Obama should call a truce with Wall Street

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By Chrystia Freeland
Friday, September 10, 2010

The pre-election economic treats that President Barack Obama handed out this week included several intended specifically for business: research and development tax credits, for instance, and the small-business tax breaks he is pushing to introduce in the face of Republican congressional opposition. But these familiar sweeteners won't be nearly enough to reverse one of the most significant estrangements of the first two years of the Obama administration -- the rift between the White House and business.

Two years ago, candidate Obama was the darling of the CEO class: Hedge fund titans, Silicon Valley entrepreneurs and even registered Republican chief executives from the Midwest flocked to his banner. Today, America's business leaders -- even those who raised millions for him in 2008 -- have turned on their president: "Socialist" is among the nicer epithets some use when describing Obama.

For Democratic politicos, this virulent critique is especially painful because it is so out of sync with the views of the party's traditional base. The MoveOn activists, union leaders and progressive pundits are as united as the C-suite in their verdict on the president -- only in their opinion, he has sold out to big business, particularly its Wall Street wing.

That's why conventional wisdom on the left is advising the president to abandon his milquetoast ways and go on the offensive against the capitalist overlords. He should model himself, as Chris Matthews suggested last week, on Franklin Roosevelt, who said of the country's bankers: "They are unanimous in their hate for me -- and I welcome their hatred." In a similar vein, Post columnist Harold Meyerson recently urged Obama to "acknowledge how our power elites have betrayed Main Street America" and to take a lesson from FDR's tirades against the "money-changers" on Wall Street.

If you want to play traditional political hardball, that advice makes sense: The bankers hate the president anyway, so why not embrace that sentiment and use it to reenergize his core constituency?

But if the president wants to be true to the worldview that got him elected in 2008 -- his pursuit of a "more perfect union" -- he should do something completely different. And in the process, he might find himself transforming the American conversation about capitalism and society.

Obama needs to reframe the discussion about business and taxes and regulation. Right now, that debate is being waged as a class war. The left rages against "casino capitalism" and the evil businessmen who wrecked the economy and must now pay to fix it. On the other side of the ring, Wall Street is using the same "warring camps" language. Not everyone (thank goodness!) goes as far as Blackstone Group Chairman Steve Schwarzman, with his ill-judged comparison to Hitler's invasion of Poland, but fund manager Dan Loeb spoke for the broader financial fraternity last month when he accused the president of abandoning free-market capitalism and the Constitution's guarantee of freedom from "nonpunitive" taxation.

The president is partly to blame for this zero-sum mentality. The business case for ill-treatment by the White House is pretty overblown -- remember the Troubled Assets Relief Program (initially ringing up at $700 billion) and the gift that keeps on giving: cheap money from the Fed. Yet when it comes to rhetoric, this eloquent president has made critical missteps. The worst came in spring 2009, when he attacked the "speculators" who held Chrysler bonds. He was also out of line in permitting the denunciation of Goldman Sachs; all the name-calling notwithstanding, Goldman is probably the Wall Street firm least to blame for the 2008 crisis.

Painting affluent bankers as America's villains is no doubt fun, especially when your base is egging you on. But it is a big philosophical mistake. It invites a malign interpretation of the tighter regulation Obama's administration has already imposed and the higher taxes on the rich he has promised. And when you rail against nasty speculators, you shouldn't be surprised if business accuses you of imposing more rules and higher taxes as a punishment.

That's the wrong way of looking at things. Stricter regulation of financial services is necessary not because American bankers were bad, but because the rules governing them were. Higher taxes on the rich are necessary not because the wealthy are undeserving or made their money unfairly, but because America is broke and, in this age of income inequality, the super-rich are the people who can best afford to pay more. Taxes aren't punishment for a crime; they are how we contribute to the society we inhabit.

If Obama really believes in capitalism -- as he surely does -- he needs to stop demonizing business. If he gets this right, he might just convince some of his erstwhile banker buddies that higher taxes and more regulation aren't an attack on capitalism or on capitalists -- they are his effort to make this capitalist democracy work better for everyone. Surely that would be change both Wall Street and Main Street could believe in.

Chrystia Freeland is global editor at large for Thomson Reuters. She is writing a book about the global super-elite.


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