I’m not exactly sure what to make of this report from the Washington Post on the rebound in Wall Street’s fortunes.  The data on profits is interesting, and it’s true that they do tend to confound Obama’s class-warrior credentials.  Otherwise, the only real takeaway is something the Post doesn’t really address:

President Obama has called people who work on Wall Street “fat-cat bankers,” and his reelection campaign has sought to harness public frustration with Wall Street. Financial executives retort that the president’s pursuit of financial regulations is punitive and that new rules may be “holding us back.”

But both sides face an inconvenient fact: During Obama’s tenure, Wall Street has roared back, even as the broader economy has struggled.

The largest banks are larger than they were when Obama took office and are nearing the level of profits they were making before the depths of the financial crisis in 2008, according to government data.

Wall Street firms — independent companies and the securities-trading arms of banks — are doing even better. They earned more in the first 2¹ / ₂ years of the Obama administration than they did during the eight years of the George W. Bush administration, industry data show.

Some of this is obvious.  The Dow has bounced back to respectable levels, but even that is somewhat misleading, as the dollar has grown significantly weaker over the last few years, which dilutes the strength indicated in price indices.  We have known for some time that corporations are accumulating capital in the wake of the financial collapse and recovery, a not-unexpected reaction to having come close to disaster through overextension on debt, whether that means their own debt or bonds held as assets.

However, the bounce back on Wall Street and increasing short-term profits do not indicate that the avalanche of new regulations isn’t “holding them back.”  The rise in profits indicates that businesses are not investing money in expansion or new projects, especially here in the US.  In part that is due to lower demand, which forces companies to find more efficiency and take less risk.  In this recovery, it’s largely due to new regulations that make it impossible to price long-term risk, and of tax changes that only benefit short-term moves while Obama and Democrats demand higher tax rates in the long term.  Profits get turned into held capital while the risk environment is negative or impossible to price, so no one should find the main point of the Post’s article surprising.

Why are financial institutions doing better?  In part because they improved their lending practices after getting burned on the government-pushed credit bubble from 1998-2008.  So what’s the solution the Post seems to prefer?  Forcing lenders to make bad loans again:

Neither the Bush administration nor the Obama administration, for instance, compelled banks to increase lending to consumers, known as “prime borrowers.” Such a step might have spurred spending and growth, although generating demand for loans may have proved difficult in the downturn.

A recent study by two professors at the University of Michigan found that banks did not significantly increase lending after being bailed out. Rather, they used taxpayer money, in part, to invest in risky securities that profited from short-term price movements. The study found that bailed-out banks increased their investment returns by nearly 10 percent as a result.

“If the goal was to support lending, it would have been sensible to require a portion of the money to support credit origination,” said Ran Duchin, one of the finance professors who completed the study. “Lending to prime consumers was not the most profitable use of their capital.”

First, that’s more of an indictment against bailing out financial institutions in the first place.  However, that wouldn’t have been needed if the government hadn’t spent years demanding lower standards for lending and then subsidizing the risk by having Fannie and Freddie buy up the subprime loans issued by lenders, touching off the housing bubble.  And those institutions wouldn’t have needed a bailout at all if Congress hadn’t funded that spending spree by having Fannie and Freddie issue mortgage-backed securities that spread the poison of those unsustainable loans throughout the entire financial sector, which bought the MBSs because of their perceived (and in the end, real) government backing.

When it comes to government intervention in the lending sector, the best lesson comes from the film War Games: The only way to win is not to play at all.

Finally at the end, we find the one real scoop in this season of Occupy Wall Street protests:

The president, however, has not shunned Wall Street. He has courted financial executives for campaign donations, including inviting them to a campaign gathering at the White House. He has attracted more money for his campaign and for the Democratic National Committee from financial firm employees than all of the GOP candidates combined — a total of $15.6 million.

The only real shock about this is that Wall Street executives are still willing to fund the Class Warrior in Chief while he encourages the socialists and the nihilists barking at their very doors.  And, given all that we’ve seen over the years from Wall Street, it’s not really much of a surprise, either.