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Off With Their Heads.

WASHINGTON, DC – At last the Obama administration seems to be contemplating a decisive move against America’s banking elite. Following the recent electoral setback in Massachusetts the proposals laid down by former Federal Reserve chairman, Paul Volcker, to reduce the market power of the banks, are being dusted off.

Until now it has been a very different story – essentially a victory for the big bankers since spring 2009, when some of the healthier ones were allowed to start paying back any funds they had drawn from the US treasury’s Troubled Asset Relief Program. That, in turn, allowed them to escape even the very weak special conditions that had been laid down by the government relating to bonuses and remuneration.

At the critical moment of crisis and rescue – from September 2008 to early 2009 – the Bush and Obama administrations blinked. There was no serious thought of deposing the bankers, who had helped to cause the crisis, or of breaking up their banks.

Ordinarily, if an industry plunges into crisis, you expect a serious shake-up. Even if there was some bad luck mixed in with manifest incompetence, the presumption generally is: if your company requires a government rescue, top management needs to be replaced. The US treasury has for many years consistently advocated such principles – both directly and through its influence with the IMF – when other countries have got into trouble.