The case for free-market populism: Big-bank profits

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Politics,Beltway Confidential,Timothy P. Carney

Barack Obama was a bailout president, and in his reelection campaign he almost never had to defend his biggest bailout — the Great Wall Street Bailout, whose passage he ensured, and which he administered.

But Obama’s administration of the bailout deserves criticism. Maybe Mitt Romney was uncomfortable with a criticism that would sound too populist — especially because Romney was so dependent on Wall Street money. But the former Special Inspector General of the bailout, Neil Barofsky doesn’t mind. From the Economist’s review of Barofsky’s book Bailout:

Mr Barofsky reports that no one in the Treasury Department and almost nobody at the Federal Reserve seemed concerned that some might try to exploit the government’s largesse. Whenever Mr Barofsky tried to ensure that banks were using TARP funds to make loans—the stated purpose of the programme—he was told that it would be impossible because “all money is green”. Yet the bankers themselves had no problem telling journalists how they planned to use the cheap capital to buy competitors or hoard cash for a rainy day.

Former FDIC Chairman Sheila Bair, in her new book, points to Tim Geithner’s record as NY Fed Chairman, during the string of bailouts up to and including TARP. As quoted in the review:

Tim Geithner’s mentor and hero, Bob Rubin, had served as the chairman of the organization and, as the Financial Crisis Inquiry Commission would later document, had had a big impact in steering it toward the high-risk lending and investment strategies that had led to its downfall. I frequently wonder whether, if Citi had not been in trouble, we would have had those massive bailout programs. So many decisions were made through the prism of that one institution’s needs.

Banks in the Obama era are consolidating, and Fed and Treasury policy are part of the reason. Jesse Eisenger at Pro Publica explains:

The president of the Federal Reserve Bank of New York, William C. Dudley, vented this frustration in a recent speech, blaming the concentration of mortgage-making power at a few big banks.

Mr. Dudley is right. But what he didn’t say was that his own institution (the Fed), his former boss (Treasury Secretary Timothy F. Geithner) and the Bush and Obama administrations delivered us this mess.

The broken mortgage market is the unintended consequence of the flawed banking bailout and the flaccid regulatory response in the aftermath of the financial crisis.

The government and the regulators have had two broad approaches to banking oversight during the crisis and its aftermath. First, regulators coddled the troubled big banks. The two weak behemoths, Citigroup and Bank of America, were granted time to work off their bad loans. Regulators practiced forbearance, overlooking the self-inflicted debacles — mostly housing related — on their balance sheets.

Regulators, meanwhile, encouraged the healthy giants to get even bigger by gobbling up the small and weak. So Wells Fargo bought Wachovia, and JPMorgan snapped up Washington Mutual.

These are the fruits of Obamanomics. You see why I think it’s silly to call Obama a “socialist.” Better to call him a “corporatist.” That’s why the country is so primed for free-market populism, as I argue in my column today:

The GOP is out of power and it needs to play to the disaffected. The disaffected are not the wealthy, an obvious point that conservatives can’t seem to understand. The wealthy got wealthier under Obama, and corporations earned record profits while median family earnings fell. Obama uses these facts to defuse the charges he’s a socialist. Republicans should use them to show that Obama’s big government expands the privileges of the privileged class.

Instead of trying to convince successful people that Democrats will take away their wealth, why not explain to the middle class that big government is keeping them down?

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