The Wall Street vs. Main Street fight has now helped determine the outcome of two presidential elections: 2008 and 2012. Will it define a third?
By 2016—a full decade’s distance from the housing bubble’s spring-2006 peak—the financial industry may expect a break from both rhetoric from candidates and rules from regulators. But Big Finance shouldn’t get too comfortable. True, establishment candidates looking to be White House contenders from both sides of the aisle rarely talk about too-big-to-fail financial institutions’ unfair advantage over the rest of the economy.
But upstart candidates from the right and left are clinging fast to the issue, and finding success in doing so — ensuring that during primary season, at least, it won’t fade into memory.
President Obama, of course, won two elections in part because voters didn’t trust Republicans on the economy and finance. But now he hopes to put Wall Street regulation behind him. The president’s 2014 State of the Union speech was the first in his six years’ worth of such speeches that he didn’t criticize the financial industry and Washington’s previous failures to govern it—not once. Obama even made a conciliatory gesture, saying “let’s all come together … from Wall Street to Main Street to give every woman the opportunity she deserves” in the workplace.
Contrast that language with that of 2009, when he pledged to end “bank bailouts with no strings attached” and to stop the practice of “hold[ing] nobody accountable for their reckless decisions.” (Obama also said that inaugural year that the government would continue to “provide the support [to major banks] to clean up their balance sheets,” jarringly wonky language that reminds us, half a decade later, of how the most obscure details of the financial crisis riveted “regular people” at home.)
Why has Obama dropped Wall Street—easing up, too, even on the broader “fat cat banker” language? One reason, of course, is that the president cleared his signature financial-reform law, colloquially known as Dodd-Frank, a full four years ago, two years into his first term. Though he adeptly used the public’s dissatisfaction with the financial industry to help get himself elected in 2008, financial reform was never his core domestic issue compared to Obamacare. It makes sense for the president to focus public attention on Obamacare milestones rather than Dodd-Frank milestones.
There’s another reason, though, why this narrative change makes sense—and one that points to an opening for future politicians. Obama cannot claim that financial regulation on his watch is a great success.
The problem is not what it was a few years ago, when critics, mostly on the right, were complaining that the 849-page law was far too complex and that it was taking regulators years to write and implement its 399 separate rules, leading to uncertainty and paralysis in the financial industry. After years of missed deadlines, Obama can now fairly claim that regulators are closer to the end than to the beginning of Dodd-Frank, having now passed 52.3% of the necessary rules—including the signature Volcker Rule to separate proprietary trading from commercial banking—and have proposed another 23.6%, according to the June progress report by the Davis Polk law firm.
The problem for the president now—and a much more politically potent one—is that it’s becoming clear that the Dodd-Frank law didn’t do what it was supposed to do: end too big to fail and, more generally, end crony capitalism in the financial sector.
It’s no longer just politicians on the right saying that (although they still are). Sen. Elizabeth Warren (D-Mass.) got herself elected in 2012 in part by reminding voters that “Wall Street CEOs—the same ones who wrecked our economy and destroyed millions of jobs—still strut around Congress … demanding favors.” One of her first acts in office was to team up with Sen. John McCain (R-Ariz.) to introduce a “21st-century Glass-Steagall bill.”
The bill—clocking in at 30 pages, just 3.5% of Dodd-Frank’s weight—pointedly notes that “the financial crisis, and the regulatory response to the crisis, has led to more mergers between financial institutions, creating greater financial-sector consolidation and increasing the dominance of a few large, complex financial institutions that are generally considered to be ‘too big to fail’, and therefore are perceived by the markets as having an implicit guarantee from the federal government to bail them out.”
That may sound wonky—but what Warren is saying, more or less, is that when Obama stood before the nation in 2010 and said that Dodd-Frank ensured “there will be no more tax-funded bailouts, period,” he was either wrong or lying.