Franklin Delano Roosevelt (FDR) did a far better job of fixing finance than President Barack H. Obama has done so far. FDR's two big fixes really worked while Obama's extension of his predecessors' policies and people -- while calming to markets -- has not fixed what ails the U.S. economy and Wall Street's too-powerful role within it.
To be fair, Obama has not really focused on this yet but plans to make a speech about it on Monday -- in which he'll urge passage of reforms like greater consumer protection and a change to bank regulation. But even these mild changes are getting bogged down by Wall Street lobbyists and -- Obama himself -- who is putting a higher priority on health care legislation.
When FDR took over as president in 1933, he took two actions that reflected a deep understanding of why the Great Depression had occurred and what it would take to keep it from happening again. Millions of Americans lost confidence in the banking system so FDR held a bank holiday -- which sent an army of auditors into the U.S. banks, closed the insolvent ones and reopened the healthy ones. This, along with the creation of the FDIC, gradually restored confidence in the banking system.
Second, following the work of the Pecora commission which investigated why the Crash of 1929 happened, FDR recognized that Wall Street collapsed because banks could take consumer deposits and use them to speculate on stocks -- which back then did not have anything to do with solid information about company performance and prospects.
To fix this problem, FDR signed the Glass Steagall act which split deposit-taking and lending from the capital raising and stock trading sides of banking. (FDR also created the SEC -- which was intended to add some financial transparency to stocks and bonds -- and then put Wall Street operator Joseph Kennedy in charge -- but that's a whole other story).
This separation kept Wall Street from completely destroying the world economy for decades -- unfortunately, when Glass Steagall was effectively repealed in 1999 -- so then-Citigroup (C)-CEO Sandy Weill could fulfill his dream of a one-stop-financial-shop -- it set in motion the forces that made last year's financial meltdown possible.
When Obama took over this January, the global financial markets were still shaky and to this point, he has focused on trying to calm down the panic that he inherited. Unfortunately, the people that he appointed -- Tim Geithner as Treasury Secretary and Larry Summers as chief economic advisor -- create too much continuity with the deeply flawed thinking that got us into the current mess. Moreover, Obama's likely reappointment of Ben Bernanke as Fed Chair -- while bipartisan -- will not lead to a fundamental rethinking of Wall Street's role in the U.S.
These thinkers decided to put a record pile of U.S. cash and guarantees -- up to $23.7 trillion worth -- into keeping the current system going. And now Wall Street is opening offices in Washington to get a share of that loot while making sure that any efforts to change the profit machine -- such as creating a new scheme to regulate Wall Street, changing Wall Street's heads-I-win, tails-you-lose pay plan, breaking up too-big-to-fail financial institutions, or installing a regulated exchange for derivatives -- get squashed.
Why was FDR willing to be a traitor to his class in order to restore confidence in the banking system while Obama lets the chance to fix finance slip away? I don't really know.
But with Wall Street accounting for 8 percent of GDP -- double where it was in the 1960s -- and its $5 billion in cash contributions to Washington over the last decade -- it is probably much more costly to oppose Wall Street's will today than it was in the 1930s.
Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He owns Citi stock and has no financial interest in the other securities mentioned.