By Aiden Singh, Colmunist
In what can only be considered the greatest political blunder in recent memory, President Barack Obama has managed to reduce his standing from one of the most powerful and influential entrants into the Oval Office since the establishment of the Executive Branch, to that of arguably one of the most disappointing presidencies in history. It is a widely accepted theory in political science that an entrant into a political office is most powerful during the early portion of the term, given that others realize they will be dealing with this person for years to come. To add to President Obama's clout at the time of his entry, he won the election in convincing fashion, came in as a "savior" after the exiting of the much maligned Bush administration, took office in an era where the Executive Branch is vastly more powerful than the founding fathers intended and was given a filibuster proof Democratic majority in the senate. Yet as of this moment he stands a mere pittance of his once invincible self and with only a 51 percent approval rating one year into his term (among the lowest in history for a president after one year in office).
In the wake of Senator Ted Kennedy's passing, a special election held in Massachusetts, Republican Scott Brown was elected into a senate seat that has historically gone blue. This is a clear message being sent to the White House by disappointed constituents. While the Democrats scramble to prevent a major overhaul in the upcoming 2010 Congressional elections, one thing has become undeniable clear: President Obama had better become more of a leader and less of a politician. With the prospects of a sweeping health care overhaul dead before a bill could even be placed on the President's desk, something that will haunt the Obama legacy for years to come, he has decided to shift his focus to Wall Street. Recently, President Obama proposed instituting a bill that would eliminate proprietary trading (that is trading for their own accounts) at banks, along with investing in hedge funds (private investment funds reserved for high net worth clients) and private equity fund's (investment funds that provide capital to companies not publicly traded on exchanges). These are the President's proposed measures to prevent a repeat of the 2008 financial crisis. Such insufficient proposals only attest to the fact that the White House is clearly out of sync with the current dilemmas the nation is facing.
The general consensus amongst economists is that the recent financial collapse was a result of poor lending by banks, the use of non regulated or lightly regulated derivatives such as credit default swaps and collateralized debt obligations and a bust in the housing bubble. A proprietary trading desk at Goldman Sachs that operates out of an office on Broad Street did not bring the global economy to its knees. Subprime loans issued by banks around the nation that were packaged up and sold as mortgage backed securities did. The overuse of leverage by some of Wall Street's most storied investment banks and the rush to collect on the commissions generated by loan and loan related securities issuance (regardless of quality) brought the global economy to a screeching halt. The creation of "shadow banks" that had no money of their own, but rather lent money they had borrowed themselves, inflated the housing bubble. The trading desks just trade and make markets in existing securities; they are not in charge of issuing mortgage loans or packaging securities riddled with toxic loans. Excess liquidity and the issuance of options arm and reverse amortization mortgages, amongst a vast array of other subprime loans led to an inevitable housing crisis; not trading desks in lower Manhattan. There is no doubt that stricter financial regulation is needed to prevent another credit crisis. And there is no doubt that Wall Street is a large reason for the one that began in 2008. As George W. Bush once put it, "Wall Street got drunk." However, in addressing such a delicate matter, only appropriate proposals should be considered. These are after all the same intellects that initially created the credit derivatives that nearly destroyed the world financial system. They will always be one step ahead of regulators. As such it is paramount that the appropriate measures are enacted; in sharp contrast to Obama's ragtag random approach of targeting selected elements of trillion dollar financial behemoths.
So why is Obama targeting random aspects of Wall Street; it's a desperate attempt to appeal to an angered Main Street constituency looking for some closure to what happened. Consider the following; President Obama has also recently proposed levering a massive bonus tax on Wall Street employees and a separate proposal that the banks pay the government a special fee in order to recoup losses from T.A.R.P (the rescue package implemented in 2008 to save large institutions from failing) despite the fact that the main banks this fee is aimed at have already repaid T.A.R.P., with massive dividends. In fact four out of the top five borrowers of government money weren't banks at all. They were insurance companies and automakers amongst others. It is General Motors and A.I.G that have been unable to repay T.A.R.P. So why force banks to flip the bill for these dismal failures of American industry? President Barack Obama has decided to wage an all out war on any element of Wall Street that operates in relative obscurity to Main Street because he believes it may help his political standing. It would be political suicide to come out and propose that more failing obscure regional banks be allowed to collapse in an era of already limited credit access to small business. It's much easier to berate C.E.O.s and target divisions of investment houses. However, investment bank bashing and endless C.E.O testimony to Congress won't prevent the formation of the next asset bubble (one that has perhaps already started forming). The president's nonsensical shenanigans have left us in a sluggish economic state and vulnerable to another crisis.
Perhaps the president's time would be better spent trying to reduce the 9.7 percent unemployment rate, a vast under estimation considering this number doesn't account for discouraged workers or underemployed workers. These unemployed persons will not enter the voting booth with the tax rate on the mergers and acquisitions department at Morgan Stanley in mind, rather they will enter with the goal of electing someone who will combat the sluggish economic prospects. Or the president could focus on the fact that we stand a nation at war in Afghanistan, with a still significant position in Iraq, and a growing Al Qaeda presence in Yemen. The families of the soldiers that have sacrificed so much in defense of our civil liberties will not enter the voting booth pondering J.P. Morgan's next private equity investment. Rather, they will enter with the goal of electing the leader that will best command his troops.
The president may be making a miscalculation of epic proportions. Instead of imposing restrictions on large financial institutions, he should impose those that will combat another meltdown of the economic system. Instead of focusing on the number of tellers at Bank of America's Hempstead branch, he could focus on his next move in the situation between Afghanistan and Pakistan. The president may want to assume more of a leadership role and less of a political role.