Last week, on the one-year anniversary of the Lehman Brothers crash, TNR brought together influential leaders from Washington and Wall Street for an honest examination of our financial system and its future.

Oftentimes when you debate a skeptic of structural reform on Wall Street, the skeptic will say something like: "Why are you so worked up about 'too big to fail'? Lehman was far from the biggest bank on Wall Street, but it caused plenty of damage." If anything, "too-interconnected-to-fail" is the real issue, they'll say--implying that this makes addressing the problem utterly futile, since severing interconnections is a lot harder than limiting bank size.

... or not.

In the Ben Smith piece Mike cited earlier, Huckabee has some choice words for Pat Toomey:

Huckabee met in the spring with Pat Toomey, then the president of the Wall Street-backed Club for Growth, which had attacked him during the 2008 campaign for raising taxes in Arkansas.

Amid the dark clouds of the Great Recession, more than a few people have identified a possible silver lining--reduced inequality in America. Job losses on Wall Street, and talk of reining in executive pay and raising taxes on the wealthy, suggest at least a temporary end to rapid growth of salaries at the highest end of the market--a trend which produced the highest share of income on record for the nation’s top 10 percent of families in 2007.

But this is short-term thinking at best. Besides, is reduced income inequality so great if all it means is that the super-rich are getting whacked more than the poor? Indeed, the character of this recession suggests that it could actually accelerate a longer-run increase in inequality, especially among workers with different skill levels.

The chart below offers some initial evidence on this question. For each major industry, it compares job loss over the course of the recession (the vertical axis) to wage inequality, measured as the ratio of the wage at the 90^th percentile of the industry distribution to that at the 10^th percentile of the industry distribution (the horizontal axis). Bubbles are sized by the number of jobs in the industry as of September 2009. Here’s the breakdown:

One of the most frustrating consequences of an Election Day like Tuesday is that it invariably (if fleetingly) transforms moderate politicians with no particular insight into the dynamics of public opinion into all-knowing sages. More to the point, it elevates their perfect-for-every-occasion view of politics, which says that if your party suffers a setback, the reason must be that it was too far to one side of the political spectrum, and so the answer is obviously to move back to the middle. And, of course, "the middle" is almost never a coherent worldview or set of policy preferences, but simply 10 or 25 or 50 percent less than what one side or the other proposes. So, for example, you get stuff like this from Ben Nelson and Olympia Snowe in Politico:

"People need to be saying slow it down and don’t add more to the deficit," Nelson said. "And what have many of us been talking about? We don’t want to see anything added to the deficit unless there’s cost containment." On health care, Nelson said: "Let’s see coverage extended, … but at what cost?’

Maine Sen. Olympia Snowe, the lone Republican to vote for a health care bill, said Tuesday’s results should slow Democrats down on health care — and "certainly gives pause on how you approach things.

Or take this from today's Wall Street Journal:

"What the exit polls showed was real voter fatigue with how crowded the plate is," said Rep. Gerry Connolly (D., Va.). "We need to take a deep breath, step back and clean the plate before we add to it." ...

"I do consider Virginia a bellwether state," said Rep. Gene Taylor of Mississippi, a conservative Democrat. "I would encourage the leadership to get back to the center."

But why would "too liberal" or "too expensive" or "too crowded" be the most plausible reading of what voters said Tuesday? Wouldn't an equally plausible reading be that voters don't think the economy is improving or that Washington is making it better, regardless of where those efforts lie along some dubious ideological spectrum? 

For the moderate view of politics to be right, it would have to be the case that the average voter has a well-worked out worldview, and that he or she gets upset when politicians deviate even a couple ticks in either direction along the ideological spectrum. Or it would have to be the case that the average voter has fairly precise, well-thought-out ideas about the "right amount" for Congress or the White House to have "on its plate" at any given moment. Deviate from those preferences, and the voters will rise up to punish you.

Apparently there’s a rumor making the rounds in some corners of Wall Street that yesterday’s election results are driving today’s stock market rally—the theory being that the results are a blow to Obama’s agenda, and stopping Obama is good for the market. (I just got a call from a producer at CNBC asking me what I thought about this). The reasons why this theory is utterly ludicrous are almost too numerous to catalogue, but let me give it a quick shot:

First, as I write this (around 1:30 pm), the Dow is up about 100 points, or just over 1 percent. Since March, the Dow has gained well over 3,000 points (or over 45 percent). If I’m not mistaken, Obama was president and moving ahead with his agenda during that entire stretch. So it seems like the Dow has spent lot more time rising when his agenda was on track (about 8 months) than it has when it looked like his agenda might stall (today). (And, for what it’s worth, the Dow is up even if you start with Election Day 2008 or the day of the inauguration.)

Second, the daily movements of financial markets are way, way over-determined. See, for example, this midday Dow Jones piece, which suggests the Dow’s rise today is a function of (in no particular order): The likely Fed announcement that monetary policy will stay easy; the falling dollar, which is boosting the profits of U.S.-based multinationals and exporters; and two semi-encouraging (or at least not discouraging) reports on the labor market.

Third, when you look at the 30 individual stocks that make up the Dow, you notice two classes of companies that might be directly affected by the Obama agenda and, therefore, by the potential thwarting of it. The first is pharmaceutical companies (Merck and Pfizer are both in the Dow). The second is financial services companies (JP Morgan, American Express, and Bank of America are all in the Dow). As I write this, Merck is up  6 percent, which might suggest a post-Election Day boost. Except that, as the aforementioned Dow Jones piece notes, the far more likely explanation of its surge is the companies own prediction today of “annual earnings growth in the high-single digits on a percentage basis until 2013.” Beyond that, Pfizer and the three financial services companies are all up between zero and two percent—no better than a lot of the non-financial, non-healthcare companies in the Dow, like McDonald’s (up 2.5%) or Walt Disney (up 2.75%).

This is another chapter in the Madoff saga. As with most of my information on Wall Street chicanery and respectable thieving, this comes from my old friend Edward Jay Epstein, who knows more about the slippery things around us than anyone in my circle. By far. 

By Edward Jay Epstein

What once looked to be a close gubernatorial race in New Jersey is turning into a likely win for incumbent Democrat Jon Corzine, according to new polls. But who is Jon Corzine? Back in 1999, TNR's John Judis examined Corzine's move from Wall Street made man to New Jersey liberal. Click here to read the article.

Are the zombies out in Europe? 

Betting markets don't (yet) think a public option is back on track.

Dodd wants a temporary freeze on credit card fees and rates changes.

I think Joe Nocera is being uncharitable here:

I've weighed in on Paulson's behalf a couple times these last few months, but, like Felix Salmon, I really have no idea what he was thinking here.

On July 25, Najibullah Zazi, a lanky man in his mid-twenties, walked into the Beauty Supply Warehouse in Aurora, Colorado, a suburb of Denver. The visit was captured on a store video camera. Wearing a baseball cap and pushing a shopping cart, Zazi appeared to be just another suburban guy.

Of course, not many suburban guys buy six bottles of Clairoxide hair bleach, as Zazi did on this shopping trip--or return a month later to buy a dozen bottles of "Ms. K Liquid," a peroxide-based product. Aware that these were hardly the typical purchases of a heavily bearded, dark-haired young man, Zazi--who was born in Afghanistan and spent part of his childhood in Pakistan before moving to the United States at the age of 14--kibitzed easily with the counter staff, joking that he had to buy such large quantities of hair products because he "had a lot of girlfriends."

I have to say, I'm underwhelmed by the ideas the company is tossing around so far. Per this morning's Times piece:

Goldman said Thursday that it would donate $200 million to its charitable foundation (that figure represents 6 percent of its third-quarter profit, or about six days of earnings).

Matt Yglesias highlights some evidence that, contra my item from yesterday, the changes on Wall St. during the last generation aren't just cultural and sociological; the amount of brainpower on Wall St. has increased fairly dramatically.

I think Calvin Trillin--or at least his bar-room companion--is really on to something here:

“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.” ...

I reflected on my own college class, of roughly the same era. The top student had been appointed a federal appeals court judge — earning, by Wall Street standards, tip money. A lot of the people with similarly impressive academic records became professors. I could picture the future titans of Wall Street dozing in the back rows of some gut course like Geology 101, popularly known as Rocks for Jocks. ...

“Two things happened. One is that the amount of money that could be made on Wall Street with hedge fund and private equity operations became just mind-blowing. At the same time, college was getting so expensive that people from reasonably prosperous families were graduating with huge debts. So even the smart guys went to Wall Street, maybe telling themselves that in a few years they’d have so much money they could then become professors or legal-services lawyers or whatever they’d wanted to be in the first place. That’s when you started reading stories about the percentage of the graduating class of Harvard College who planned to go into the financial industry or go to business school so they could then go into the financial industry. That’s when you started reading about these geniuses from M.I.T. and Caltech who instead of going to graduate school in physics went to Wall Street to calculate arbitrage odds.”

I'd put it just slightly differently (and I realize Trillin is only about three-quarters serious): The key change on Wall Street was more sociological than intellectual. That is, it wasn't so much that the smart guys went to Wall Street--though the intellectual caliber of the financial sector certainly increased with all those quants running around. The relevant change was that a lot of "outsiders" suddenly came to Wall Street, which had previously been dominated by insiders.

Until about the 1970s, the firms that held most of the power on Wall Street were establishment institutions. The downside of this is that Wall Street tended to be inbred, clique-ish, unimaginative, inefficient, intellectually flabby, self-satisfied, and effete. (This was largely the  three-martini-lunch crowd that had gone to elite schools and whose fathers and grandfathers had held more or less the same jobs.) The upside was that it was inbred, clique-ish, unimaginative, inefficient, intellectually flabby, self-satisfied, and effete. Which is to say, the global economy wasn't exactly at risk of being super-charged by these guys. But neither were they going to flame out spectacularly.

But, during the seventies, the power on Wall Street started to shift to the outsiders. Some of this was the rising prominence of non-traditional, non-WASP (some would say blue-collar) firms on Wall Street, which various structural changes in the industry, like the end of fixed commissions, were suddenly empowering. (Think Salomon Brothers and Drexel Burnham.) Some of it had to do with the rise of proprietary trading desks at more traditional firms (rather than old, white-shoe "relationship" banking), which the same structural changes were propelling forward. (The trading desks had traditionally been a bit marginalized and declasse--populated by white ethnics from no-name schools.) And some of it had to do with the kinds of people--again, usually white ethnics--who were starting to graduate from elite universities as those schools became more meritocratic. The same old firms may have recruited from the same old schools, but those schools were beginning to produce a new type of graduate.

I was pretty dubious that Ken Feinberg, the administration pay czar, would have much effect on Wall Street compensation--even at the handful of TARP basket-cases (AIG, GM, BofA, Citi, etc.) where you'd expect the administration to have leverage. In weaker moments, I even imagined Feinberg as a kind of a fig leaf, whose very existence confirmed that the White House didn't think there was much to be done about executive pay. (If you're the president, what do you do when the public is worked up about a problem you're pessimistic about fixing? Appoint a czar--which shows you care--and then don't waste another second worrying about it. Anyone remember Albert A. Frink, the rug-maker George W. Bush appointed maunfacturing czar in 2004? Didn't think so.)

But, I have to say, the guy is making the right moves so far.

I'm only an imtermittent visitor to the financial blog Zero Hedge. But between my occasional perusals, and Joe Hagan's interesting profile of the blog (and its proprietor Dan Ivandjiiski) in last week's New York magazine, I can't help thinking it has a lot in common with the political blog Daily Kos. Both have an aggressively anti-establishment, semi-conspiratorial worldview and are constantly fulminating against the powers that be (big Wall Street firms in the first instance, sellout Washington Democrats and their corporate overseers in the second). Both are especially fond of trashing the mainstream media, which they deride as lazy, self-regarding, and corrupt. (In fact, both took off by giving voice to the frustrations of a large, alienated minority--aggrieved investors in the first instance, aggrieved liberals in the second--whose anger the mainstream media never sufficiently channeled.) And both have somewhat grandiose self-images.

Some revelant datapoints from Hagan's piece:

The health care debate has exposed the ideological tension in Barack Obama’s political coalition between moderates and liberals. But it has also offered hints of how another, less obvious divide built into the Democratic majority could wreak havoc on the administration during the years to come.

That would be the Jennifer Aniston theory of Obamaism, of course.

A bit of back-story: After Frank Foer and I wrote a piece earlier this year laying out our theory of Obamaism, The Atlantic's Derek Thompson helpfully reimagined it as the Jennifer Aniston theory. As Thompson explained it in this post: 

This is, in a nutshell, the theory that Obama prefers to tweak incentives for private actors rather than have the government take over. The name comes from the Aniston movie The Break-Up, where her character famously tells her live-in boyfriend that she doesn't want to do the dishes for him; nor does she want to force him to do the dishes: She wants him to want to do the dishes.

At the time, we all saw evidence of Obama's Aniston-ism in his approach to health care, climate change, and toxic bank assets. (See the original post for more.) Now, Thompson spots something similar in Obama's thoughts on Wall Street regulation. Particularly this riff from Obama's speech last Monday:

It sounds like various Blue Dogs on the House Financial Services Committee aren't keen on the proposed consumers financial products agency. Their preferred alternative? A "council" of regulators to oversee consumer financial protection. Politico's Victoria McGrane has the details:

Blue Dogs and other conservative Democrats — uneasy with a key element of President Barack Obama’s plan to regulate Wall Street — are rallying around an alternative proposal that scraps the consumer financial protection agency the president has been pushing.

Rep. Walt Minnick, a freshman Democrat from Idaho, has floated the new plan. Instead of creating a new federal agency to protect consumers from predatory financial firms and shoddy products, Minnick’s plan would have existing state and federal regulators work together in a “consumer financial protection council.”

Now this is just ridiculous. For one thing, as the administration has pointed out, the way to ensure that a certain type of regulation isn't enforced is to give multiple regulators a say in it. In fact, the greater the number of agencies who need to agree before taking action, the less likely it is that action will be taken. So how many agencies does Minnick envision sitting on this council? 

Ben Bernanke has a great opportunity to lead the reform of our financial system. His standing in Washington and on Wall Street is at an all-time high, as a result of his bailout/rescue efforts. He is about to be reappointed with acclaim for a second term as chairman of the Federal Reserve’s Board of Governors. And he has a lot to answer for.

Few issues since the collapse of venerable Lehman Brothers one year ago have caused as much consternation as performance bonuses for bailed-out bankers. Yet, even among sophisticated observers, there is confusion about what really happened. So, with the benefit of a year's perspective, how should we think about banker compensation in the context of bank bailouts?

Here's a hint: The bonus outrage has distracted attention from the more important way that taxpayers underwrote the wealth of profligate bankers, which was to preserve the extensive equity holdings that senior personnel at these institutions had accumulated prior to the debacle of 2008. And this diversion, in turn, has delayed effective action that might inject a bit of moral culture into the money culture of Wall Street.

It’s now widely believed that the global recession is coming to an end, but the path out has been far from typical: This time around, China, not the U.S. has led the global recovery. With its $600 billion stimulus package and with banks lending with abandon, China has become the engine of global manufacturing and industrial activity.

“First Fridays” these days find Wall Street investors and Washington policymakers and pundits holding their collective breath. At around 8:30 AM, on the first Friday of each month, the Bureau of Labor Statistics releases the latest round of job and unemployment figures. And then the buying, selling, and spinning begins.

But this insider obsession begs the question: Do these numbers reflect what’s happening on the ground?

To get a better appreciation of how workers and firms across the country are experiencing the downturn--and whether they are on the cusp of recovery, still staring into the abyss, or somewhere in between--we conduct a quarterly assessment of economic conditions in the nation’s 100 largest metro areas, which together account for about two-thirds of U.S. jobs. Today marked the release of the second MetroMonitor, which examined trends through the second quarter (April through June) of 2009. In looking at the 100-metro map of overall performance over the course of the recession (see below), a few patterns stand out: