In working on my column last week about the good times at Goldman Sachs and JPMorgan Chase, I had interesting conversations with a couple of people who know a lot more than I do, MIT economist Simon Johnson and Brookings Institution/Kauffman Foundation economist/lawyer/all-around-policy-wonk Robert Litan. Sadly, none of their quotes made it into my column. (This happens a lot, and I occasionally feel guilty about it, but what’s a columnist to do?)
Both Johnson and Litan think that as the months pass it’s going to get harder and harder to enact any kind of meaningful financial reform, but they offer different reasons for why. Here’s Johnson:
This was part of the point we were making in March and April—use this opportunity to break up the banks, because you won’t get another chance. We missed that opportunity. No question, it’s gone.
It’s gone, he says, because banks are already back to making profits and wielding major influence in Washington—as evidenced by the fact that White House chief of staff Rahm Emanuel had been planning to speak to a JPMorgan Chase board meeting last week until The New York Times made a stink about it. (“That’s just incredible. What were they thinking? Rahm Emanuel!”)
Litan sees things somewhat differently. He says of the bankers:
They’re still relatively personae non grata up on the Hill. They can’t wield the influence they once did.
The greater enemy of reform here is just time. The further we get away from the crisis … it’s inertia that will undermine reform more than anything.
I guess it’s possible that they’re both right—bankers are personae non grata on Capitol Hill (Litan) but still welcome at the White House and Treasury (Johnson). The bankers I’ve talked to lately say they feel like they’re personae non grata all over Washington, but they would say that. Still, this does fit the evidence of recent months: Banks got mostly steamrollered on credit card reform, because nobody else was against it, while the Consumer Financial Protection Agency and the Administration’s proposal to empower the Federal Reserve as systemic risk regulator are getting nowhere because (a) the existing financial regulators see the CPFA as an encroachment on their turf and (b) other financial regulators and a lot of people in Congress don’t want to give the Fed any more power.
The political lesson here would seem to be that reform proposals that anger the banks but don’t step on anybody else’s toes might actually stand a chance of becoming law. But those chances will fade with the passage of time.