I have always been curious why Obama ran on “Hope and Change” yet continued to pursue the policies to respond to the financial crisis originally proposed by the Committee to Save the Banks and enacted under George Bush.

Turns out, Obama provided the answer for why he pursued those policies.

We didn’t actually, I think, do what Franklin Delano Roosevelt did, which was basically wait for six months until the thing had gotten so bad that it became an easier sell politically because we thought that was irresponsible. We had to act quickly.

This quote is really remarkable.

Note how Obama focused on having to act quickly.  Why?  An incoming president has NO power.  We had another administration already in place and it was working on responding to the financial crisis before he was elected. That administration’s policies were lead by the Committee to Save the Banks.  These policies weren’t going to change if Obama didn’t approve of its handling of the crisis.

Obama had over two months to carefully study why the crisis had occurred, what impact the current policies were having on the financial system/economy and review the options for policies so his administration could choose to pursue policies that were most likely to successfully end the crisis for the benefit of the 99%.

By acting quickly, he committed his Administration to pursuing a course of action months before he actually took office.  A course of action chosen not by his Administration after careful consideration, but by the previous Administration and the Wall Street friendly Committee to Save the Banks.

A course of action that was entirely inconsistent with the message of “Hope and Change” he ran on.  It wouldn’t have been unreasonable for voters to hope for a change in the bank friendly response to the financial crisis that saw the voters being asked to pick up the tab for the bankers’ losses.  After all, the voters instinctively knew the Committee to Save the Banks’ narrative was a con.  Nothing illustrates this better than as we approach the tenth anniversary of the acute phase of the Great Financial Crisis, Hank Paulson is still expressing frustration he couldn’t convince anyone outside of DC bailing out the banks was a good idea.  Perhaps it is because everyone outside DC understood the US financial system was designed so banks like JP Morgan and Goldman need the US, but the US doesn’t need banks like JP Morgan and Goldman?

By the way, how was FDR irresponsible in Obama’s opinion by waiting?

Hoover and a substantial bloc of New York bankers wanted Roosevelt to commit to staying on the gold standard and US participation in the upcoming London Economic Conference. These commitments would have meant continued austerity and completely destroyed any chance of fundamental reform — which was why the banks and Hoover were so insistent. In effect, they were hoping to continue with Hoover’s policies, if not Hoover himself.

Roosevelt exchanged some messages with them, but finally refused the whole package. He and his advisers correctly concluded that the idea was to suck them into a foolish set of commitments.

Obama faced the same circumstances as FDR.  After he was elected and before he became president, he had a choice to make.  On the one hand, he could rush while he had no authority and commit to staying with the banker friendly policies adopted by the previous administration to respond to the financial crisis.  In doing so, this would destroy any chance of fundamental reform of the financial system.  On the other hand, he could wait, carefully evaluate the evolving situation and then pursue the necessary policies and reforms.

Obama chose to rush and cemented in place problems like Too Big to Fail and Too Big to Jail.  At the same time, he also let the creditors off the hook for their poor lending decisions and undermined the real economy by not relieving it of the burden of the excess debt.

By rushing to commit, Obama sent the message there would be no fundamental reform.  The Dodd-Frank Act fully reflects this.  Never in the history of the US Congress have more pages of legislation been passed that accomplished so little.

FDR was simply not willing to make the kind of arrangements with bankers that President Obama was. That’s the heart of the matter.

It was Obama who was the irresponsible president.  By not taking the necessary time to study the evolving financial crisis and then choosing his policy response, he was irresponsible on an epic scale.

Despite this, all is not lost.  FDR’s fundamental reform of the financial system embraced transparency.  In doing so, he created an opportunity for investors.  The opportunity is the Transparency Label Initiative and the recognition Opacity is an asset class.

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I wanted to update this post because I don’t think I adequately gave Hank Paulson his due as a salesman.

“This crisis hit, full force, at the very worst possible time,” Paulson recently told Yahoo News. “It was right in the middle of a national election. Both of the presidential candidates, Barack Obama and John McCain, were essentially running against President Bush, who was very unpopular. If either one of those candidates had come out against what we were attempting to do, I think it would’ve been very difficult to get Congress to act. And then we would’ve had a disaster on our hands.”

He recognized Obama was open to the idea of supporting the Committee to Save the Banks’ policy response as Obama saw FDR waiting until he was president as harmful.  Being the extremely good salesman that he is, Paulson seized on this with a narrative of waiting would result in a disaster.  Getting from there to the close of the sale was easy.

What is important to realize here is Obama not signing on to the Committee’s policy response made no difference in the Committee’s choice of policy response.  Paulson is right it would have made a big difference with Congress.  There is a substantial chance the Democrats would have said no to bailing out the banks and yes to saving homeowners from foreclosure.