Opinion

Chrystia Freeland

Obama should call a truce with Wall Street

By Chrystia Freeland
September 13, 2010

The pre-election economic treats that President Barack Obama handed out this week included several intended specifically for business: research and development tax credits, for instance, and the small-business tax breaks he is pushing to introduce in the face of Republican congressional opposition.

But these familiar sweeteners won’t be nearly enough to reverse one of the most significant estrangements of the first two years of the Obama administration — the rift between the White House and business.

Two years ago, candidate Obama was the darling of the CEO class: Hedge fund titans, Silicon Valley entrepreneurs and even registered Republican chief executives from the Midwest flocked to his banner. Today, America’s business leaders — even those who raised millions for him in 2008 — have turned on their president: “Socialist” is among the nicer epithets some use when describing Obama.

For Democratic politicos, this virulent critique is especially painful because it is so out of sync with the views of the party’s traditional base. The MoveOn activists, union leaders and progressive pundits are as united as the C-suite in their verdict on the president — only in their opinion, he has sold out to big business, particularly its Wall Street wing.

That’s why conventional wisdom on the left is advising the president to abandon his milquetoast ways and go on the offensive against the capitalist overlords. He should model himself, as Chris Matthews suggested last week, on Franklin Roosevelt, who said of the country’s bankers: “They are unanimous in their hate for me — and I welcome their hatred.” In a similar vein, Post columnist Harold Meyerson recently urged Obama to “acknowledge how our power elites have betrayed Main Street America” and to take a lesson from FDR’s tirades against the “money-changers” on Wall Street.

If you want to play traditional political hardball, that advice makes sense: The bankers hate the president anyway, so why not embrace that sentiment and use it to reenergize his core constituency?

But if the president wants to be true to the worldview that got him elected in 2008 — his pursuit of a “more perfect union” — he should do something completely different. And in the process, he might find himself transforming the American conversation about capitalism and society.

Obama needs to reframe the discussion about business and taxes and regulation. Right now, that debate is being waged as a class war. The left rages against “casino capitalism” and the evil businessmen who wrecked the economy and must now pay to fix it. On the other side of the ring, Wall Street is using the same “warring camps” language. Not everyone (thank goodness!) goes as far as Blackstone Group Chairman Steve Schwarzman, with his ill-judged comparison to Hitler’s invasion of Poland, but fund manager Dan Loeb spoke for the broader financial fraternity last month when he accused the president of abandoning free-market capitalism and the Constitution’s guarantee of freedom from “nonpunitive” taxation.

The president is partly to blame for this zero-sum mentality. The business case for ill-treatment by the White House is pretty overblown — remember the Troubled Assets Relief Program (initially ringing up at $700 billion) and the gift that keeps on giving: cheap money from the Fed. Yet when it comes to rhetoric, this eloquent president has made critical missteps. The worst came in spring 2009, when he attacked the “speculators” who held Chrysler bonds. He was also out of line in permitting the denunciation of Goldman Sachs; all the name-calling notwithstanding, Goldman is probably the Wall Street firm least to blame for the 2008 crisis.

Painting affluent bankers as America’s villains is no doubt fun, especially when your base is egging you on. But it is a big philosophical mistake. It invites a malign interpretation of the tighter regulation Obama’s administration has already imposed and the higher taxes on the rich he has promised. And when you rail against nasty speculators, you shouldn’t be surprised if business accuses you of imposing more rules and higher taxes as a punishment.

That’s the wrong way of looking at things. Stricter regulation of financial services is necessary not because American bankers were bad, but because the rules governing them were. Higher taxes on the rich are necessary not because the wealthy are undeserving or made their money unfairly, but because America is broke and, in this age of income inequality, the super-rich are the people who can best afford to pay more. Taxes aren’t punishment for a crime; they are how we contribute to the society we inhabit.

If Obama really believes in capitalism — as he surely does — he needs to stop demonizing business. If he gets this right, he might just convince some of his erstwhile banker buddies that higher taxes and more regulation aren’t an attack on capitalism or on capitalists — they are his effort to make this capitalist democracy work better for everyone. Surely that would be change both Wall Street and Main Street could believe in.

This piece first appeared in The Washington Post.

Comments
34 comments so far | RSS Comments RSS

Get real.

Posted by Gotthardbahn | Report as abusive
 

NObama is a Socialist. Why does ANYONE expect him to “make nice” to Wall Street. He doesn’t understand the free market Capitalist system as all he’s done with his life is leach from those who produce. It’s a mindset, people. He cannot be what he is not, and the time for learning on the job is OVER. NOVEMBER will solve our problems for the time being and in 2012 we Americans will finish the job and him along with it.

Posted by kapechi | Report as abusive
 

He is a socialist, communist ideologue who is never going to change his spots. He was hand-picked by George Soros and as you say; “The MoveOn activists, union leaders and progressive pundits are as united” as they can be behind this guy. But hopefully this time America has come out of it’s slumber and they will not allow the A.C.O.R.N. crowd and labor unions to steal another election.

Posted by DaBear | Report as abusive
 

“all the name-calling notwithstanding, Goldman is probably the Wall Street firm least to blame for the 2008 crisis.” – Ummmmm, not sure where you are getting your information, but they were the architects of the disaster, in that they maintained a supposed “long” position while positioning themselves to benefit from the ultimate and inevitable crash. Are you just making this stuff up, or what?

Posted by jobon1 | Report as abusive
 

Hey Christia,

“If Obama really believes in capitalism — as he surely does — he needs to stop demonizing business.”

I don’t see one single “action” that he has done that supports your assertion that “he surely does” believe in capitalism and I am talking about actions not his glowing rhetoric.

Posted by DaBear | Report as abusive
 

Chrystia Freeland wrote: Goldman is probably the Wall Street firm least to blame for the 2008 crisis.

To paraphrase Bill Clinton, that depends on what the definition of “2008 crisis” is. Goldman played a major role in hiding the extent of Greece’s debt via currency swaps (http://www.spiegel.de/international/eur ope/0,1518,676634,00.html).

Americans do not mind capitalism. What they mind is a coup d’état by Wall Street. 30 years ago, CEOs made 20 times the lowest worker’s wage. Today that ratio is over 400. We overthrew a king to start this country. We are not in favoring of oligarchs controlling every aspect of economic activity. Given your book “Sale of the Century” where you detailed the rape and pillage of Russia by oligarchs in the 1990s, one would think you appreciate the danger of oligarchs.

Congress did not finish the task of Wall Street regulation. We still need to mandate that all OTC derivatives be traded on a public clearinghouse; we only passed a small subset of that in the recent Wall Street reform legislation. Clawbacks need to be added to all corporate executive contracts to prevent the recent debacle of Wall Streeters making obscene bonuses for incompetent work. And let’s add a bank size cap of 0.5% of GDP to prevent creating banks too big to rescue.

http://saucymugwump.blogspot.com/

Posted by saucymugwump | Report as abusive
 

This was funny! You say and everyone realizes we needed
better regulations. It wasn’t wall streets fault that they bent and distorted the existing regulations to the point of a world wide depression and the resulting double-digit unemployment. And, if the president did push for these needed regulations without hurting the ‘money-changers’ on Wall Streets feelings, they would welcome them with open pocketbooks? This has to be one
of the most ill-thought articles I have read on this site. I’ve seen posts from both the left and right extreme edges of the political spectrum that had more sense then this one!

Posted by fromthecenter | Report as abusive
 

WOW, what a load of CRAP.
Bankers just love Obama.
He is the Santa Claus that keeps on giving.
It is us voters who are unhappy, not the bankers.

Posted by misterliu | Report as abusive
 

“as you say; “The MoveOn activists, union leaders and progressive pundits are as united” as they can be behind this guy.”

Uh, nice work with the creative quoting, but if you had included the rest of the sentence, you’d have realized that it says the exact opposite of your paraphrase. I don’t care what your politics or ideals are, America needs honest, rational debate, not intellectual dishonesty and twisting of facts and quotes to suit your purposes.

Posted by spameroo | Report as abusive
 

DaBear hit the nail on the head and pinned the tail on the donkey…

Barack Obama is a leftwing radical. He sought out the most radical elements of students and professors at college and law school to hang with. He gave up a career at a traditional law firms to work as a community organizer (clearly a left wing occupation).

==========================
saucymugwump … we don’t need government telling us, the citizens (recognize this phrase? “We, the People”) that we can’t make salaries or profits in excess of what the bureaucrats decide is proper! It is not the purpose of government to control the business community or our private industry. If you disagree with this statement then you are not a believer in capitalism.

Posted by Starkstruck | Report as abusive
 

What is Obama doing? Just makes the Glass-Steagall back and everything will be fine….no more puppy financial reform, throw the Wall Street back to the dark age

Posted by RosaLamport | Report as abusive
 

There is certainly a lot of blame to be spread around for all of the players going along and getting us into this mess. The borrowers for taking out loans they could not pay, the banks and mortgage brokers for lending money to people who could not pay, the Wall Street bankers for putting together packages of bad loans knowing they were bad, the ratings agencies for rating bad loan packages as good, etc, etc etc. But ultimately if you had to pick the one that started it, it was Congress for setting up a system where this could happen and in fact encouraged it by pushing homeownership onto people who just are not and may never be ready for the responsibility.

Of course anyone in the chain might have been able to stop it if they screamed loud enough, but again ultimately, Congress were the only ones in a position to definitely do something about it but when they had a chance and were warned about the impending problems back in the mid-2000′s, they punted. For all of you liberals out there, the Democrats were the ones pushing to keep the easy credit in place for home ownership. For all of you conservatives out there, not enough Republicans and in particular George W. Bush did not push nearly hard enough to fix it. They all punted and they are all weasels for not owning up to it.

As for Obama, he was part of Congress and did nothing to fix it then. He then became President after it all hit the fan and has not been doing the right things to fix for the last 20 months. TARP had to be done but it was done wrong. The money should have been used to buy up all of the toxic assets as it was intended and in exchange, the Treasury should have capped executive pay and dividends for some period of time to recoup some of the money. Instead they just gave the money to the banks with not enough strings attached. Stimulus had to be done but it was done wrong. He should have compromised with Republicans to pick up 10 to 20 votes so he could have lost 5 to 10 Democrat votes but still passed the bill. It would have been a better bill with bipartisan support. Improving heallthcare is the right thing to do but it also was done wrong. It probably should have been put off until after the economy recovered but even if not, we would be much better off with a bipartisan law rather than the one we got. We needed FinReg too, but it was also done wrong. What we got just did not address the real problems. It is mostly window dressing.

Now, he is finally doing the right thing in not raising everyone’s taxes because at this point he really has no choice. If the economy had recovered and he had a choice, I think he would be rasing taxes on everyone and he will try if he gets another chance. Anyway, I support making the tax cuts permanent for the brackets under $200K/$250K per year and I would go even further by extending the personal exemption to cover SS and Medicare tax and increasing it.

Posted by Stock-MD.com | Report as abusive
 

“It is not the purpose of government to control the business community or our private industry” – Starstruck, it’s this conservative, cancerous thinking that got us into this mess in the first place with the deregulation of the banking industry in the late nineties. It IS the purpose of the government to provide a core set of regulations to protect these industries. You conservatives have absolutely no sense of history.

Posted by jobon1 | Report as abusive
 

“he was part of Congress and did nothing to fix it then” – Correction, Obama had nothing to do with Gramm Leach Bliley, which is truly the root cause of this mess.

Posted by jobon1 | Report as abusive
 

Starkstruck wrote: that we can’t make salaries or profits in excess of what the bureaucrats decide is proper

Banks are already highly controlled by the government. If you want to be consistent, you should scream for 100% “free” banks. This means no FDIC insurance and the “right” to go out of business. We’ll see how many people risk their savings in a bank without FDIC insurance.

Do you even know what a clawback is? I doubt it, given your anti-Obama ravings. It is merely a way to insure that bonuses properly reward performance; if you perform badly, you will not receive a bonus. This is true capitalism in action.

By the way, genius, Obama was a community organizer in Chicago BEFORE he earned his law degree.

Posted by saucymugwump | Report as abusive
 

I can’t believe we’ve gotten this far in the (sadly inevitable) flame-war without this simple fact being brought up: NEITHER PARTY BELIEVES IN “FREE MARKET CAPITALISM”! How is it that people don’t grasp this?

“Free Market Capitalism” cannot contain governmental subsidy, just the same as it cannot contain governmental regulatory oversight. Tax credits for businesses are NOT a feature of “Free Market Capitalism”, pseudo-conservatives, so shut up about being good little capitalists against the big, bad socialists…it just has no relation to REALITY!

The choice is between a government which intervenes to protect & benefit the vast majority of society or one which intervenes to protect & benefit the “better people” who must naturally be above the “regular people”(if you follow their faux-ideology by the letter).

Posted by BGG | Report as abusive
 

Here’s a newsflash for our “leader” — once you’ve burned a bridge you cant cross back over it. Wall Street will NEVER trust you again. And neither do we.

Posted by broketaxpayer | Report as abusive
 

Republicans and Democrats are in the hands of Wall Street Bankers. No One should be to big to fail, period. And Fannie and Freddie are back in business. But you people are insane. If you tax the hades out of rich people where do you think those taxes are gona trickle down too ? Armchair Economist, I think we have enuf of those.

Posted by Ratt | Report as abusive
 

Americans believe in the letter of the law, and will try to twist words and vague definitions to make the law work in their favour. The trouble is no judiciary in America works in the spirit of the law, which is to say that the intent of the law is ignored in the face of arguments of word twisting. So you can talk about the left and right, the rich and the poor, the Hatfields and the McCoys – it is totally irrelevant because all ends are working to twist the law and no one enforces the spirit behind the law. Until that happens, it doesn’t matter who’s in power or in control of what; it’ll ultimately be whoever’s lobbyists have the smarter lawyers that decide policy.

Posted by CDN_finance | Report as abusive
 

It is clear that not only the author of this woefully uninformed “opinion piece”, but many of those commenting on it, has/have little understanding of the economic history of the past three decades, and are intent on viewing what little they do know through some strange and distorted partisan lens. Such dissembling and mindless rancor is exactly the distraction those who have converted properly regulated fair economic enterprise into laissez fair capitalism need and encourage, in order to continue the march towards the private centralization of the world’s economy.

Posted by EthanAllen | Report as abusive
 

“throw the Wall Street back to the dark age” – You mean that era of over half a century, from 1933~1999 when we didn’t have any global financial catastrophes related to the mixing of commercial and investment banking? Sounds like a Renaissance period to me……

Posted by jobon1 | Report as abusive
 

BGG wrote: NEITHER PARTY BELIEVES IN “FREE MARKET CAPITALISM”

Sorry to burst your bubble, but neither party has ever believed in true free market capitalism. That idea died with the Founding Fathers. Go back and read how the railroads were given land grants starting around 1862. These were huge tracts of land which still impact us today. Everyone living in the West has a limitation on their land stating that they do not own the mineral rights, because the railroads knew how valuable it was. This was not capitalism, just the usual larceny practiced by corrupt governments.

Creating free trade agreements with countries that have no prospect of ever buying much of what we manufacture is certainly not capitalist; it is gaming the system for multinational corporations.

The entire concept of corporations, with their liability protection for virtually everything for corporate executives, not to mention government-issued favors like Citizens United v Federal Election Commission, is not capitalist; it is gaming the system for multinational corporations.

http://saucymugwump.blogspot.com/

Posted by saucymugwump | Report as abusive
 

Obama is a politician through and through. He knows many American’s blame Wall Street for all their problems. But the thing that has deflated Obama’s ability to take advantage of this Wall street haters. American’s also blame their Government for the mess their in.
I won’t for anything stick up for Wall street. But they are a big part of America’s money system. Just as industry was decades ago. Now Obama want’s more control of our financial system. Tell me what that Government has more control of has done well?
We hear that national health won’t save money, we know our Federal deficit is out of control. Tell me now that much of Wall street has already paid the Government and tax payers back! Tell me how Wall street does not know what they are doing. I think they are doing better then are Government!

Posted by jscott418 | Report as abusive
 

“American’s also blame their Government for the mess their in.” You are correct, jscott, I blame my government for repealing depression era laws separating commercial and investment banking. I applaud the liberals for having voted against said legislation, and deride the conservatives who introduced, promoted, and successfully passed it. And finally I contend that your statement “that the government would have more control of” is misinformed, as much so as individuals who still believe that less government is panacea for all of our problems. When in this particular case (financial regulation), the exact opposite is the case.

Posted by jobon1 | Report as abusive
 

Stock-MD: Well said, and a valuable expansion of the article. In truth, I admire this article quite a bit, since it walked a middle line knowing that radicals from both sides would rail on it (see comments above). Even if it is incomplete and mostly speculative, I believe it expresses a rational, non-incendiary approach that has been greatly lacking in recent media. Thanks for that, Ms. Freeland.

Posted by io999 | Report as abusive
 

I just love Obama’s stance on Wall Street…I’m working in London finance industry, with our Coalition Govt now putting a cap on foreign skilled workers, I’m already seeing a shortage of skilled labours/bankers in the City. With Obama’s bashing on US banks…perhaps it’s best for US banks to be HQ’d in London (fingers crossed with our sensible Coalition Govt to make right decision!!)

Ultimately….shortage of skilled labour + More US Investment bank in London = Base Salary Increase!

Come on Obama….do the right thing and drive the Wall Street out of America!!! afterall they do nothing for the main street apart from spending their big fat bonuses on restaurants; luxury items; property investment etc. (oopss actually come to think of it…they are actually benefiting main street!)
Oh well…who cares, I just hope London can get these freebies!!!

Posted by ccaaldn | Report as abusive
 

“That’s the wrong way of looking at things. Stricter regulation of financial services is necessary not because American bankers were bad, but because the rules governing them were”

NOT BECAUSE AMERICAN BANKERS WERE BAD!!! Are you kidding me?!?!?!

Dear Ms. Freeland as much as I’d like to believe that, you are living in some other form of reality, I hate to sound harsh but this strikes a chord.

Note the date of when the document was filed
Note what the examiner is investigating
Note it’s JPMorgan that was BAD
Note it’s Jamie Dimon and his bankders that were BAD

http://www.kccllc.net/documents/0812229/ 0812229100907000000000002.pdf

Question to you if I may, do Reuters journalists actually perform investigative reporting?

Posted by KostaL | Report as abusive
 

After reading the first line of this article, I immediately knew it was not worth reading.

Posted by Warburton | Report as abusive
 

No, Obama should ignore Wall St, reconnect with the American people, and then if by some slim chance or giant miracle he gets a second term, sort those lizards out once and for all.

As the first threader said, get real: the guy’s not up to it…
http://nbyslog.blogspot.com/2010/09/come th-hour-cometh-mice.html

Posted by nbywardslog | Report as abusive
 

As far as the argument that the U.S. banking industry will take their “talent” elsewhere in light of new regulation? PLEASE DO, I AM BEGGING YOU, LEAVE THIS COUNTRY NOW! Take your wealth destruction somewhere else, the further away, the better. Actually, I’m sure Greece would be willing to welcome you with open arms…

Posted by jobon1 | Report as abusive
 

You make very good points except for the part about Obama ‘demonising’ business. As you note he has actually been quite business friendly in his policies.The rhetoric coming out of some in the business sector reflects the approach of their Republican allies:slash and burn. Obama, if anything,has been a bit too cool. A bit of demonising Wall Street and their Republican friends for the mess they got us all into ,say in 2009, would probably have meant that he would be on the positive side of 50% in the polls.Not to mention having a base that is more “fired up”

There is plenty to criticise Obama about but his tone is not one of the things. his has been a really conciliatory Presidential tone for most of the past almost two years.

The really offensive tone is coming from the other sid.You mentioned the gentleman who compared a proposed adjustment in his tax rate to Hitler’s invasion of Poland.Has Obama or anyone in his administration made any comment that is remotely similar????

Posted by MHB | Report as abusive
 

Up until I read this article, I thought of Chrystia Freeland as one of the smartest people at Reuters. But this article is pure rubbish. Now that President Obama is celebrating his bipartisan willingness to renew the tax cuts for the super-rich enacted under George Bush ten years ago, it is time for American citizens to ask themselves how strongly they are willing to oppose an administration that looks like Bush-Cheney III. Obama is ruling on behalf of Wall Street, now that it is the major campaign backer of both parties.

It is a reflection of how one-sided today’s class war has become that Warren Buffet has quipped that “his” side is winning without a real fight being waged. No gauntlet has been thrown down over the trial balloon that the president and his advisor David Axelrod have sent up over the past two weeks to extend the Bush tax cuts for the wealthiest 2 per cent for “just” two more years. For all practical purposes the euphemism “two years” means forever – at least, long enough to let the super-rich siphon off enough more money to bankroll enough more Republicans to be elected to make the tax cuts permanent.

Obama seems to be campaigning for his own defeat. Thanks largely to the $13 trillion Wall Street bailout – while keeping the debt overhead in place for America’s “bottom 98%” – this happy 2 per cent of the population now receives an estimated three quarters (75%) of the returns to wealth, interest, dividends, rent and capital gains. This is nearly double what it received only a generation ago. The rest of the population is being squeezed, and foreclosures are rising.

Baudelaire quipped that the devil wins at the point where he manages convince the world that he doesn’t exist. Today’s financial elites will win the class war at the point where voters believe it doesn’t exist – and believe that Obama is trying to help them rather than shepherd them into debt peonage as the economy settles into debt deflation. Obama should call a truce with Wall Street?

Are you serious?

Posted by GetpIaning | Report as abusive
 

Chrystia Freeland’s article is a complete ‘miss’ on the topic.

The financial trusts are at the absolute core of the recent financial crisis-causing bubble.

Without heightened regulation of derivitive markets, transparency in the commodities markets, and dissolution of the banking trusts nothing will change.

Without stringent regulation, the inside positions and orchestrated manipulation of the markets by monopolistic investment banks will continue to destroy ‘capitalism’ and the qulaity of life for most Americans.

The breakdown of effective oversight and regulation has taken place during the administrations of the last five presidents, regardless of their political affiliation.

Come on, Chrystia, address the real issue. Wall Street and the banking trusts have a corrupting influence that has undermined the ability of a democracy to exist in the U.S. It has been replaced by a plutocracy.

Posted by Publius1791 | Report as abusive
 

for Obama and Wall Street to declare a truce, they would first have to be enemies.

This is a disgusting, tasteless joke of an article. Obama has kowtowed and made nice with Wall Street since before he came into office. The financial sector’s calculated whining over financial regulation does not amount to a real power struggle.

Posted by JoelReinstein | Report as abusive
 

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