I have been asked what I think of Mr Obama’s comments on bank regulation. I think they are good modern politics. For Mr Obama, it was bash or be bashed.
The US public – like the UK public – were not happy that so much of their money was tossed into propping up banks, or put at risk underwriting them. They became livid when those same banks, a year later, were busy paying their top executives mega bucks in bonuses as if nothing had gone wrong, as if they had earned the money by their own great talents.
Mr Obama has just had a very bruising encounter with the US electors. Both the winning and losing candidates in Massachusetts stated that the big issue was Obama’s very own unpopular health care plan. Mr Obama says he is quietly parking or delaying the offending big idea. Now he needs to change the topic and find people and institutions more unpopular than himself. Enter the bankers.
Like many modern politicians Mr Obama is good at moods and soundbites. He ought to be, as no doubt they spend a fortune tapping the mood and polling the words. So far he has proved useless when it comes to executive action, unable to develop honed policy and put it through. Closing Guantanamo was a great soundbite, but a year on it hasn’t happened. Changing the approach to the Middle East with a new kind of foreign policy sounded good, but the intensified Afghan war looks like Bush mark two. Offering healthcare to those who could not afford it sounded heroic. Instead many middle Americans feel threatened with higher cost health care and higher taxes.
So what is Mr Obama offering for his new banking policy? We do not know. There were two short paragraphs, designed to send a single message – he welcomes a fight with Wall Street. It worked with the tabloids, but it is scarcely a considered policy towards banking regulation.
He also implied that some banks were too big, without defining how big a bank should be and without naming the ones he had in mind. He wants big banks to get out of hedge fund activity, proprietary trading and private equity.
If he had bothered to thinik about the crisis we have lived through, he would have noticed that the two biggest catastrophes in the US were Freddie and Fannie. These are both specialist mortgage banks, brought down by advancing too much mortgage to too many people. His remedies do not tackle that issue. He might have spotted that Lehmans went bust. That was a specialist investment bank, that would also be unaffected by his two paragraphs. If he had looked across to the UK he would have seen that Northern Rock, Alliance and Leicester and Bradford and Bingley were also all specialist mortgage banks.
Out of his soundbites could come a sensible policy. As readers will know, I do want the two UK state owned mega banks broken up. They were too big to fail and too big to bail. The break up of banks that needed taxpayer support and might need it in the future is a good idea. Ensuring that in future they have more capital at the dangerous stages of the cycle would also be a good idea.
So was George Osborne right to back Obama? Yes, he played it shrewdly. He welcomed Obama’s interest in better banking regulation, and said it must be done globally. He also implied that Mr Obama’s message was the beginning of a long process of negotiation, not a settled answer for the world. That would be a kind way of putting it. Mr Obama came up with a bare knuckles soundbite. Maybe sometime the governments of the world will get round to getting some justice for hard pressed taxpayers, who were made to put too much into propping up some banks that did not not deserve it. They should have helped depositors, but they should not help bankers pay themselves too much.