Regulatory Change We Can Believe In?
Today, Politico asked, “What does Obama gain by calling bankers ‘fat cats?’” Here was my response:
When I was Deputy Corporations Commissioner for the State of California, I learned that if there was one thing that our licensees wanted from their financial regulator, it was consistency. The number of players and moving parts in the financial game is nearly infinite, the companies were saying, so all we ask from you is to resist the temptation to keep changing the rules.
By calling bankers “fat cats,” President Obama is of course scoring political points. A recent Democracy Corps poll showed that nearly half of the less than perfect voters that Democrats will need to prevent a midterm bloodbath are upset about “Big banks and Wall Street getting handouts while nothing is done for working Americans.” The president is demonstrating he feels their pain.
But I hope that he is also doing something more. One doesn’t have to view the big banks as evil to understand why they support the status quo - they were built to function under the existing regulatory structure (e.g., the primacy of the Federal Reserve). As political adversaries, the big banks are formidable, able to drop big bucks into the campaign coffers of nervous legislators. Using rhetoric like “fat cats” is the right thing to do if the goal is to overcome the banks’ natural resistance and set up a regulatory structure that responsibly addresses all the tough issues, from banks too big to fail to the conflict of interest inherent in credit agencies.
Big financial institutions will adapt to whatever becomes law. The best way to make this a win for everybody is to pass comprehensive, effective reform that will stand the test of time. The financial institutions will operate with the confidence that the regulatory scheme won’t shift beneath their feet; consumers will know that someone is minding the store. If sound bites like “fat cat” help motivate voters to push their representatives towards real reform, then President Obama is making productive use of his bully pulpit.
As complicated as the issue is (or maybe because of it), this could be a case where good politics and good policy converge.
