When voters elected Barack Obama president in November 2008, many of us were convinced he would make a top priority of reforming Wall Street, which had just almost succeeded in bringing down our way of life through greed and lack of accountability.
Despite the fact that Goldman Sachs, JPMorgan Chase and Citigroup were among Obama's top 10 financial backers in 2008, we were hopeful we would see a change in the system whereby bankers, traders and executives were rewarded every day to take huge, asynchronous risks with other people's money.
We also believed that Obama wouldn't succumb to the backroom maneuverings of the plutocrats and behind-the-scenes money men - such as former Treasury Secretary Robert Rubin and former Deputy Secretary Roger Altman - who were busy advocating a quick return to the status quo and looking to move their friends into positions of great importance in Obama's Cabinet.
It turned out we were either naive or stupid to think that when candidate Obama spoke about "change you can believe in," he was including Wall Street.
In ways we may never fully understand, Rubin quickly cast his spell on Obama. Before long, Rubin proteges were appointed to the three most important economic positions in the new administration: Timothy Geithner as Treasury secretary, Lawrence Summers as national economic adviser and Peter Orszag as director of the Office of Management and Budget. For good measure, the administration named Mary Schapiro, the head of the Financial Industry Regulatory Authority, Wall Street's dysfunctional self-regulatory organization, as chairman of the Securities and Exchange Commission.
Summers has gone back to Harvard, and Orszag is now at Citigroup (and writes a column for Bloomberg View). Geithner and Schapiro will be leaving Washington shortly. Yet other Rubin acolytes - Gene Sperling, now the national economic adviser; Jack Lew, Obama's chief of staff; and Michael Froman, the president's top international economics adviser - are still very much in residence at the White House.
What did these men and women collectively achieve during Obama's first term? A remarkably Wall Street-friendly set of policies. To recap, the big banks continued to be bailed out; the weak Dodd-Frank financial reform act continues to get watered down as its specific rules are hammered out; not one Wall Street trader, banker or executive has been held criminally liable for actions leading up to the financial crisis; and the Standard & Poor's 500 has doubled since its nadir in March 2009. The Federal Reserve also did its part: pumping trillions of dollars into the capital markets to keep interest rates at rock- bottom levels (a gift to Wall Street and a tax on savers).
A pretty amazing list of favors, if you think about it. Yet Wall Street clearly thinks it is owed even more. The antipathy between the financial sector and Obama has never been greater. Eight of Republican challenger Mitt Romney's 10 top donors in the election were Wall Street firms. (Meanwhile, the markets responded to Obama's re-election with a 400-plus point drop.) So, President Obama, the time has come for you to do in your second term what many people hoped you would do in the first: Institute meaningful reform on Wall Street. An essential first step is to sweep out the remaining vestiges of the Rubin- Altman nexus. Bring in a new group of people who not only understand how Wall Street really works but also have dedicated much of their lives to changing it.
Who might some of those people be? For Treasury secretary, the best choice is Erskine Bowles, who has distinguished himself as co-chairman of the National Commission on Fiscal Responsibility and Reform. Although it is true that Bowles was chief of staff to President Bill Clinton, and thus rubbed elbows with Rubin and Altman, he isn't in that Rubin orbit. He understands Wall Street - he founded a small eponymous investment bank and a private-equity firm, Carousel Capital, and was a partner at private-equity giant Forstmann Little & Co. - and did a fine job serving as president of the sprawling University of North Carolina system.
More important, he has spent the past year shaping his commission's report - despite Obama's having ignored it - into legislation that Congress can take up immediately to try to resolve the budget deficit and the looming fiscal cliff, the more than $600 billion in tax increases and spending cuts scheduled for next year. He has a proven record of bipartisanship, working well with Alan Simpson and the other Republicans on the commission. Appointing Bowles to Treasury would show that Obama is serious about getting the country's fiscal house in order and finding a more productive relationship with Wall Street.
To address the vacuum of accountability on Wall Street, Obama should appoint former New York governor Eliot Spitzer as the new chairman of the SEC. I'm not joking. Having prosecuted Wall Street misdeeds as New York attorney general a decade ago, he knows where the bodies are buried and won't be afraid to dig them up. As a cable-television host, he has proved to be the news media's most aggressive and informed critic of Wall Street. The question, of course, is whether the president would nominate him and the Senate would confirm him given his humiliating fall from grace in a prostitution scandal. My reply: Is only Bill Clinton entitled to political resurrection? To replace Sperling, who has had more lives in Washington than a Persian shorthair, Obama should recruit Carmen Reinhart, a highly respected Harvard economist with an up-from-nothing personal history that rivals the president's own (her family fled Castro's Cuba with little more than the clothes on their backs). That she has a keen understanding of how economies get into financial difficulty and how they get out of them - she is the co-author, with Kenneth Rogoff, of the best-seller "This Time Is Different" - is a huge plus. And she calls things as she sees them: Although usually considered to be on the right of the political spectrum, she was a strong detractor of Romney's mathematically illiterate tax plan.
In his victory speech, Obama said, "You voted for action, not politics as usual." It was similar to the refrain he used four years ago, before disappointing us with politics as usual. By choosing Bowles, Spitzer and Reinhart as the anchors of his new economic team, he could start proving that this time really is different.
William D. Cohan, the author of "Money and Power: How Goldman Sachs Came to Rule the World," is a Bloomberg View columnist.