Unpopular Populism: Why Obama can’t be FDR
September, 2010
After taking his presidential oath on March 4, 1933, Franklin D. Roosevelt took no pause before lampooning bankers for causing the Great Depression. “Practices of the unscrupulous moneychangers stand indicted in the court of public opinion, rejected by the hearts and minds of men,” he derided in his inaugural address, with a biblical metaphor for extra opprobrium.
Fast forward 77 years, and University of Michigan corporate and securities law professor Adam Pritchard, MPP’89, can’t help comparing that speech to President Barack Obama’s criticism of Wall Street “fat-cats” and their “appetite for quick kills and bloated bonuses.”
It’s just one of just many similarities Pritchard points out in a recent paper juxtaposing the two presidents: Roosevelt, like Obama, was elected with enormous popular support and a mandate to reform a dysfunctional financial system that crippled the nation’s economy. Both presidents also share a liberal suspicion of free markets, and held strong Democratic majorities in both houses of Congress.
But whereas Roosevelt’s efforts produced robust limitations on the financial services sector—his 1933 Securities Act discouraged competition in securities underwriting; the same year, the Glass-Steagall Act forced banks to choose between commercial and investment banking; and the 1934 Exchange Act regulated trading practices and disclosures by companies listed on the New York Stock Exchange—Obama’s recent watchdog legislation, signed July 21, trails far behind his fiery rhetoric.
“[Obama] had to make a big, public show, but if you look at the actual details, it’s not as draconian as you would have expected,” explains Pritchard, who spent time as a government attorney writing appellate and Supreme Court briefs at the Securities Exchange Commission in the mid-1990s. “If he were actually as tough as he said he’d be, businesses would leave the country and he’d have no one to extract campaign contributions from. And you can’t kill the goose that lays the golden egg.”
A Sophie’s choice between market competition and populism was one Roosevelt never had to make. The world economy today, unlike in the 1930s, is marked by free trade, and companies can list their shares in any number of countries. Back when FDR was talking about fearing nothing but fear itself, financial markets were narrow and segregated, Pritchard explains. “There was some overseas investment, but not the interconnected one-world financial market that we now have,” he says.
Pritchard’s analysis blends history, politics, finance, and law—all of which he’s studied. He graduated from the University of Virginia in 1987 with a bachelor’s degree in political and social thought and immediately enrolled at the Harris School on his way to becoming a government attorney. But while studying law at Virginia, where he graduated second in his class, his career path took a turn toward academia. “That’s when I decided I wanted to be a professor,” he remembers. For the past two years, he’s been delivering lectures at universities across the country about the implications of regulatory reform—and has plenty to say about the new bill.
The 2,300-page law will take years to implement fully, and defers the most important rule-making responsibilities to regulatory agencies, some of which have not yet been created. Of course, businesses don’t move overnight, and during an election year that poses a threat to a Democratic majority in Congress, ambiguous action could help quell public fury without antagonizing Wall Street even more. “Obama will be retired and off giving speeches or something by then,” Pritchard says of the time it will take for the new law to change anything. “If there is an effect, it won’t show up for more than ten years, not ten months.”
--Steven Yaccino
