Where Was Obama’s Victory Lap on Financial Reform?

In Washington, it is easy to believe that the rest of the world revolves around the particular issues that are your specialty. For me, financial services policy comes first.

Inside the beltway, I’m not alone in my interest. The financial crisis, the Dodd-Frank Act — these were significant career markers for many of us. And I believe our policy group includes none other than President Barack Obama. The crisis and ensuing government response helped define his tenure in a big way. Other than health care, Dodd-Frank is often pointed to as the “signature achievement” of his administration.

Which is why I was perplexed about financial services being largely absent from the president’s final State of the Union Tuesday night. There was no victory lap, no reflection, nothing. Most importantly, there was no mention of the crucial financial policy items still on the agenda.

Given the anger, especially from the Democratic Party’s base, it is puzzling to me that the president felt no need to address it.

So what should have been discussed? Given the fact that the president was handed the task of reforming our financial system, I would have liked to hear his thoughts on why the public is still so mad at Wall Street. The anger at the financial services sector, which has emerged as an issue in the Democratic contest between Hillary Clinton and Bernie Sanders, makes it seem like a Republican has been in the White House these last eight years, and there was no financial reform.

To some extent, Sanders’ aggressive Wall Street reform policy — as articulated most recently in aspeech last week — is a rebuke of President Obama. Given the anger, especially from the Democratic Party’s base, it is puzzling to me that the president felt no need to address it.

The president’s handling of housing policy has also left many dissatisfied. Certainly many advocates still wonder why he never aggressively pursued mortgage-related reforms to further aid borrowers, such as cramdown or large-scale principal reductions. I can understand the president’s cautious approach on these issues, but he has never really addressed them head on.

Equally important is that Fannie Mae and Freddie Mac have yet to be resolved. We did not even get a perfunctory call from the White House for Congress to act on reforming the government-sponsored enterprises. Even without congressional involvement, Treasury and the Federal Housing Finance Agency still have considerable power to act administratively on the GSEs. Yet there has still been no action. Whatever one’s views on Fannie and Freddie, it is simply shocking that the president intends to just hand over the situation to the next administration.

In his State of the Union speech Tuesday, the President did express a desire for “a thriving private sector”, even going as far as recognizing “there are outdated regulations that need to be changed, and there’s red tape that needs to be cut.” That was just before he bashed corporate profits. What was sadly missing was recognition of the difficulties facing smaller companies, particularly community banks. Not every company is Apple or Citibank.

And the call for regulatory relief, of course, lacked details. Right now there are few areas of our economy with more misguided and distortionary regulations than financial services. Indeed the recent modest attempt at reforming dysfunctional rules by Senate Banking Committee Chairman Richard Shelby, which largely failed in 2015, could have used a boost from the president. In general, I would have preferred a more sincere offer of bipartisanship in President Obama’s speech. Calls for compromise are always touching, but one wonders where those calls were when Dodd-Frank was being drafted. Better late than never, I guess.

It is worth remembering that President Obama inherited the financial crisis. He likely did not seek the presidency in order to spend more time thinking about banking. Just as neither I nor Shelby wanted to spend so much time on GSE reform a decade ago. Often in Washington you’re stuck fixing a mess regardless of whether you had anything to do with making it. It comes with the territory. So perhaps the president was never really interested in financial reform, nor is he now, and decided to spend his last big hurrah talking about what he was interested in.

Mark Calabria is the director of financial regulation studies at the Cato Institute and a former senior staff member on the Senate Banking Committee.