So President Barack Obama hasn’t completely cleaned up Wall Street. But the White House hopes to turn the latest Wall Street scandal into Mitt Romney’s problem.
Last week’s sudden $2 billion loss at JPMorgan Chase & Co. gave the White House a new opening to attack the presumptive GOP presidential nominee for seeking a regulatory environment friendlier to business concerns. But it also raised new questions about the reforms the administration is still writing nearly two years after Obama signed the Dodd-Frank financial reform law.
The White House’s offensive, which came as the Obama and Romney campaigns sparred over Romney’s history at private equity firm Bain Capital, is nuanced given that the president has at times courted Wall Street, including JPMorgan CEO Jamie Dimon — a Democrat who has been friendly with the White House even as he’s pushed hard against parts of financial reform.
White House Press Secretary Jay Carney said Monday the reform law protects taxpayers from ever again having to bail out the banks, saying the losses at JPMorgan will not cost the Treasury. And he said the loss shows that the president was right to pursue tougher new rules despite bankers’ objections.
“It is amazing, given the events that we’ve seen in these last few days, that there are still those who want — who are out there arguing that we should repeal Wall Street reform, that we should let Wall Street write its own rules again,” Carney said. “Those who take them at their word, bankers who say, ‘Oh, we promise that we’ll never let happen what happened in 2008, you can trust us’ — well, look.”
The Romney campaign stressed that the former Massachusetts governor doesn’t just want to repeal laws such as Dodd-Frank and the earlier Sarbanes-Oxley Act. They say he wants to replace them with “modern” and efficient financial rules, including regulation of derivatives.
“Mitt Romney believes in a system of sensible financial regulation,” said spokeswoman Andrea Saul. “On the other hand, President Obama supported legislation that makes another financial crisis more likely, leaving taxpayers on the hook for future bad decisions made by Wall Street banks.”
Romney’s economic plan said that some of Dodd-Frank’s provisions make sense, but he has been vague on what exactly he would do differently.
The problem for the White House is that it’s been nearly two years since the Dodd-Frank law was signed and many of the reforms have yet to take effect, giving Republicans an opening. The so-called Volcker Rule that prohibits risky investments with customer deposits still hasn’t been finalized and won’t take effect until 2014.
And Obama is still courting Wall Street cash, including at a fundraiser in New York on Monday.
But a senior administration official said Monday it’s ironic for Republicans to target the administration’s implementation of the law when they’ve fought vigorously against it every step of the way.
“The fact that we are still working to implement the law shouldn’t detract from all the concrete, tangible progress that’s been made so far,” the official said. “The big debate is frankly between a party that wants to keep the pedal on reform and a party that literally wants to defund all of it.”
The official said that big pieces of the law are now in effect — including resolution authority that would force financial firms to pay for any future big bank failures and higher capital requirements.
On the Hill, Wall Street reform has lately been a back-burner issue, but the JPMorgan loss has given it new juice.
Democrats and Republicans have been sparring on the implementation of Dodd-Frank since it was signed into law in July 2010, with Republicans looking to strip funding from and rein in the federal agencies responsible for writing the regulations.
Democrats are pushing to make sure the regulations have teeth, while Republicans are questioning whether the law would have affected JPMorgan’s trading one way or another.
On Monday, Senate Banking Chairman Tim Johnson (D-S.D.) announced that his panel would hold more hearings on Wall Street reform, looking into the $2 billion loss as well as other issues.
Earlier in the day, Sen. Bob Corker (R-Tenn.) called for a hearing specifically looking into JPMorgan. Corker told CNBC that there is disagreement on whether the kind of failed trade made by the company would have been allowed under a full-strength Volcker Rule.
The situation, meanwhile, is awkward for the White House given Dimon’s long ties to the administration. Dimon had been widely regarded as a potential choice for Treasury Secretary before Obama settled on current chief Timothy Geithner. Still, Dimon continued close contact with the White House, especially in Obama’s first two years. A donor to Obama’s 2004 Senate campaign, Dimon emailed regularly with then-Chief of Staff Rahm Emanuel.
Outspoken Independent Sen. Bernie Sanders of Vermont, who caucuses with Democrats, called Monday for Dimon’s resignation from his place on the New York Federal Reserve’s Board of Directors.
“It is an obvious conflict of interest for Jamie Dimon, the CEO of the largest bank in America, to serve on the New York Fed’s board of directors,” Sanders said. “The New York Fed is in charge of both regulating JPMorgan Chase and deciding whether or not to provide billions of dollars in virtually zero-interest loans to this too-big-to-fail institution if it needs another bailout. This is a clear example of the fox guarding the henhouse.”
Democratic Senate candidate Elizabeth Warren of Massachusetts — who had a huge hand in shaping the Dodd-Frank law — has also called for Dimon to resign his post at the New York Fed. Warren was the interim head of the Consumer Financial Protection Bureau, a frequent target of GOP ire, and Sen. Scott Brown (Mass.) was one of three Republican Senators to vote for the bill.
But it’s unclear that the attention the issue is garnering in the Bay State will affect other races.
“What we saw last cycle is that obviously there are larger umbrella issues — the economy, health care,” said National Republican Senatorial Committee spokesman Brian Walsh. “But even though there’s national buzz about other things, in the end, all races end up being about two people in each state and their competing visions on issues such as taxes, spending and the role of government.”