It would seem there is never a politically convenient time to re-regulate the financial sector. That’s one of the policy lessons from from Noam Scheiber’s profile
of White House Chief of Staff Rahm Emanuel. This bit about the
administration’s civil war over financial regulation is meaty stuff:
As early as the transition, according to several administration
officials, Emanuel was adamant that reform of the financial sector
proceed immediately. He insisted it simply wasn’t politically viable to
pump hundreds of billions of dollars into the banks without showing
voters that they wouldn’t have to ante up all over again a few years
hence. Geithner objected that fast-tracking reform would only create
more uncertainty and could paralyze the financial system. And there
were legitimate considerations on both sides. But, suffice it to say,
no one out to coddle the banks would have taken Emanuel’s position.
Democrats want to regulate the banks for policy reasons, because
it’s important to them to discourage over-leveraging, strengthen our
regulatory regime, promote clearer disclosure of risks for consumers of
financial products, and generally prevent future calamities. But they
also recognize — or at least most of them should — that politics is
about finding enemies, and there’s no more obvious enemy than a banking
sector that brought about the worst economic crash in 60 years,
received hundreds of billions of taxpayer dollars, and is now, with
unemployment at 10 percent, paying individual bonuses that could feed
middle class families for a decade!
You would think that taking it to Wall Street bankers (for whom the term “bloodsucking” is rote in the public discourse) would be an easy political sale. But it’s not. Each argument about the political timing of financial regulation seems to answer itself with a reasonable objection:
—Do it early: we’ve just extended hundreds of billions of dollars
to Wall Street in TARP money and need to show Americans we have sticks
with our carrots! No, rushing regulation will breed uncertainty,
freeze credit and hurt the stock market when it’s already wallowing in
the 6000s.
— Do it methodically: let’s have an open, lengthy debate about financial regulation!
No, an extended debate will slow the momentum for real reform just like
the health care debate sapped public will to support extending
insurance. American’s don’t care about resolution authority, or where you lodge the consumer protection agency. They care about swift and clear vengeance.
— Do it last: let’s save it for late summer 2010, when anti-Wall Street rhetoric will stick in the minds of midterm voters! No, with the banks on firmer footing they’ll flood DC with lobbyists
and pour gazillions into Republican campaigns across the country to
defeat the legislation and wipe Democrats off the map, and we might end up with nothing at all.
The conventional wisdom seems to have been that the policy of financial regulation is tough, but the politics is easy. I’m not so sure about that last part anymore.
(Photo: Flickr Creative Commons)
