Obama can't be happy about the news from JP Morgan Chase CEO Jamie Dimon. Obama's Wall Street problem

The giant $2 billion trading loss at JPMorgan Chase highlights a central problem in President Barack Obama’s case for a second term: Four years after the financial crisis nearly brought the nation to its knees, very little appears to have changed.

No high-profile bank executives are in jail. Special multi-agency task forces to go after financial fraud and mortgage market abuses appeared in State of the Union addresses, only to issue a few news releases and mostly vanish from public view.


And now one of the largest banks in the United States, headed by a Democrat and operating with government guarantees, has turned in the kind of headline-grabbing, casino-style loss that drives voters crazy and that Obama’s financial reform bill was supposed to stop. It’s led to the immediate retirement of Ina Drew, the bank’s chief investment officer, along with a statement from Dimon that JPMorgan remains “strong.”

( See also: 10 facts about Jamie Dimon)

Senior administration officials make a nuanced and largely credible case that they pushed for the toughest law they could get through Congress. They say the JPMorgan trades might not have happened if banks were not lobbying like crazy to water down financial reform. And they argue that higher capital requirements mean banks can better handle large losses such as those suffered by JPMorgan. If a giant bank fails now, they say, it will be liquidated without taxpayer support.

Obama campaign officials point out that their presidential opponent, Republican Mitt Romney, wants to get rid of the Dodd-Frank overhaul legislation entirely. They launched a fresh assault on Romney’s experience at Bain Capital Monday morning, attacking their opponent with a new ad and website for the job losses and profits he made as a venture capitalist.

But average voters don’t attend Commodities Futures Trading Commission hearings or read comment letters on complex proposals like the Volcker Rule provision in Dodd-Frank that is supposed to ban banks from making such huge bets. Instead, they open newspapers and turn on televisions and see what looks like 2008 all over again.

“The guy in the street in 2008 and 2009 was worried about his or her deposits, and now it’s clear they should still be worried,” said Charles Geisst, a Wall Street historian and professor at Manhattan College. “An average person looks at this and thinks, ‘What exactly happened here? How could this happen again?’ And they don’t want excuses as to why it happened. They just want it to go away. But it’s not going away.”

JPMorgan CEO Jamie Dimon’s comments Sunday on NBC’s “Meet the Press” did not help the administration’s case that its financial reform bill has improved the system. Dimon said he didn’t think JPMorgan had broken any laws — but he wasn’t really sure.

“So we’ve had audit, legal, risk, compliance, some of our best people looking at all of that. We know we were sloppy. We know we were stupid. We know there was bad judgment. We don’t know if [violating laws or rules] is true yet,” he said. “Of course regulators should look at something like this — that’s their jobs. So we are totally open to regulators, and they will come to their own conclusions.”

The Obama team may have caught a break by drawing an opponent it can try to cast as a product of Wall Street who would slash financial regulations and return the industry to its Wild West days. And it has hit Romney for exactly that in the wake of the JPMorgan story. In a statement Friday, Obama campaign spokeswoman Lis Smith called Romney’s advocacy of repealing Dodd-Frank a “reckless” stance that would risk a new financial crisis.

Romney campaign spokesman Ryan Williams responded by saying the former Massachusetts governor wants simpler, more transparent Wall Street reform. “JPMorgan’s reported $2 billion trading loss demonstrates the importance of oversight and transparency in the derivatives market, something Gov. Romney has called for in the past,” Williams said.

But the debate over what Romney would or wouldn’t do misses a much larger political problem for Obama. Reelection campaigns are referendums on a president’s job performance. The JPMorgan debacle raises a critical question: Has the president demonstrated enough strength in taking on Wall Street?

It is much like the president’s problem on the economy, where Romney enjoys stronger polling numbers. The president has to convince skeptical voters that while things are not great yet, they could be a lot worse.

He does not have tremendous support for that argument among financial-reform advocates.

“Rather than a sustained assault to push reform through the agencies by funding them and supporting them at every turn, the administration has mostly just let the process play out, which is the same as handing it over to Wall Street and the lobbyists,” said Dennis Kelleher, a former senior Democratic staffer on Capitol Hill and now president of the reform group Better Markets.

Polls suggest that just as voters are unsure whether to trust the president on the economy for another four years, they are evenly split on whether the Dodd-Frank bill was good for the country.

A recent Washington Post/ABC News survey found that 49 percent had a favorable view of new financial industry regulations while 44 percent had a negative view. Those numbers are likely to get significantly worse in the wake of the JPMorgan disaster and make it much harder for Obama to run as the sheriff who cleaned up Wall Street.

Critics of the administration say that more intense White House pressure and involvement could have produced far stronger legislation than the version of Dodd-Frank currently muddling its way through the rule-writing process.

“There is no way we should even be talking about whether Dodd-Frank might have prevented this,” said a former senior regulator who asked not to be identified in order to speak freely about the White House. “The administration could have pushed for and passed the SAFE Act, which would have banned this kind of trading. Even [Senate Banking Committee ranking Republican Richard] Shelby said he would have voted for the SAFE Act. They just chose not to push it.”

Critics on the left and right say Dodd-Frank was something of an afterthought for an administration that made health care and the stimulus its top priorities.

Obama had a historic opportunity to take Wall Street to the woodshed and fix the broken financial regulatory system at a time when public anger at banks was off the charts, these critics say. Voters of all persuasions, from the tea party to Occupy Wall Street, wanted to see criminal cases and reform with real teeth. Such reform could have included breaking up the nation’s largest banks and demanding the return of big bonuses earned through risky bets that burned down the economy and sent unemployment to 10 percent.

“It was the triumph of ideology over practicality,” said James Rickards, partner at JAC Capital Advisors, a hedge fund. “What should have been on the political and economic agenda was curing the problems afflicting our financial system. But they chose to do health care. They couldn’t ignore Wall Street altogether so they did Dodd-Frank. But they did not use any real political capital, so what we got was something that hasn’t made the system any better.”

In fact, Rickards said the system is arguably worse. “The only way to get rid of ‘too big to fail’ banks is to break them up. If smaller banks fail, who cares? But all they did was institutionalize too big to fail,” he said. “There is a larger concentration of assets in the five biggest banks than there was before the crisis.”

Administration officials strongly reject these arguments. They say the system is safer as a result of Dodd-Frank, and the JPMorgan loss shows why final rules must be written as soon as possible. Treasury officials, who took the lead role in helping to shape Dodd-Frank, say banks have added $400 billion in capital since the financial crisis and are significantly less reliant on short-term funding than in 2008.

Amy Brundage, a White House spokeswoman, also dismissed the idea that the administration pushed health care at the expense of Wall Street reform. “I don’t understand the difference in the timing and what that would have meant,” she wrote in an email. “We signed health care in March, we signed financial reform in July of the same year, two major pieces of legislation the president spent a lot of political capital on to get done and there was obviously a lot of work being done on both in tandem.”

The fact that the $2 billion loss hit JPMorgan makes things even more complicated for the administration, which has had a tortured relationship with Wall Street.

In a 2009 interview, Obama told ABC News that not all banks were bad and praised JPMorgan in particular. “There are a lot of banks that are actually pretty well-managed,” he said. “JPMorgan being a good example. Jamie Dimon, the CEO there, I don’t think he should be punished for doing a pretty good job managing an enormous portfolio.”

But Obama stepped up his anti-Wall Street rhetoric later that year during the financial reform debate. He told CBS he did not become president to “be helping out a bunch of fat-cat bankers on Wall Street.”

That sort of talk and elements of the Dodd-Frank bill ended Wall Street’s love affair with the president. Dimon told David Gregory during two interviews taped last week for “Meet the Press” that he “would call myself a ‘barely Democrat’ at this point” and that he thinks the “anti-business behavior” is “very counterproductive.”

Repeated efforts by Obama campaign officials, including campaign manager Jim Messina, to rekindle the flame with Wall Street have fallen pretty flat. Now the administration has the worst of both worlds. Wall Street executives think the White House beat up on them unfairly. And critics think the administration let bankers off way too easy. They point out that multiple task forces announced to bring big cases stemming from the financial crisis haven’t done much of anything.

On MSNBC Friday, Eric Schneiderman, the New York attorney general and chairman of the current residential mortgage securities fraud task force, a successor to a similar task force launched in 2009, defended the group’s work so far. “The nonglamorous work of issuing subpoenas, reviewing documents and conducting depositions is going forward,” he said.

But the clock is ticking. And it would help Obama’s reelection campaign if Schneiderman gets around to the more glamorous work of putting people in handcuffs sometime in the next six months.