THAT First 100 Days hoopla seems like a century ago. The countless report cards it engendered are already obsolete. The real story begins now. With Iran, universal health care, energy reform and the economic recovery all on the line, the still-new, still-popular president’s true tests are about to come.
Here’s one thing Barack Obama does not have to worry about: the opposition. Approval ratings for Republicans hit an all-time low last week in both the New York Times/CBS News and Wall Street Journal/NBC News polls. That’s what happens when a party’s most creative innovations are novel twists on old-fashioned sex scandals. Just when you thought the G.O.P. could never match the high bar set by Larry Craig’s men’s room toe-tapping, along came Senator John Ensign of Nevada, an ostentatiously pious born-again Christian whose ecumenical outreach drove him to engineer political jobs for his mistress, her cuckolded husband and the couple’s son. At least it can no longer be said that the Republicans have no plan for putting Americans back to work.
But as ever, the lack of an adversary with gravitas is a double-edged sword for Obama. It tempts him to be cocky and to coast. That’s a rare flaw in a president whose temperament, smarts and judgment remain impressive. Yet it is not insignificant. Though we don’t know how Obama will fare on all the challenges he faces this summer, last week’s big rollout of his financial reform package was a big punt, an accommodation to the status quo. Given that the economy remains the country’s paramount concern — and that all new polling finds that most Americans still think it’s dire — this timid response was a lost opportunity. It violated the Rahm Emanuel dictum that “you never want a serious crisis to go to waste” and could yet prompt a serious political backlash.
A tip-off to what was coming appeared in a Washington Post op-ed article that the administration’s two financial gurus, Lawrence Summers and Timothy Geithner, wrote to preview their plan. “Some people will say that this is not the time to debate the future of financial regulation, that this debate should wait until the crisis is fully behind us,” they wrote by way of congratulating themselves on taking charge.
Who exactly are these “some people” who want to delay debate on the future of regulation? Not anyone you or I know. Most Americans were desperate for action and wondered why it was taking so long. The only people who Summers and Geithner could possibly be talking about are the bankers in their cohort who helped usher us into this disaster in the first place. Both men are protégés of one of them, Robert Rubin, the former wise man of Citigroup.
There are some worthwhile protections in the Summers-Geithner legislation, especially for consumers, but there’s little that will disturb these unnamed “people” too much. I’ll leave it to financial analysts to detail why the small-bore tinkering in the administration blueprint won’t prevent another perfect storm of arcane derivatives, unchecked (and risk-rewarding) executive compensation and too-big-to-fail banks like Citi. Suffice it to say that the Obama team has not resuscitated the Glass-Steagall Act, the New Deal reform that Summers helped dismantle in the Clinton years and that would have prevented the creation of banking behemoths that held the economy hostage.
A particularly dramatic example of how the old Wall Street order remains intact can be seen by looking at the fate of credit-rating agencies like Moody’s, which gave triple-A grades to some of the cancerous derivatives at the heart of the economic meltdown. As Gretchen Morgenson of The Times reported last year, Moody’s sins during the subprime frenzy included upgrading its rating of securities underwritten by Countrywide Financial, the largest mortgage lender, after Countrywide complained that the ratings were too tough.
Since then, more details have emerged in this unsavory narrative. When the Securities and Exchange Commission charged Countrywide’s former chief executive, Angelo Mozilo, with securities fraud and insider trading this month, it produced e-mails from 2006 in which Mozilo referred to his company’s subprime loan products as “toxic” and “poison.” Mozilo wrote that “we have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet.” Yet Moody’s didn’t warn the public by downgrading Countrywide’s securities until the summer of 2007. Meanwhile, this supposed watchdog for investors, which, like other credit-rating agencies, is paid by the very companies it monitors, took its own tranche of the bubble. Moody’s profit margins even surpassed Exxon’s.
And how have it and its peers in the credit-ratings game fared in the Obama regulation crackdown? Incredibly enough, they can still collect fees from the companies they grade. “It is as if Hollywood studios paid movie critics to review their would-be blockbusters,” wrote Eric Dash in The Times.
Non-Wall Street Americans who signed on to Countrywide’s toxic loans are doing far less well. The White House stood by passively this spring as banking lobbyists mobilized to castrate the administration’s Helping Families Save Their Homes Act. The final version eliminated the key provision that would have allowed judges to lower the principal for mortgage holders whose homes are worth less than their loans. Dick Durbin, the Democratic senator from Illinois, correctly observed in April that the banks are “still the most powerful lobby” in Congress and that “they frankly own the place.”
The banks’ influence at the other end of Pennsylvania Avenue is also conspicuous. The revolving door between the government and Wall Street is as greasy as ever in this White House. It’s all too depressing that the administration enforced its no-lobbyists policy to shun a human-rights advocate, Tom Malinowski, a lobbyist for genocide victims in places like Darfur, but granted Geithner a waiver to appoint a former Goldman Sachs lobbyist, Mark Patterson, as his chief of staff.
Obama is very eloquent in speaking of the “culture of irresponsibility” that led us to the meltdown, but that culture isn’t changing so much as frantically rebranding. A.I.G. is now named A.I.U., and has employed no fewer than four public relations firms, including one whose bipartisan roster of shills ranges from the former Hillary Clinton campaign strategist Mark Penn to the former Bush White House press secretary Dana Perino.
Taxpayers are paying for that P.R., having poured $170 billion-plus into A.I.G. But we still don’t have a transparent, detailed accounting of what was going down last fall when A.I.G. and its trading partners, including Goldman, snared that gargantuan cash transfusion. Perhaps if there had been a thorough post-crash investigative commission emulating the Senate investigation led by Ferdinand Pecora after the crash of 1929, we would now have reforms as thorough as F.D.R.’s. It was because of the Pecora revelations that Glass-Steagall was put in place.
If you watch CNBC, of course, the recovery is already here, and the new regulations will somehow stifle it. The market is up, sort of. Even some bank stocks are back. Unemployment, as Obama reminds us, is a lagging indicator. And so, presumably, are all the other indicators that affect most Americans. One in eight mortgages is now either in foreclosure or delinquent, with the share of new mortgages going into foreclosure reaching a record high in the first quarter of 2009. Credit card debt delinquencies are up 11 percent from last year in that same quarter.
The test for Obama is simple enough. If the fortunes in American households rise along with Wall Street’s, he is home free — even if his porous regulatory fixes permit a new economic meltdown decades hence. But if, in the shorter term, the economic quality of life for most Americans remains unchanged as the financial sector resumes living large, he’ll face anger from voters of all political persuasions. When the Fox News fulminator Glenn Beck says “let the banks lose their tails, they need to,” he illustrates precisely where right-wing populism meets that on the left.
It’s still not too late for course correction. Before rolling out his financial package, Obama illustrated exactly what’s lacking when he told John Harwood on CNBC: “We want to do it right. We want to do it carefully. But we don’t want to tilt at windmills.”
Maybe not at windmills, but sometimes you do want to do battle with fierce and unrelenting adversaries, starting with the banking lobby. While the restraint that the president has applied to the Iran crisis may prove productive, domestic politics are not necessarily so delicate. F.D.R. had to betray his own class to foment the reforms of the New Deal. Lyndon Johnson had to crack heads on Capitol Hill to advance the health-care revolution that was Medicare. So will Obama for his own health-care crusade, which is already faltering in the Senate courtesy of truants in his own party, not just the irrelevant Republicans.
Though television talking heads can’t let go of the cliché that the president is trying to do too much, the latest Wall Street Journal/NBC News poll says that only 37 percent of Americans agree. The majority knows the country is in a crisis and wants help. The issue has never been whether Obama is doing too much but whether he will do the big things well enough to move us forward. Now that the hope phase of his presidency is giving way to the promised main event — change — we will soon find out.
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