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Wall Street needs to change, not Obama

While no one said that reforming Wall Street would be easy for President Obama, the big-money backlash against his proposals has been surprisingly swift and screechy. In 2008, high finance donated about $40 million to Obama's campaign. As a recent editorial in The Post discusses, though, the financial sector "is suffering a massive case of buyer's remorse." There is a perception on Wall Street, The Post surmises, that Professor Obama doesn't have enough real-world business savvy to understand how high finance works, and the newspaper urges the president to cozy up to his one-time benefactors for the good of the nation.

But Wall Street clearly remains far more out of touch than Washington, and after reading some of the words emanating from the Masters of the Universe, one might plausibly wonder if America's lords of finance have spent the last three years living on Saturn.

Stephen Schwarzman, co-founder of the private-equity firm Blackstone Group, recently compared Obama's plans to tax private-equity compensation to Hitler's invasion of Poland in 1939. (He later apologized for the "inappropriate analogy," but he’s nonetheless going to have trouble living that one down.) And in his second quarter 2010 letter to investors, distributed on Aug. 27, Daniel S. Loeb, founder of the hedge fund Third Point LLC, wrote, "Perhaps our leaders will awaken to the fact that free market capitalism is the best system to allocate resources and create innovation, growth and jobs.… Perhaps, too, a cloven-hoofed, bristly haired mammal will become airborne and the rosette-like marking of a certain breed of ferocious feline will become altered. In other words, we are not holding our breath." Andrew Ross Sorkin quipped that Loeb’s letter "sounded as if he were preparing to join [Glenn Beck's 'Restoring Honor' rally] in Washington."

Why such hysteria and hyperbole? Shining through the ridiculous rhetoric is pure greed.

In a free-wheeling yet meticulous riposte to Loeb’s letter (that's worth reading in its entirety), Richard "R.J." Eskow of the Campaign for America’s Future explains, "By contributing to Republicans, with their discredited and destructive economics of nihilism, and by fueling the anti-regulatory rhetoric, Loeb stands to make more money than he would if government is allowed to take its regulatory responsibilities seriously."

In other words, though the system has collapsed for everybody else, it still ain't broke when it comes to making wealthy people wealthier. The Financial Times reported last week that in the U.S. banking sector, second-quarter earnings were the highest that they've been in nearly three years. With billions of dollars streaming back into their coffers, it's no wonder that the lords of finance want to ignore the lessons of the last eighteen months and derail Obama's campaign to rein in extravagance.

Moreover, in a sober Labor Day column for The Post, Harold Meyerson explains that rather than using earnings to help the sick economy, American corporations are instead "sitting on $1.8 trillion in cash.… They have pocketed their revenue, neither resuming lending (if they're banks), nor rehiring laid-off workers nor giving raises to those who have continued to work for them."

Corporate avarice is unconscionable these days, and even Loeb would have to admit that -- to understate things a little -- there's way more FDR to Obama than there is Marx. With the economy still in tatters, Wall Street needs to admit to itself that its road to excess has nearly bankrupted the nation. And the Daniel S. Loebs and Stephen Schwarzmans of the world need to realize that by abandoning Obama's reform efforts, they're steering us back onto it.

By Katrina vanden Heuvel  | September 9, 2010; 1:43 PM ET
Categories:  vanden Heuvel  | Tags:  Katrina vanden Heuvel  
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Comments

Ms or Mrs Heuvel

Until the powers that be end or renegotiate or trade deals to give American workers a level playing field and also enact trade tariffs screaming at wall street will do nothing.
they will nod their collective heads and then invest our money overseas.

Posted by: PennyWisetheClown | September 9, 2010 4:38 PM | Report abuse

I'm not surprised there are no comments, because you are spot on and all the reactionary apologists who cruise this site know that. Wall Street is like a lapsed alcoholic; they know the overindulgence will kill them but they just can't help themselves. They are lucky that Obama has been as generous as he has.

Posted by: chuck2 | September 9, 2010 5:02 PM | Report abuse

You do realize that you, Myerson, and the rest of your merry-band of coffee house revoultionaries work for a major corporation, right?

Posted by: luca_20009 | September 9, 2010 5:03 PM | Report abuse

"high finance donated about $40 million to Obama's campaign"

enough said....
you people are scary insane.

Posted by: simonsays1 | September 9, 2010 5:37 PM | Report abuse

Saying the free-market failed would be acurate if we actually had a free market in the last 80 years. The problem was government interference that distorted the markets. The closest thing we have had to a free market in the last century was under Harding/Coolidge which was also one of the most successful times in the history of the US. And it was achieved by letting the economy take care of itself.

Posted by: BradG | September 9, 2010 6:16 PM | Report abuse

BradG, you said: "The closest thing we have had to a free market in the last century was under Harding/Coolidge which was also one of the most successful times in the history of the US. And it was achieved by letting the economy take care of itself"

You have a terrible grasp of history. Aside from the robber barons at that time, this was a horrible advertisement for "free market" capitalism. Harding is notorious for letting industrialists take over the Interior Department and walk off with non-competitive mining options secured by bribery. The resultant Teapot Dome Scandal sent the Dept secretary to jail, implicated many and destroyed Hardings reputation poshumously. The only reason that Harding was not implicated/indicted was that he had the good timing to die in office. BTW, such a scandal sounds an awful lot like the banking scandal we just went through (except that this Senate doesn't have the nerve it did in 1927 to get to the bottom of the scandal).

As for Coolidge, he was in office just before the great Depression. It has been well documented that his laisse-faire business policies help create the conditions that led to the stock market crash of 1929.

So you are right, these are great examples of the effects of untrammeled free-market capitalism, but they argue strongly AGAINST the hands-off policies you want in place.

Posted by: chuck2 | September 10, 2010 1:29 PM | Report abuse

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