President Barack Obama stepped up his campaign against Wall Street today with a far-reaching proposal for tougher regulation of the biggest US banks.
“We have to get this done,” Obama said at the White House. “If these folks want a fight, it’s a fight I’m ready to have.”
It was a stern, populist lecture from the president to Wall Street for what he perceives as its abandonment of Main Street. Obama said the government should have the power to limit the size and complexity of large financial institutions as well as their ability to make high-risk trades.
He said it was not appropriate that banks had been able to run these trading operations with the protections afforded to regular banking services.
“We have to enact common sense reforms that will protect American taxpayers and the American economy from future crises,” Obama said. “For, while the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near-collapse.”
Joining Obama for the announcement were former Federal Reserve chairman Paul Volcker, who heads the president’s Economic Recovery Advisory Board, and William Donaldson, chairman of the Securities and Exchange Commission under Republican president George W. Bush. Volcker and Donaldson have advocated stronger restrictions on banks.
Overhauling financial rules is the one issue on Obama’s legislative agenda that appears still alive after Democrats’ devastating loss Tuesday in the Massachusetts Senate race.
The White House is renewing Obama’s demand for an independent consumer financial protection agency as part of any overhaul. That is one of the major sticking points in the Senate; the House of Representatives has passed its version already.
The new proposal from Obama intends to limit speculation by commercial banks and to keep financial institutions from growing so big that they pose a risk to the economic system.
“When you see more and more of the financial sector basically churning transactions and engaging in reckless speculation and obscuring underlying risks in a way that makes a few people obscene amounts of money but doesn’t add value to the economy – and in fact puts the entire economy at enormous risk – then something’s got to change,” Obama said in an interview released today by Time magazine.
Obama has branded bank executives “fat cats” and proposed a fee on large banks to cover shortfalls in the government’s $700bn (€496bn) financial rescue fund.
Expanding on earlier measures, Obama endorsed Volcker’s proposal to restrict proprietary trading by commercial banks. That would separate commercial banks from investment banks, a line blurred a decade ago by the repeal of the 1930s Depression-era Glass-Steagall Act.
This restriction would affect some of the biggest banks, including Bank of America, Goldman Sachs and Citigroup.
There was a new urgency in the Senate to respond to the voter anger at Wall Street and bank bailouts that helped propel Republican Scott Brown to victory in Massachusetts for the seat long held by Democratic Senator Edward Kennedy, who died in August.
Brown’s victory gave Republicans 41 votes in the 100-member Senate, enough to mount parliamentary blocking moves and prevent Democratic legislation on health care or climate change from getting final votes.
But financial regulations could survive.
Administration officials believe that while Republicans may seek to block other aspects of the president’s agenda, Senate Republican leader Mitch McConnell is considering making financial regulations an exception.