Obama to Wall Street: financial reform is in your interest
In a speech before many of the richest Wall Street bankers, Obama argued, 'We will rise or we will fall together as one nation.' But financial reform could have big downsides for bankers.
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"Ultimately, there is no dividing line between Main Street and Wall Street," the president told a crowd at Cooper Union college in Manhattan that included some of America's richest bankers. "We will rise or we will fall together as one nation.... I urge all of you to join me, to join those who are seeking to pass these common-sense reforms."
Here's how Mr. Obama may be right with that "one nation" argument: The economy needs a financial system, and banks can best succeed as part of a vibrant broader economy.
But where Obama said reform is "in the interest of your industry," that doesn't necessarily mean it will be good for bankers personally. For many, the reforms may mean smaller paychecks and less dealmaking freedom.
For many bankers, the pre-reform world meant huge trading profits and fees from complex derivatives. It meant bonuses that hinged on short- rather than long-term performance. And, when things went badly, that world included massive government bailouts that helped banks get back on their feet.
By contrast, the post-reform world could very well mean lower profits during good times, more regulatory oversight, and tougher consequences for firms that get into trouble. In the view of many proponents, that's what will happen if the reforms work.
Different points of view
In that sense, Wall Street and Main Street view financial reform from different angles.
Obama acknowledged the divide even as he sought to bridge it. "We will not always see eye to eye," he said to bankers, as he lamented what he called the "furious efforts" of industry-funded lobbyists to water down the legislation.
His administration views bank reform as a capstone of its economic recovery plans – designed to make the financial system more stable so that it can support the growth of US businesses. The House has already passed its bill, while the Senate is nearing a vote on legislation brokered by Sen. Christopher Dodd (D) of Connecticut.
In his address Thursday, the president emphasized four key elements of the package:
1) Protecting the economy and taxpayers from fallout when a large financial firm collapses. New "resolution authority" would allow the government to shut down failing firms in a way that's intended to contain the ripple effects while making the industry (not taxpayers) pay any costs.
2) New transparency and oversight of trading in so-called derivative securities.
3) Consumer protections, aiming to prevent deceptive terms and conditions in products such as mortgage loans. He did not talk about a new agency for this purpose, perhaps a sign that this move (opposed by many in the financial industry) is not a go-to-the-mat issue for him.