A uniter and a divider?

[Peter Suderman]
As I wrote on the office blog at the time, there were a couple of passages in Obama's speech on financial regulation that bugged me. I continue to be bothered by the fact that despite his recognition that the current financial regulation system is outdated, designed for another era, and his equal recognition that we've dealt "with threats to the financial system that weren't anticipated by regulators," the solution is, well, more regulators! It's as if he sees the consistent inability of bureaucracy and regulation to keep pace with market innovation and then says, "But if we just made it a little faster, maybe this time…"

But reading through it, I was also impressed, in a way, not just by his typically soaring rhetorical style, but by his sharp rhetorical tactics. Basically Obama likes to present problems in a moderate conservative frame — and then use that frame to argue for fairly standard liberal policy. So you get passages up front that are positively rapturous in the way they describe the American market — calling it the "envy of the world" and talking about how it "provided great rewards to innovators and risk-takers." It's not quite Larry Kudlow, but it's more than just the generic "America is a land of opportunity" line that every politician has to recite from time to time. Those broad criticisms he mounts about the problems with an outdated regulatory system would be at home in speeches made by plenty of Republicans. But it's in the back end where he tends to switches things up, calling, in this case, for greater financial oversight, harsher punishments for "market manipulation," etc. It's a nice trick, one he employs quite a bit, and I suspect it goes a long way toward bolstering his image as a uniter. It's easy to give up rhetorical ground if you're strengthening your control of the policy territory.

Comments

"Trick" seems a little loaded to me, although it's certainly a rhetorical tactic. I don't think Obama pretends to be less liberal or "progressive" than he is, just to woe conservative audiences. But his approach to markets and his other policy initiatives offer a glimpse into his traditional small-l liberal approach to governance. And conservatives can find a lot of common ground with liberals on this.

That is why he can use phrases like "envy of the world" to describe our markets. He's not pandering, he believes it. But he believes one of the reasons it is in a position to be envied is that it's well-managed by laws and regulations. You don't see people investing heavily in markets where bribery and public graft is commonplace.

I don't think Obama wants more regulation simply for the sake of hiring more technocrats, rather he wants different regulations than the ones we currently have, including for areas of finance where we've been negligent in regulating for the past few years.

Posted by DSG | April 2, 2008 6:16 PM

No more a "trick" than the trick where we pretend that, because government can often be bad(with its giant, troublesome and heavy-handed bureaucracies), the solution is clearly business (which consists, far too often, of giant, troublesome, heavy-handed, cut-throat bureaucracies).

Posted by Nathan | April 2, 2008 6:30 PM

Surely the issue isn't just "more" or "less" regulation. If you have regulation in place for a reason, and there are powerful incentives to get around it, you need to update your regulator strategies to address the regulatory arbitrage.

If the taxpayers are going to be insurers of last resort of certain financial transactions (and perhaps they should be), then like any other insurers, they need to control the insured's behaviour for excessive risk-taking. But when they do that, the insured has an incentive to find a way to keep the coverage and engage in the risk-taking. Sophisticated financial instruments make this easy, unless regulators are also sophisticated.

So a regulatory system can be "outdated" not only because it imposes unnecessary costs on those it regulates, but also because it no longer protects against the risk it is trying to mitigate.

Posted by Pithlord | April 2, 2008 6:46 PM

Seeing as you're tight with Larry Kudlow, Pete, have you ever done blow with him over at National Review?

The man was the biggest cokehound at Bear Stearns. Those pinstriped suits he wore were regular navy ones until he passed out on a table full of lines. He fried his brain so bad he became a born-again Christian.

I bet he could hook you up with some fine Colombia shit.

Posted by Scarface | April 2, 2008 7:18 PM

I continue to be bothered by the fact that despite his recognition that the current financial regulation system is outdated, designed for another era, and his equal recognition that we've dealt "with threats to the financial system that weren't anticipated by regulators," the solution is, well, more regulators!

So you'd rather the government bailout the IB's again and again? I never knew you were in favor of socialism and not capitalism.

Posted by Joe Klein's conscience | April 2, 2008 7:58 PM

It's as if he sees the consistent inability of bureaucracy and regulation to keep pace with market innovation and then says, "But if we just made it a little faster, maybe this time…"

Vietnam's stock market was until the last couple of months almost entirely unregulated. Hence it was almost entirely non-transparent and most shares traded OTC, where they couldn't be taxed or even have share prices monitored accurately. Prices bubbled up over 200% in a couple of years. Then, when prices threatened to fall from a high of over 1100 last year to under 400, the government stepped in and imposed a maximum 1% per day trading band.

The alternative to clear, consistent regulation, monitoring and enforcement is periodic abrupt, massive government intervention. Those are the choices. It's time to grow up.

Posted by brooksfoe | April 2, 2008 10:30 PM

Pithlord,

Unfortunately, trying to control the level of risk taken by participants in the financial system, like trying to "tax the rich" while creating tax incentives: both are trying to grab the air. At best, unless you create a system that makes the entire investment community at perpetual risk, you wind up with a regulatory regime prone to gaming. Of course, the alternative of hostility to the investment community leads to the breakdown of the financial sector.

Posted by Bill Dalasio | April 2, 2008 11:00 PM

The solution is quite simple- stop using the government as an insurer without premiums. The goal of any business is to privatize profits and socialize losses. As long as government stands ready to aid in the latter, businesses will take excessive risks, their customers will take excessive risks with them, and the taxpayers take the losses.

As for the regualtions, the government is always solving the last problem while finance is moving on to the next, new wave of money engineering.

Nothing concentrates the mind on sound lending better than facing the potential loss.

Posted by Yancey Wardq | April 2, 2008 11:07 PM

Let me make sure I understand.

Obama is "dogmatic" because he doesn't subscribe to your dogma?

Posted by Osama Von McIntyre | April 2, 2008 11:23 PM

Welcome to The Atlantic, Jon.

Obama's rhetorical style is precisely the language of a uniter. I read a story about Obama's time at the Harvard Journal when there were protests about the lack of diversity, and people demanding more aggressive Affirmative Action policies. Obama never engaged in the fireworks, but was involved in the internal discussions with people who were adamantly opposed to AA. He disarmed them by acknowledging that there are sound arguments against AA, and that opposition was not tantamount to racism.

The key to understanding Obama is the recognition that he actually seems to know the actual merits of both sides of these arguments, not, as many politicians today, who know their side of the argument, and the strawman in place of the argument of the other side.

You should read his comments about the Constitution, dissecting constructionism and living document philosophies.

When someone is open enough to understand both sides of an argument, it's not difficult for them speak in a manner respectful to those on both of the sides of the argument, and it makes it much more likely that they will make sound decisions.

Posted by Captin Sarcastic | April 3, 2008 1:32 AM

Captin Sarcastic: that's exactly right. Obama was editor of Harvard Law Review at the time when Derek Bell, a black law professor who was part of a movement known as Critical Legal Studies, was turned down for tenure. At the time, the political environment was such that the conflict over Bell became imbued with accusations of racism. It wasn't really a matter of affirmative action in the normal understanding of the term; the point was that Harvard's faculty wasn't very racially diverse and that the university had just denied tenure to a scholar whom everyone agreed was certainly qualified, and who would have brought some diversity to the faculty, but whose views were deemed controversial. In protest, much of the law school went on strike. Obama cut his political teeth on that conflict and, at a time when few people were trying to bridge the divide between conservative and PC camps, he learned how to do so.

Unfortunately, the stakes in national politics are so high that people whose interests lie in exacerbating polarization, and in defaming and destroying anyone who attempts to mediate and build bridges, usually win.

Posted by brooksfoe | April 3, 2008 6:24 AM

The alternative to clear, consistent regulation, monitoring and enforcement is periodic abrupt, massive government intervention. Those are the choices. It's time to grow up.

I'm with brooksfoe on this one. You can't just say "regulation", and we're all on the same page talking about the same thing, and deciding if it's good or bad. There is certainly bad regulation, and we've seen plenty of it, but the question isn't whether we need "more" or "less" - it doesn't come measured in feet or pounds or even dollars - but what the specific details of our regulation should be.

Regulation that helps transparency and accountability should be pretty easy to get most people behind. Regulation that tries to limit risky behavior might bring a bit more conflict, but the devil's in the details. We can argue over specific regulatory provisions (should we outlaw CDOs or SIVs? should we end mark to market accounting? should we require all brokers drink decaf?) but just arguing about "more" or "less" is a waste of our time. It gets both sides all worked up, but without any real productive discussion.

Posted by Geoff | April 3, 2008 9:58 AM