Scham'Obama ding-dong

Simon Schama has presented a pair of hour-long documentaries to mark the first birthday of "Obama's America" on the BBC this week. The first show focused on the conflict in Afghanistan, and was mainly notable for a surprising lack of references to the supposed subject (Obama) during the course of the programme, as Schama focused on the root causes of the crisis there.

The second show, on the financial crisis, was of more interest to me, not least because many moons ago, Schama was one of the people who interviewed me when I applied for university. As with the show on Afghanistan, the fact that most of the important events occurred before Obama took office posed a serious problem for Schama. In effect, he spent most of his allotted hour describing the events that created the mess that Obama inherited, and rather less time talking about what Obama has done about it.

There were, however, some interesting insights into the behaviour of Wall Street during the current crisis and in crises past. Schama talked at some length about the copper-related financial panic of 1907. The collapse of a major New York bank was averted when J. Pierpoint Morgan called his competitors to his home, locked them in the library and refused to let them leave until they came up with the wherewithal to stave off the crisis. It worked.

The documentary then shifted back to the current crisis, with footage of Lehman Brothers' New York head office. But Schama, to my great surprise, failed to spell out the key difference from events at that time and what JP achieved 100 years earlier. This time around, Treasury Secretary Hank Paulson got all the bankers together at the New York Fed, and there was the clear outline of a rescue plan that would have seen Bank of America buy Lehman. However, one of the bankers in attendance, the CEO of Merrill Lynch, in effect gazumped the deal, selling his own firm to BoA, leaving Lehman to its grisly fate, bringing the global financial system to the edge of the precipice, and sticking the taxpayer with the bill.

It's Schama's bad luck that this programme aired on the very day that President Obama announced his ten-year levy on the banks to recoup the money the taxpayer spent on the bailout. The UK opted for its one-off bonus tax at least in part because of fears of driving the financial sector out of London, on the assumption that no other jurisdiction, least of all the US, would take a similar stand. So much for that. Obama robustly asserted that "we want our money back, and we're going to get it back". Early estimates suggest that three UK banks (Barclays, HSBC and RBS) will between them have to pay over $1 billion to Uncle Sam each year. How likely is it that the UK and other countries will refrain from grabbing a piece of the action, now that Obama has led the way? There'll probably be a stampede.

Schama's documentary recounted how past financial crises had led to major financial reform in the US -- the establishment of the Federal Reserve System after the 1907 crisis, the Glass-Steagall separation of investment banking from commercial banking after the great crash. Obama's levy may not yet match those measures in terms of its impact. It's interesting, however, that the levy has been designed to fall on investment banking activities, rather than Main Street banking. Bill Clinton signed away the last of Glass-Steagall not much more than a decade ago. The shape of the new levy suggests that Obama may be hankering after bringing it back.