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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4) Power for shareholders to have a "say on pay" for executives. Obama added that the Securities and Exchange Commission (SEC) "will have the authority to give shareholders more say in corporate elections."Skip to next paragraph
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The bills also seek to redesign the regulatory apparatus that oversees banks, and to ensure that banks hold adequate capital to remain solvent during recessions.
How does Goldman Sachs fit in?
Whether the timing is coincidental or not, the SEC's fraud lawsuit against Goldman Sachs this week has served to highlight the gap between the world of finance and America's everyday economy.
The lawsuit centers on whether a Goldman vice president properly disclosed the terms of a derivatives deal to the investors involved. Vast sums were at stake, all tied to the direction of the US housing market, yet the deal had little if any relevance on Main Street. The so-called "synthetic CDO" was not helping to finance home loans, but enabled one group to bet that certain home loans would lose value, while other investors bet that they wouldn't.
Derivatives have emerged as a central battleground for reform-bill lobbying.
The reforms would require that most derivative securities be cleared in a centralized system, making it easier for the industry and regulators to keep track of risk exposure. Market participants would also face new capital requirements as a backstop in market downturns. Such moves promise to make a huge marketplace safer but also less profitable for Wall Street firms.
If those changes take some icing off the derivatives cake, a move by Sen. Blanche Lincoln (D) of Arkansas this week might take the cake away entirely. She won committee-level support for a measure banning mainstream banks from the derivatives business. Her proposal may not make it into a final package for Obama to sign, but the possibility symbolizes how the reform process threatens current Wall Street ways.
Do ordinary Americans and businesses view Wall Street as an ally or a threat?
The answer is more nuanced than public opinion polls would suggest – polls that show a strong aversion to the bailouts and to high banker bonuses. There's a lot of anger at Wall Street, but also plenty of distrust of Washington and fear that regulation run amok might hurt the economy.
This reflects a debate that, in America, goes back to the days of Jefferson and Hamilton. Obama sought to reassure his listeners that his reform push is about balance, not extreme measures.
"There has always been a tension between the desire to allow markets to function without interference and the absolute necessity of rules to prevent markets from falling out of kilter," he said. "Managing that tension ... is what has allowed our country to keep up with a changing world."