If Obama Wants to Clean Up Wall Street, Now's the Time to Take Off His Gloves

Last Updated May 20, 2010 6:35 PM EDT

When it comes to fixing the financial system, the elephant in the room is a donkey: Barack Obama. The president has remained curiously, or perhaps characteristically, reluctant to stump for key legislative proposals, even as senators today cleared the way for a full vote on the financial reform bill.

So here's something I'm sure his party, and critics of Wall Street, would like to know -- what the hell is he waiting for? As during most of the epic fight over health care, Obama has mostly left it to lawmakers to forge consensus on financial reform. Except what this country needs isn't compromise -- it's leadership. Indeed, the debate Thursday proved yet again that bipartisanship is a hoax. Only three Republicans saw fit to vote in favor of moving ahead with the bill.

While there may have been good reason for Obama to hug the sideline on health care, none exists for doing so on financial reform. The American public overwhelmingly wants substantive change. So do most economists. Meanwhile, a rag-tag group of lawmakers -- notably Sens. Byron Dorgan, D.-N.D., Maria Cantwell, D-Wash., Carl Levin, D.-Mich., Jeff Merkley, D-Ore., and Russ Feingold, D-Wis. -- have courageously pushed to strengthen the Senate bill.

Cantwell, for example, has fought to close a loophole in the measure that would allow derivatives dealers to skirt planned restrictions on trading in the securities. She and Arizona Republican John McCain also tried to rebuild the traditional barrier between commercial and investment banking, although that measure was cut from the Senate bill.

By contrast, Obama has contented himself with broad-brush appeals for Wall Street to do the right thing (and good luck with that). Administration officials have even attacked the strongest reform proposals, such as reviving Glass-Steagall, barring banks from proprietary trading and adopting a financial transactions tax.

It's maddening. It's also out of phase with Obama's purportedly centrist agenda. As economist Simon Johnson points out, the "center" on financial reform lies with true moderates like the lawmakers noted above.

A moderate reformist president could have taken, and held, the center ground by putting greater limits on any future damage that our biggest banks can cause.
But, for whatever reason, this is not what Obama chose to do. He presumably had his reasons. But they have nothing to do with being a centrist in general.
As a result, the financial system could well remain largely as it was before September 2008. Perhaps the megabanks will be slightly constrained in their activities; most likely not -- at least for Goldman (GS), JPMorgan Chase (JPM) and Morgan Stanley (MS).
It's not too late for Obama to take a stand. Key parts of the Senate bill remain in play, including an amendment sponsored by Sen. Blanche Lincoln, D., Ark., that would force banks to jettison their derivatives desks. Against all odds, the measure is still alive. Vocal support -- not from anonymous White House officials, but from the President himself -- would gird the proposal against lobbyists already gearing up to kill it in conference with the House reform measure.

Can Obama make a difference here? Yes, he can.

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    Alain Sherter covers business and economic affairs for CBSNews.com.