Yesterday, the president announced that it was time for a new deal with banks:

The tougher approach to financial regulation that President Obama outlined on Thursday reflected a changed political climate, the rebound in big banks’ fortunes after their taxpayer bailout and a shift in power within the administration away from those who had been seen as most sympathetic to Wall Street.

In calling for new limits on the size of big banks and their ability to make risky bets, Mr. Obama was throwing a public punch at Wall Street for the third time in a week, underscoring the imperative for him and his party to strike a more populist tone, especially after the Republican victory Tuesday in the Massachusetts Senate race.

In announcing his proposals Thursday at the White House, Mr. Obama said if the financial industry wanted a fight over new restrictions, it was a fight he was ready to have.[emphasis added]

   Well, right on, Mr. President. If it makes people feel good and virtuous to say this on behalf of "populism", by all means, say so. But, we should carry the fight based on the idea that it is SMART economic policy that will give us a stable financial system AND make sure the financial system is acting on our behalf, not on the behalf of the bankers.

   That said, I agree with Dean Baker who says:

However, it is difficult to understand why the President would support the reappointment Federal Reserve Chairman Bernanke at this time, given that the administration’s proposal is directly at odds with the position pursued by Bernanke on this issue.  As Fed Chairman, Bernanke allowed Goldman Sachs and Morgan Stanley to become financial holding companies during the financial crisis in October 2008, and then to continue to engage in massive amounts of proprietary trading, just as they had done previously. 

 

President Obama’s proposal today is an important part of common-sense financial reform to protect average taxpayers from the risky behavior of big banks.  At this pivotal point in time, the President needs to have an economics team that fully supports the policy he proposed today and comprehensive financial reform.   Unfortunately Mr. Bernanke does not seem to share the President’s reform agenda.

   The president cannot hope to move reforms with a Fifth Column undermining him at every turn–from Bernanke, to Tim Geithner, to Rahm Emanuel, all of who are more attuned to the cries from Wall Street than Main Street. Clean house, Mr. President–and the people will be with you to make the changes we need.