Partisans have a general habit of insisting that their side would do better if only their leaders would give more strident speeches. Witness liberals during the health care debate demanding that President Obama mind-meld conservative Democrats into supporting the public option, or the Republicans who fervently believe that just a few more addresses by Paul Ryan can sell the public on his plan to slash the most cherished program in the United States so as to pay for unpopular tax cuts for the affluent. It’s usually a fantasy of escaping inescapable political constraints. And yet, observing the Republican Party’s accelerating and virtually unopposed onslaught against financial reform, it’s hard to reach any other conclusion. Where is Obama? Why won’t he say something?
If you haven’t noticed—which would be understandable, as neither Obama nor congressional Republicans have done anything to make you notice—the GOP has undertaken to cripple last year’s regulations of Wall Street. Almost immediately after taking control of the House, Republicans began threatening to slash funding for financial regulators on the odd rationale that they deserved punishment for failing to prevent the crisis. “It’s only in government, especially in Washington,” argued Representative Scott Garrett of New Jersey, “where you have agencies that failed in their core assignments in the past, and yet they are rewarded with more authority and bigger budgets.” This reasoning is tantamount to concluding after the attack on Pearl Harbor that we should cut the intelligence and naval budgets, so as not to reward failure. (Obviously, no member of Congress made that case in 1942; arguments so obviously daft generally get a hearing only if some entity stands to make money off it.)
In recent weeks, Republicans have relentlessly been appending bills that would weaken or repeal financial regulation outright to sundry legislation. (Betcha didn’t know the Ryan House budget waters down financial reform.) They have made it their mission to attack the new Consumer Financial Protection Bureau. First they signaled they’d filibuster the appointment of Elizabeth Warren. Then they announced they’d oppose the appointment of any director at all. Then they announced they’d keep Congress in session so that Obama couldn’t unilaterally appoint her, or anybody, during a recess.
Republicans do have the power to block appointees and cut funding for regulators. But that doesn’t mean Obama has to sit back helplessly while Mitch McConnell ties Warren to the train tracks and twirls his mustache. Consider how financial reform passed in the first place. The House approved a reform bill in 2009, but it lingered in the Senate for months as the administration ignored it while Republicans and the financial industry hacked it apart piece by piece. Everybody assumed the final product would be hopelessly ineffectual or die altogether.
But then, all at once, the dynamic reversed itself. With the imminent passage of health care reform in the spring of 2010, Obama saw a chance to stand up to the banks that the public blamed him for bailing out and decided he could win a fight on financial reform. And, as my colleague Noam Scheiber reported, “a reform counteroffensive composed entirely of Republicans looks suspiciously like the party is doing Wall Street’s bidding—precisely what the banks and the GOP want to avoid.” And so the reformers who had spent much of the previous year running away from reform opponents suddenly turned on their tormentors, who in turn fled in terror. Obama finally signed a reform law that, by the standards of what seemed probable just a few months before, was inconceivably stringent.
Why, then, have Republicans overcome their fear of openly carrying water for Wall Street? If you guessed, “The public wants weaker financial regulations,” you fail. Polls in 2010 showed overwhelming support for strong financial regulation, and what little information has come out since suggests strong anti-Wall Street sentiment remains. One poll earlier this year asked which of the following best reflected one’s belief—“corporate greed helped lead to the current crisis and these practices need to be reined in to fix our economy” or “now is not the time to constrict corporations while we are trying to get our economy back on track.” The first statement won out by nearly two to one.
Financial regulation generally advances in great bursts when a crisis focuses public attention on it, and it retreats slowly at other times. Members of Congress faithfully carried out the bidding of Enron and the major accounting firms until Enron imploded in 2001. Then, briefly, nobody dared oppose reform for a few months until the Sarbanes-Oxley reform passed, after which opponents have quietly chipped away at it.
The financial collapse remains vivid in the public mind. Even when opposing reform in 2010, Republicans paid reform sentiment the compliment of utter fakery, insisting that tighter regulation amounted to a “bailout bill,” and thus it was Democrats who were doing Wall Street’s bidding. But, if Obama won’t call public attention to the issue, there’s no reason for members of Congress not to curry favor with Wall Street. And Wall Street itself, which last year maintained a low profile, is now shouting in broad daylight what it once would only whisper behind closed doors. Jamie Dimon of JP Morgan complains that capital requirements will “stifle economic growth.” The American Bankers Association denounces “excessive regulatory second-guessing.”
What, then, explains Obama’s reticence? Left-wing critics would say that the administration is run by Wall Street veterans who don’t want to regulate the industry at all. (That sounds plausible until you pause to ask yourself why Obama pushed for financial reform in the first place.) I suspect something else is at work. Obama, as well as Chief of Staff Bill Daley, seem to have absorbed the business community’s incessant complaints that mild, infrequent criticism of the worst thieves on Wall Street constitutes an intolerable barrage of abuse against honest capitalists.
Obama still favors reform, but he has grown skittish of any rhetorical flourish that could be cast as “anti-business.” Among the fund-raisers and the Sunday morning talk shows, such verbal restraint is seen as a wise economic tonic. In the real world, Obama is giving up the only weapon he has to defend one of his signature achievements.
Jonathan Chait is a senior editor at The New Republic. This article originally ran in the July 14, 2011, issue of the magazine.