President Obama is coming to New York tomorrow to draw a line in the sand against Wall Street. He is stoking public anger against the big banks, whom many people believe brought our economy to its knees as a result of what they perceive as the banks’ avarice and deceptive practices. Obama wants to change the target of populist sentiment away from big government onto big business.
How does this Ivy League elite President-turned- populist plan to do that? Obama is portraying the federal government as the white knight riding in to save the public from the Wall Street villains by putting them under government stewardship.
Obama is battling the private sector because he is a socialist progressive who detests free market capitalism. The proof is that the quasi-government agencies which played a big role in helping to bring about the housing crisis through their reckless risk management – Fannie Mae and Freddie Mac - have escaped Obama’s opprobrium. After all, if they are connected to the government with a progressive social justice mission to enable everyone to buy their own homes, whether they can afford to or not, Fannie and Freddie can’t be all that bad.
Obama wants to consolidate more power in Washington at the expense of the private sector. And by exploiting class warfare, he hopes to minimize Democratic Party losses in Congress this November.
No doubt, the civil fraud charges brought by the Securities and Exchange Commission against Goldman Sachs will be front and center in Obama’s populist anti-Wall Street message. But will he mention the fact that Goldman Sachs is second only to the University of California as his biggest single source for donors in 2007 and 2008, according to the Center for Responsive Politics? Will he be returning tomorrow the contributions – approaching $1 million – that Goldman’s employees poured into his presidential campaign?
Unlike the health care debate, which people understood to be about big government versus individual choice, the debate going on right now about reform of the financial sector is more muddled. People legitimately feel they have little control over their own economic fortunes, which they believe are at the mercy of self-interested financiers who turn to Washington for relief at taxpayers’ expense whenever they get into trouble.
Even relatively conservative talk show hosts like Bill O’Reilly have called for more federal government regulation as the answer. He did so last night on “The Factor.” But it is not necessarily the right answer.
We need better enforcement of the laws already on the books, to be sure. Hopefully, the SEC is coming out of its slumber during which it missed all the evident signs of the Madoff ponzi scheme. However, we do not need to establish more government bureaucracies in Washington with broad, vaguely worded mandates that give them the power to intervene into day-to-day business decisions and effectively run the top banks themselves on the grounds that the banks are too big to fail. And we do not need new taxes – which will be passed on to the consumers – to fund a bank bailout slush fund administered by the bureaucrats in Washington D.C.
Here is a better idea. Break up the biggest banks in a way that will sharply reduce, if not eliminate, their capacity to precipitate a systemic melt-down. As the free market proponent Alan Greenspan said last fall:
If they’re too big to fail, they’re too big. In 1911, we broke up Standard Oil. So what happened? The individual parts became more valuable than the whole. Maybe that’s what we need.
Use the antitrust laws to prevent collusion among banks and to untangle any mergers that have produced a megabank with the potential to abuse its market power to the detriment of consumers. As a result of mergers brought about by the financial crisis itself, the largest banks have gotten even larger – making them more dangerous than ever to our economic system if any one of them should fail.
President Obama’s prescriptions are those of a snake-oil salesman who wants ever more power for the federal government at the expense of free enterprise.