The Waning Power of the Bully Pulpit

President Barack Obama didn't reveal any sweeping new policies in his speech on financial reform at Federal Hall today. In fact, most of it was a rehash of the wonkish proposals already put forward by Treasury Secretary Tim Geithner and others. Most notably, the Administration will work with Congress to create a Consumer Financial Protection Agency that will -- in theory, at least -- keep banks from pushing exploding mortgages to uninformed consumers. They'll make the Federal Reserve responsible for the keeping the whole system humming along, and create a new bankruptcy process for too-big-to-fail institutions that, well, fail.

Obama's oratory powers were mostly held in reserve today at Federal Hall. It was only when he started browbeating bankers with moral righteousness that a bit of emotional cadence crept into his voice. As Dan Gross already hinted, this is where he hit his stride:

The fact is, many of the firms that are now returning to prosperity owe a debt to the American people. Though they were not the cause of the crisis, American taxpayers through their government took extraordinary action to stabilize the financial industry. They shouldered the burden of the bailout and they are still bearing the burden of the fallout – in lost jobs, lost homes and lost opportunities. It is neither right nor responsible after you’ve recovered with the help of your government to shirk your obligation to the goal of wider recovery, a more stable system, and a more broadly shared prosperity.

Grammar snobs, take note at how he steers from delicately addressing the financiers passively ("the firms that are now returning to prosperity") to directly: "It is neither right nor responsible after you’ve recovered with the help of your government to shirk your obligation."

The problem, of course, is that Obama's moral suasion will fall on deaf ears. High finance is a winner-take-all game, and there's no room for wishy-washy decisions based on nebulous ideas like ethics. Bankers will continue to tiptoe as close to the line as possible (and sometimes step over it), staying within the bounds of the law while exploiting the flaws within the system as best they can. And this is not because they are awful, heartless people who want granny to lose her home. It's because, well, if you had a $1 million year-end bonus on the line, wouldn't you do whatever it took to make sure you got it?

Most of the Administration's proposals are smart ones, and they'll probably pass in a watered-down version. But they're like so many Lilliputians, trying to tie down an outsized Gulliver. The Gullivers, of course, are the too-big-to-fail firms which caused the crisis and, since then, have only gotten bigger. As Niall Ferguson writes in this week's issue, what's truly needed is "a serious application of antitrust law to the financial-services sector and a speedy end to institutions that are 'too big to fail.' " That will require a force much stronger than moral indignation.

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