Obama and the banks: is he finally starting to get it?

The banker wanted a deal. "If we have done anything wrong, send your man to my man and they can fix it up," he offered. But the president was blunt: "That can't be done." And Knox succinctly summarized (TR)Roosevelt's philosophy. "We don't want to fix it up," he told Morgan, "we want to stop it."

Just over a century later, on March 27, 2009, 13 bankers were summoned to the White House. The global financial system was verging on collapse, in no small measure because of the bankers' concentrated power and their manifest inability to manage the risks of their "financial innovation." Banking had to be rescued -- no modern economy can function without credit, of course -- and only the Obama administration had the power to save the day.

But instead of specific new regulations or changes in the way they operate -- or even any constraints on their power -- what did these 13 bankers find waiting for them? On this day and in the months that followed, the administration provided generous expressions of unconditional financial and moral support, both explicit and implicit, along with gentle and nonbinding admonitions.

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In the spring of 2009, Obama and his senior advisers did not seem terribly troubled by the dangerous concentration of power, wealth and hubris on Wall Street. The president thought it reasonable to find a way forward through amicable accommodation, assuming that Big Finance really could change. Yet, in memoirs and public statements, the bankers repeatedly submit their defense: The system -- the mechanics and incentives of Wall Street -- made them do it. Unfortunately, Wall Street and its intimate connections to Washington have not become any safer for the American economy since this crisis began.

In fact, the latest boom-bust-bailout cycle probably worsened matters. We can argue whether, before September 2008, the people running huge financial firms really thought they were "too big to fail." Lehman, after all, did go bankrupt; Morgan Stanley and Goldman Sachs were rescued at the eleventh hour. But today, who thinks Goldman could fail?