There Are Those Who Say Obama Likes to Say "There Are Those Who Say"

MarketWatch puts together a by-the-numbers analysis of President Obama's speech on the anniversary of the death of Lehman Bros. That's 13 risks, 11 reforms, and four "accountabilitys." Uncounted by MarketWatch were three instances of Obama's favorite rhetorical setup: "There are those/some who say/claim/argue…." I believe that's relatively low for a 4,300-word oration.

The speech seems to have threaded the needle. There was tough talk about regulation even though all the president's financial reform proposals are in congressional limbo. There was plenty of lip service to the free market and innovation, even though its purpose was clearly to cement the status quo—if not through regulation then through protection.

Here is a characteristic sentence, which appears to offer a tough new approach to moral hazard while actually declining to impose any standards at all: "Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall." If the passage of the massively unpopular bailouts of 2008 proved anything, it's that the American taxpayers have absolutely no say about whose fall they are forced to break.

The most trenchant criticism of the speech comes from an unexpected source. Rep. Brad Sherman (D-Calif.) says the plan for a much broader federal "resolution" authority (which would have the ability to bail out, take over and otherwise support "systemically significant" institutions) is not the solution to the too-big-to-fail problem but the exact opposite. An institution like this would create a permanent TARP which would coddle the biggest players while subsidizing their bad behavior.

True to form, the TBTF problem has become more, not less, acute since Obama took office. The New York Times economy blog notes how the major players have gorged in recent days:

The nation's four biggest banks now control 60 percent of all bank deposits in the country, higher than two years ago. The handful of banking winners, like JPMorgan Chase and Wells Fargo, have acquired giant failing competitors. The ranks of bulge-bracket Wall Street investment banks have been cut back by the loss of Lehman Brothers and Bear Stearns. The remaining survivors, like Goldman Sachs and Morgan Stanley, have been recruiting top producers from their crippled rivals.

If there was a bright spot in the Federal Hall address, it was that the speech was not really newsworthy at all. Nobody cares about this issue anymore. In what may eventually become an entry in the Big Book of Strategic Errors, Obama chose some time ago to de-emphasize financial regulatory overhaul and instead put his energies into health care reform. Wall Street has cooperated by entering a relative lull, which makes trouble in the capital markets seem less urgent. For the time being, the regulatory bullet has been dodged.

That won't last. When (not if) the talk of economic recovery proves to have been premature, the Democrats may get a chance to revisit financial industry overhaul (which, in the new logic of topsyturveyland, will mean rewarding the guilty rather than punishing them). The irony is that nature was doing a perfectly fine job of overhauling the financial markets, before the smoothly transitioning Bush-Obama teams used your grandchildren's money to interrupt nature in its just and healthful course.

And a housekeeping note: Good on the president for not using the failure to bail out Lehman as an example of market fundamentalism that made the recession worse—as I predicted he would do yesterday. His only comment along these lines was: "Congress and the previous administration took difficult but necessary action in the days and months that followed."