The One-Two Punch for Wall Street Reform

cross-posted at Dagblog

Some conservatives have accused President Obama of timing the Goldman Sachs lawsuit to make it easier to pass Wall Street Reform. It's not true, but the conservatives' anger at the alleged tactic is a sign of what a good idea that tactic is. It's the right general thing to do, and Obama should do a lot more of it.

The Republicans often give President Obama sound political advice in this way; they just give it in disguise. When they say that he should do something, like "be more bipartisan" or "throw away this bill and start over," they mean that he should do that because that would make it easier for them to beat up on him. It's like saying, "You should give me your lunch money." But when the Republicans start fulminating about some political tactic that Obama hasn't shown any particular sign of using yet, and ranting about how he's going to use it and how terribly wrong it is even to think of doing such a thing, it means that they think it's a good move and they're terrified that Obama will do it. So they raise a fuss, trying to convince gullible journalists that there's something terribly un-American about whatever Obama's optimal strategy is, or even get Obama himself to disavow using such a strategy. So when conservatives go around making up conspiracy theories about Obama personally directing SEC investigations, it means that they're scared more legal action against big Wall Street firms are coming, and that they know how hard financial-fraud trials will make it to keep obstructing bank reform.

Now, obviously the President shouldn't order specific charges brought at specific times, and I'm sure that this Administration did not. (What connects the timing of the SEC lawsuit and the Senate finance reform bill is the slowness of both; the SEC moves with methodical deliberation, building cases so thoroughly that from the outside it seems plodding, and Congress is only getting to around to financial reform after the endless dilation of the health care debate.) And obviously, only well-grounded charges should be brought. But there are almost certainly plenty of well-grounded charges to bring.

Obama has an allergy to crude populism, and hasn't been willing to feed popular anger at the banks with cheap red meat. That might be frustrating to his supporters, from a narrowly partisan sense, but it's probably the right thing for policy. Wall Street reform has to be written well, and carefully, no matter how long it takes. If it's done carelessly, the weaknesses and loopholes will go unnoticed by everyone but Wall Street insiders until the next meltdown. And the law needs to be strong, even if that means a long struggle against Republican opposition. (Digby's advice to play legislative hardball is excellent.) A watered-down bill would be worse than no bill, because once these regulations get written no more will be written until, well, the next market catastrophe. Obama, Reid and Pelosi need to wait the Republicans out and force them to pass a serious bill with serious teeth.

But restraining future bad behavior throughout the financial system with new laws is a task for the legislature, which moves slowly and deliberatively, punishing previous misdeeds by specific individuals is very much the task of the executive branch. And even if many of the problems that led to the 2008 meltdown were systematic, there were also plenty of players who weren't even conforming to the existing laws at the time. (Lehmann Brothers is casework waiting to happen.) Obama should instruct the regulatory agencies and the Department of Justice to make the prosecution of financial fraud a major priority. There are plenty of genuine misdeeds to prosecute, and thorough, fair prosecutions would be a very healthy thing for the country.

If the Administration makes the prosecution of financial criminals a priority, it will help to satisfy the populist anger at Wall Street and free the President and Congress to be more deliberate and careful with reform legislation. It will also make it clear to the public where the Administration's sympathies lie, and make it harder for the opposition to distort and misrepresent the process. It might even make the Wall Street lobby more tractable; accepting legislation that restrains your future behavior is much more attractive than being hauled into court for your past behavior. And the inevitable process of discovery and public trials that enforcement suits would serve to educate the general public about exactly how many of the larger Wall Street firms have been operating; better understanding can only lead to better lawmaking.

We need to have more trials of those Wall Street bankers and traders who crossed even the fuzzy and poorly-policed lines of our deregulated finance industry. It's the right thing for Obama to do politically, but not only politically. It's the right thing to do for the country.