Financial Reform is the Place to Be Uncompromising

Paul Krugman talks sense on health care today. He also echoes the suggestion I made on Wednesday that the right issue for Barack Obama and/or progressive members of congress to take a get-tough, no-bs, hold-the-line approach to is financial reform. As I wrote:

Financial regulation, it seems to me, would be that issue. In broad terms, the idea of regulating big banks is popular. And substantively speaking, a weak bill that’s full of loopholes would genuinely do very little good. We’re not in imminent danger of a bubble/crash replay but if we do something called “financial regulatory reform” we’re unlikely to do it again until there is a new panic. So there’s a strong case for coming out swinging against denouncing a too-weak bill as a sham and drawing some bright lines.

Today Krugman argues along similar lines:

But won’t paying the ransom now encourage more hostage-taking in the future? Maybe. But the next big fight, over the future of the financial system, will be very different. If the usual suspects try to water down financial reform, I say call their bluff: there’s not much to lose, since a merely cosmetic reform, by creating a false sense of security, could well end up being worse than nothing.

Kevin Drum had a slightly more nuanced take on this, observing that you don’t necessarily even need to do financial reform as a unitary package:

You can do it in lots of little pieces if you want, and taking a populist stand on one piece doesn’t necessarily endanger everything else. So why not do it? Why not pick a signature issue or two and really hammer away? Make a few fire-breathing speeches about how you agree with Alistair Darling about taxing banks that hand out huge bonuses and will be sending legislation to Congress to make that happen. It’ll probably fail, but at least it moves the conversation forward and gets the public engaged. The fact that you fought the good fight won’t really hurt you (the nation’s bankers obviously don’t think much of you already), and far from sinking the whole reform effort, it might actually help keep the rest of the bill(s) from getting watered down even more. A couple million postcards has that effect sometimes.

Of course looking at this from Obama’s point of view does leave open the question of what Obama’s actual views on this issue are. If he’s smart, he’ll take up Drum’s suggestion. But if he’s not, I think Krugman gets at the fact that the overall dynamics of the issue are different. There’s no need for congressional progressives to hold out for a perfect regulatory reform bill, but there’s also no urgent need to make any deal necessary to get something done. If the left wants to try to take some hostages, that would be the front on which to do it.