How did Tuesday night’s State of the Union speech resonate on Wall Street? Sometimes the old saying is literally true: Silence is golden.
Here are some of the words and phrases that did not appear in President Obama’s speech: “Wall Street,” “bank,” “regulation,” “fraud,” “settlement,” “investigation,” “too big to fail,” and “Glass-Steagall.” He didn’t mention the Consumer Financial Protection Bureau, or the Dodd/Frank financial reform bill. He didn’t discuss the cynical attempts to roll back financial reform in Congress – attempts that are supported by members of both parties – much less insist that those attempts be defeated.
Although the president discussed the economic plight of the majority of Americans, he made no mention of the financial industry’s central role in the devastating 2008 financial crisis, which made that plight so much worse. He talked of wage stagnation, but did not explore the financial industry’s role in the increasingly unjust economic redistribution of recent decades. Inequality doesn’t just happen. It's produced by many forces, most of which either originate on Wall Street or are heavily influenced by it.
We can’t create a newer, fairer economy without talking about Wall Street. Building that economy begins with preventive measures. The last bank-fueled crisis robbed the nation of millions of jobs and trillions in wealth. Preventing the next crisis means stronger financial regulation, a breakup of the big banks, and rock-solid walls between customers’ money and bankers’ gambling funds.
It also means prosecuting the fraudsters who helped perpetrate this crisis, no matter how prominent they may be in the banking community. There’s no sign that those prosecutions are imminent, even as the statute of limitations runs out.
On that score, it’s noteworthy that the president didn’t mention the enormous fines and settlements banks have paid in the past year as the result of the fraudulent behavior. Leaving aside the issue of whether those payments were sufficient, one would think the president might have touted them – if only as a modest first step. But they weren’t mentioned. Even JPMorgan Chase’s record payouts for fraud - $20 billion in a single year – went unremarked.
Given the incestuous relationship between finance and politics, perhaps that’s not surprising. But the nation deserved better.
Reducing inequality means we must correct the “financialization” of our economy, which happens when corporate profits are increasingly captured by nonproductive financial transactions rather than job-creating, real-world goods and services. We need financial policies that prevent banks from over-leveraged gambling in the casinos of “financial innovation” and restore them to their original role as lenders to real-world businesses and consumers.
Bankers bear an enormous responsibility for our current problems. They’ve committed grave misdeeds, amassed great riches as a result, and eluded punishment. Those riches were protected and made greater by massive taxpayer bailouts. It’s only fair to propose they give something back in return. A financial transaction tax, which assesses a very small amount for each transaction, would have the dual benefit of reducing massive stock-market gambling while also funding programs that reduce inequality – through job creation, increases to Social Security and Medicare, or both.
There was no discussion of financial taxes in the State of the Union address.
Nor did the president address the growing movement to expand Social Security. (On the other hand, he didn’t mention cutting its benefits with the “chained CPI,” either, so that’s progress of a sort.) His proposal for a “MyRA” to increase retirement savings is small in scope and modest in ambition. That is a form of silence, too, from a bankers’ perspective. It does little or nothing to alter our current system of retirement accounts, which with few exceptions have been plagued by high fees and weak performance from the financial institutions that administer them.
Notably, the White House slide show that accompanied the State of the Union touted the fact that “the president ended $60 billion in subsidies for the big banks” in the 2010 reform of student loans (White House website, slide 73). That reform was laudable. It's also four years old. Why was it, too, omitted from the speech itself?
And why the overall silence about Wall Street? Imagine what a populist like Sen. Elizabeth Warren, D-Mass., might have said. She would have spoken of past bank frauds and called for prosecution of the guilty, both in the name of justice and to protect the economy from future crises. She would have called for expanding Social Security to restore the lost assets of the middle class. She would have called for better regulations – and better regulators.
Most of all, our populist would have made it clear that inequality didn’t just happen. She would have discussed the misguided policies that brought it into being and called on Congress to change them. She would have pointed to the people who made it happen, too, through their deeds and their political influence. And she would have made it clear that, when it comes to Wall Street, it will take more than the sounds of silence to make things right.