt showdown, but some of them aren't. Carter dissing Kennedy on health care in private conversations, or him quietly starting to deregulate key industries, were barely commented on by political reporters at the time, but they fundamentally changed the arc of the Clinton Presidency.
None of the political reporters are paying much attention to this because they are too busy covering the circus that is the GOP nomination fight, but we will soon come to one of the biggest moments for the Obama Presidency. The dynamic is playing out like this: between the fact that any Republican nominee will be close to Wall Street, and the fact that more people blame Wall Street for the bad economy than they do either political party, the Obama political team has rightly concluded that their best chance to win in a tough economy is to run against Wall Street. When you hear David Plouffe and David Axelrod talk about Wall Street these days, they sound a lot like an old populist wild man like me. And I think they are absolutely right: this President's re-election path runs through taking on Wall Street head on. The 99% vs. 1% message scares the hell out of Republicans and Wall Street PR firms.
To pull off a populist challenge to Wall Street, though, an administration that has been seen as soft on Wall Street has to put its money where its mouth is. After embracing and vigorously defending TARP; after appointing Geithner, re-appointing Bernanke, and not appointing Elizabeth Warren; after the shocking profits and bonuses to the bailed-out bankers that so ticked off the American public; after the disappointments of the HAMP and HARP programs in helping homeowners; after the Suskind book; after so few top bankers went to jail or even lost their jobs -- fair or not, these events have made this administration seem pro-Wall St to many voters. The president needs something big to establish his cred as tough on Wall Street. But fortunately, the thing he needs is right in front of him: the settlement talks with the bankers.
The basic argument right now is that some policy people in the White House, along with certain state attorneys general like Tom Miller, believe that the settlement talks with the banks should have a very modest and narrow architecture. Such a deal would focus on a settlement around a narrow set of legal violations related mostly to robo-signing with a relatively small amount of money coming from the big banks (in the $20-25 billion range, which would cover less than 5 percent of the problem created by the bubble these banks created) to settle those legal liabilities. Administration officials in background conversations with me admit that this would be very modest, but argue it would be a "model" for future settlements on other issues where the banks have broken the law.
The other underlying argument for a small, narrow settlement is that the banks are in deep trouble again (never spoken in public because Tim Geithner's public line is that the big banks are in good shape). Between the continued black hole of their housing market assets, the legal troubles the big banks have created for themselves (which really are deep, and are hanging over them like the sword of Damocles), and the problems in Europe, the big banks are in trouble again. Geithner is continuing to push the line all over the administration that there can't be a bigger, broader, tougher settlement with the big banks because we can't do anything to endanger them.
New York AG Eric Schneiderman, Delaware AG Beau Biden, and a wide coalition of labor, community, consumer, and online groups are pushing a different kind of architecture for a deal: that investigations be done over the wider array of legal violations the big banks have likely consistently engaged, where the entire leverage of the federal government and AGs willing to investigate be brought to bear. This kind of a deal could mean real legal accountability for the banks, and could force them to do several hundred billion dollars in mortgage write downs, which would go a long way toward covering the underwater mortgage crisis in America and stabilizing the disastrous housing sector. This kind of settlement would be a major boost to the economy, boosting home prices/sales and putting real money in the form of lower house payments into millions of homeowners pockets. This coalition also argues that Fannie and Freddie need to be held accountable and forced to write down millions of underwater mortgages as well, which may have to be done through legal action -- i.e. suing them -- if the companies don't respond to administration pressure.
Politically, this kind of a broad-based settlement is a homerun. Standing up to Wall Street, using the power of the presidency to force Wall Street bankers into giving up ill-gotten gains and putting the money into middle-class families' pocketbooks? TARP and bonuses and Suskind could be yesterday's news with headlines like that.
Here's the critical question at this moment in time: would being tougher on the big banks be the wrong move when they are once again teetering? Here's the ultimate irony: showing these banks some tough love would help them overall instead of hurting them. A broad settlement that would resolve the widening array of lawsuits that investors and homeowners are bringing against these banks, and stabilize the housing market by reducing negative equity and the need for millions of foreclosures, would settle down the run-on-the-banks rumblings going through the markets right now about the two biggest holders of bad mortgages, Bank of America and Wells Fargo. Remember this key point as well: writing down mortgages is not like cutting a check; it has to do with the long -term money coming in, not short-term cash flow. Writing down mortgages would do nothing to endanger banks' ability to survive in the short run. The reasons those banks' executives don't want to do this has to do with short-term profit, bonuses, and ego: these banks have a far bigger "book value" given the way they are allowed to do their accounting. They can have their accountants value all those homes at their peak value during the height of the bubble, even though everyone knows those homes will not get back to that value anytime in the foreseeable future, and even though more foreclosures mean less money for the banks over the next 20 years along with housing values continuing to decline. If the settlement boosts the housing market, means fewer foreclosures, and resolves thousands of present and future lawsuits, it will help these banks survive over the long haul even if it means the book value, profits, and bonuses over the short-term are lower.
The other reason the big bank execs are resisting a bigger settlement is that they are used to getting whatever they want whenever they want it from government officials. They thought they could get a blanket immunity deal for a relatively tiny amount of money given the legal hot water they put themselves in, and now they are having to come to grips that AGs in several of the most important states, along with other key political players, aren't willing to go along for the ride. If they get a narrow settlement that doesn't include the AGs of the two states where all the securitization corporate papers were filed (California and Delaware), and those AGs go forward with investigations and lawsuits, their banks will be the ones who suffer.
That judge in New York, Jed Rakoff, who ruled against the SEC's sweetheart deal with Citigroup last week was speaking to what most people in this country think about the cozy relationship between Wall Street and D.C. He said about the settlement that "it was neither fair, nor reasonable, nor adequate, nor in the public interest." He was right about that deal, and the same words will be applied in spades if the administration cuts an SEC-Citi style of deal with the bankers. Getting $25 billion in write downs in exchange for wiping away a bunch of the fraud and perjury charges off the bankers' books, when the mortgage problem the bankers created with their pump and dump fraud is 20 times that big, will do nothing to help the economy and would send the opposite signal that the Obama team needs to send right now: that they are willing to stand up to Wall Street on behalf of the 99 percent. Getting a settlement at least 10 to 20 times that big, with the banks actually being investigated and held accountable for their wrongdoing would be a stunning achievement. It would be a dramatic boost for the economy, and allow the Obama campaign to take on Wall Street in the 2012 election with credibility, having delivered real benefits to the American public.
In a conversation a few weeks ago, one of the policy people inside the administration -- one of the people working on these bigger settlement talks -- actually pointed to the SEC-Citigroup deal as an example of the administration holding the big banks accountable. That very well-meaning policy person doesn't get the political stakes in all this, or how the reaction of people with the views of Judge Rakoff -- which is to say, most people -- would spread like wildfire with another sweetheart deal for the bankers. Fortunately, I think a lot of people at the White House and Justice Department are starting to understand that this is most definitely not the way most of us following the issue see things. Judge Rakoff's words apply painfully well: it wouldn't be fair, or reasonable, or adequate, or in the public interest. How the administration deals with this issue will be one of the biggest sleeper issues in how 2012 turns out. Let's hope, for their sake and the nation's economy, that they do the right thing.