Thursday, President Obama will return to Cooper Union in New York, where he gave a speech on financial reform as a candidate two years ago. We're told that his advisors want him to "go big" in his speech, as he did when he addressed a joint session of Congress on health reform. But if he follows the same course he followed in health reform -- "going big" on rhetoric and then "acting small" on policy -- he's not just courting political blowback: He's running the risk of going down in history as this century's Herbert Hoover.
Sound harsh? People often forget that Hoover was a fine man -- intelligent, altruistic, and deeply bipartisan in his temperament. The structural problems that led to the Great Depression didn't occur on his watch. But by failing to act boldly and decisively he endangered the economic foundation of the country. He was an eminently reasonable person, but there is enormous danger in having the right temperament at the wrong time. We're living in unreasonable times.
How unreasonable? George Soros, who has made billions of dollars predicting economic disasters, thinks we're headed for another disaster. "Unless we learn the lessons, that markets are inherently unstable and that stability needs to the objective of public policy," he said, "we are facing a yet larger bubble." And a blue-ribbon group of regulators, economists, and Democratic policy leaders had this to say in a joint letter signed this week: "Neither the bill passed earlier this year by the House, nor the one currently under consideration in the Senate would have prevented the crisis. Without serious restructuring, they will not prevent a future crisis."
The common-sense ideas proposed in that letter provide a foundation for meaningful reform. So do the comments of Bernie Sanders, who wants to break up the big banks, cap credit card limits, and allow the American public to find out what the Fed's been doing. These ideas aren't just good policy. They also make enormous political sense. The only real "bipartisan" sentiments in the nation are anger at Wall Street and fear for our financial future. A watered-down, lobbyist-influenced bill would be politically devastating for the Democrats.
A successful lawsuit against Goldman Sachs would be politically popular, and would illustrate the fact that there is probably a lot of criminal behavior taking place. As Sen. Ted Kaufman pointed out, there is fraud at the heart of Wall Street. But lawsuits like the SEC's fail to illustrate the fundamental problem we face: Most of the behavior that endangers our economy and batters the middle class - including most of the deceptive behavior that a reasonable person would call "fraud" -- is perfectly legal under today's rules.
That's why these experts are so concerned. The next failure, if it comes, could be far worse, and its effects would fall on an already-battered economy. President Obama's place in history may hinge on his ability to create meaningful, substantive reform before it's too late.
To do so, he must fight a pervasive sense that the Democratic Party is beholden to its Wall Street ties -- whether that means the generous donors who helped them win the White House and Congress in 2008, or the never-ending revolving door between the Party's leadership and financial lobbyists. The president is a pragmatist, and it won't be an easy job to wean politicians from their donors (and possible future employers) enough to present a strong bill. But it must be done, to protect the nation and (parenthetically) to protect his party.
Today's passage of Sen. Blanche Lincoln's tough derivatives bill may point the way forward for the president. Lincoln's committee beat back a swarm of 1,500 lobbyists to pass that amendment. Rather than allow his treasury secretary to resist stronger derivatives rules, the president could embrace these rules. He has already said he will veto a bill without strong derivatives protection. Now is the time for the president to get even more specific on what he needs to see in a bill. He has allowed Chris Dodd to play the same role in this area that Max Baucus did in health reform, and it has failed dramatically. He needs to draw a line in the sand tomorrow and be prepared to defend it.
He can't keep using Tim Geithner or Larry Summers as spokespeople on the issue anymore, either. He has to sell reform himself -- strongly, forcefully, and specifically.
There's no reason why he can't succeed. Sen. Chuck Grassley voted for the Lincoln amendment, and other Republicans are likely to defect too. Republicans have painted themselves into a rhetorical corner, and some of them realize they can't be seen as blocking tough reform initiatives. This is the moment that the President must seize. This is the moment he can pass the laws that will protect the country -- and his legacy.
The President faces a stark choice between Hoover's path and Roosevelt's. By "Roosevelt," do we mean "trust-buster" Teddy or Depression-healer FDR? The answer is: a little bit of both. Teddy was not the runaway trust-buster of historical memory, but he didn't hesitate to go after the big combines when it was needed to protect the country. Obama should channel Teddy by breaking up the top four banks and regulating the rest.
As for FDR, we all know things are good right now for Wall Street ("very, very, very, very good for Corporate America," to quote Jamie Dimon). But huge groups of Americans no longer inhabit a livable economy. If the president's speech is to be truly "big," he must explain how the big financial institutions are strangling the economy, borrowing money at little or no cost from Fed and the Treasury Department while doing very little lending to the productive sectors of the economy. The president needs to address the structural flaws that allow non-productive financiers to prosper while the rest of the country languishes.
In the President's last Cooper Union speech he said "we need a shift in the cultures of our financial institutions and our regulatory agencies." Instead he's given us Larry Summers and Tim Geithner leading the regulatory effort, and kind words for Jamie Dimon and other financial executives. That must end tomorrow. He needs to outline the scope and nature of that cultural shift, and back it up with concrete deeds. The stakes are too high. The danger is too great. The time has come, not just for great speeches, but for speeches followed by great action.
It will be disappointing if we see White House advisors on television tomorrow afternoon telling us what a great speech we just heard (although it undoubtedly will be). There will be more reason for optimism if those advisors - maybe even the same ones who tell us he plans to "go big" -- explain exactly what he intends to do in the coming days and weeks to ensure that America gets the reform it so urgently needs.
(As for as the politics of of the issue, one good rule of thumb is to find out what Mark Penn thinks should be done and then -- given Penn's track record -- do the opposite. Penn suggests holding off on financial reform until after November. Case closed: Act now, Mr. President!)
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard blogs at:
Website: Eskow and Associates