In the aftermath of last Tuesday's Massachusetts Senate election, and leading up to President Obama's Wednesday State of the Union address, several genies have popped out of political bottles which will be hard to push back in.
Big banks/Volcker/Bernanke: Reading correctly current voter outrage about big-bank profits and bonuses, after they received many billions in taxpayer-bailout money, Obama proposed to tax the 50 biggest financial companies about $9 billion annually for about 10 years. He announced his intention with tough populist language. To the banks, the taxes will amount to more than a nickel but not much more.
Then, the day after the Massachusetts quake, he upped the ante by announcing his intention to adopt the advice of former Federal Reserve Chair Paul Volcker — heretofore unheeded and quashed by Treasury Secretary Tim Geithner and White House economic czar Larry Summers — that a variant of the old Glass-Steagall law, separating investment and commercial banking, should be applied. Volcker had been publicly campaigning for such a change for many months, to no apparent effect.
The day after Massachusetts, however, Obama quickly grasped its wisdom. Volcker joined him at a press conference to announce the change. Geithner undertook a series of media interviews to explain that the whole thing had been in the works since mid-2009 and just happened to be announced the day after Massachusetts.
A relatively innocent bystander, Fed Chair Ben Bernanke, then received public blows that might better have been aimed at Geithner and Summers. Bernanke has been the single most effective player in the attempt to restore the U.S. financial system and economy to stability. But he had the ill fortune last week to be awaiting congressional hearings on his reappointment to a fresh term at the Fed. Several Democrats and Republicans challenged his appointment; others refused to say how they would vote on it. Senate Banking Chair Chris Dodd and Majority Leader Harry Reid made public statements backing Bernanke (Reid obviously having been prompted by Obama). Now the Obama White House is trying to round up votes to assure Bernanke makes it through.
All this was accompanied by a big falloff in financial markets last Thursday and Friday. Especially affected were the bank stocks expected to be hit by the new taxes and by Volcker's preferred brand of reform.
The bipartisan deficit-reducation commission: For many weeks the Obama White House had talked in general terms about the possibility of Obama's announcement Wednesday of his appointment of a bipartisan commission to address long-term federal deficit reduction. Such an announcement, it was thought, would blunt public anger about dangerously rising federal debt.
Late last week Obama went to the Senate to talk about such a commission, which he intended to appoint via executive order. Somewhat to his surprise, Democratic and Republican senators embraced the notion — but insisted that they do it themselves, perhaps via legislation. Now Obama cannot back off the idea, even though he will have limited control over it.
Such commissions have been established at regular intervals over the past 50 years. In the end, their recommendations are usually severely watered down afterward. This time, though, prospective federal deficits are so high — at least $1 trillion annually for the next 10 years, even without enactment of major health-care or cap-and-trade legislation — that the commission conceivably could make a difference.
As it does its work, the commission inevitably will address public spending which the administration has undertaken over the past year, including not only TARP spending but also stimulus spending and the auto- and housing-industry bailouts. The administration, on the other hand, would prefer that pre-Obama spending be in the spotlight. White House counselor David Axelrod, on Sunday talk shows, emphasized for the umpteenth time that the president had inherited financial/economic distress and should not really be blamed for doing what was necessary to fix it. If and when the commission actually sets to work, no one will look good; and Congress, too, will get its share of blame.
Health-care legislation: On the day after Massachusetts, Obama speculated that this legislation might be pared back to a bare-bones version. It might, he implied, once again be labeled "insurance reform" rather than general health-care reform so as to attract moderate and bipartisan support and reduce some of its anticipated costs.
Shortly thereafter both Speaker Nancy Pelosi and Reid announced their intentions to try for passage of something close to the ambitious legislation now on the table in Congress. White House press secretary Robert Gibbs emerged to say that the president, contrary to his earlier remarks, did not intend to weaken the package. Whoops! Pelosi then was told by the House Democratic Caucus that it would not accept the present Senate version of the bill. She then announced that it was up to the Senate to change the bill's provisions so that the House would accept them. Reid then announced there was plenty of time to consider the whole matter since the present version of legislation "was good for a year" before action had to be taken on it.
No one in the capital believes that health-care legislation can languish more than a month (much less a full year) before it loses all chance of final passage. Congressional Republicans have suggested that "we start over on a bipartisan basis" to frame such legislation. No one can be sure just what health legislation, if any, can have any real chance of passage within the next month. The scramble is on.
All of these things, it should be added, have happened after the change of just one Senate seat, from Democrat to Republican, last Tuesday night.