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Robert Reich: The Dog that Didn’t Bark

May 18, 2012

President Obama could differentiate himself in an election year by coming out forcefully against the excesses of Wall Street.

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Image from Flickr via Thomas Hawk

By Robert Reich
By arrangement with Robert Reich

The dog that didn’t bark this week, let alone bite, was the President’s response to JP Morgan Chase’s bombshell admission of having lost more than $2 billion in risky derivative trades that should never have been made.

“JP Morgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got and they still lost $2 billion,” the President said on the television show The View, which aired Tuesday, suggesting that a weaker bank might not have survived.

That was it.

Not a word about Jamie Dimon’s tireless campaign to eviscerate the Dodd-Frank financial reform bill, his loud and repeated charge that the Street’s near meltdown in 2008 didn’t warrant more financial regulation, his leadership of Wall Street’s brazen lobbying campaign to delay the Volcker Rule under Dodd-Frank, which is still delayed, or his efforts to make that rule meaningless by widening a loophole allowing banks to use commercial deposits to “hedge” (that is, make offsetting bets) their derivative trades.

Nor any mention Dimon’s outrageous flaunting of Dodd-Frank and of the Volcker Rule by setting up a special division in the bank to make huge (and hugely profitable, when the bets paid off) derivative trades disguised as hedges.

Nor Dimon’s dual role as both chairman and CEO of JP Morgan (frowned on by experts in corporate governance), for which he collected a whopping $23 million this year, the same amount he earned in 2010 and 2011, plus his $17 million bonus.

Gingrich and Perry … didn’t want to criticize the system that allowed Romney to do this because their party celebrates no-holds-barred free-market capitalism.

Even if Obama didn’t want to criticize Dimon, at the very least he could have used the occasion to come out squarely in favor of tougher financial regulation. It’s the perfect time for him to call for resurrecting the Glass-Steagall Act, for which the Volcker Rule–with its giant loophole for hedges—is a pale and inadequate substitute.

And he could have come out for breaking up the biggest banks and setting a cap on their size, as the Dallas branch of the Federal Reserve recommended several weeks ago.

Wall Street’s biggest banks were too big to fail before the bailout. Now, led by JP Morgan Chase, they’re even bigger. Twenty years ago, the ten largest banks on the Street held 10 percent of America’s total bank assets. Now they hold over 70 percent.

This would give Obama a perfect way to distinguish himself from Mitt Romney—who has pledged to repeal Dodd-Frank altogether if he’s elected President, who has also been raking in more than $20 million a year through financial games, and who shares the same prevailing Wall Street view of the economy as profits to be maximized while people are minimized (to Romney, corporations are people).

But the Obama campaign has so far chosen to attack Romney’s character rather than his place in the new American plutocracy, with ads highlighting the jobs that were lost when Romney, as head of Bain Capital, took over a Midwest steel company.

It’s the same personal attack Newt Gingrich and Rick Perry leveled at Romney. But Gingrich and Perry had little choice. They didn’t want to criticize the system that allowed Romney to do this because their party celebrates no-holds-barred free-market capitalism.

Obama does have a choice. He can assail Romney’s character but he can also take on the system that allows private-equity managers, as well as Wall Street’s biggest banks, to continue to make huge profits at the expense of average Americans. Romney is the poster-child for the excesses of that system, just as Jamie Dimon and JP Morgan Chase are.

We are in the very early stages of the 2012 campaign. There’s still time for Obama to come out swinging–not only at Romney but also at the system of which Romney is a part, and to base his campaign on policies that will make that system work for ordinary people.  Let’s hope he does.

Robert B. Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.

Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, Aftershock: The Next Economy and America’s Future; The Work of Nations: Preparing Ourselves for 21st Century Capitalism which has been translated into 22 languages; and his newest, an e-book, Beyond Outrage. His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect Magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.

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