President Obama came to Wall Street to chastise executives and to urge Congress to pass tougher regulation of the bankers and brokers whom he blamed for the crisis in the financial markets a year ago.
Speaking at Federal Hall, across the street from the New York Stock Exchange, on the anniversary of the collapse of Lehman Brothers, Mr. Obama said the United States needed “strong rules of the road to guard against the kind of systemic risks we have seen.” He called on the financial industry “to join us in a constructive effort to update the rules and regulatory structure to meet the challenges of this new century.”
The response from Wall Street: muted.
Only once during Obama’s speech did financial executives give the president applause. Instead, they listened politely to the speech, applauded once more at the end, and then left.
However, Mr. Kleintop viewed the speech more as an opportunity for Obama to keep the issue of financial reform alive while the main focus is on healthcare legislation. “Congress is not going to tackle financial reform this year. There is too much on the plate,” he says.
Republicans had their own take on the speech. Rep. John Boehner, House Republican leader, said in a statement, “Missing from the President's remarks today was a clear exit strategy for the federal government’s involvement in the private sector.”
The reaction from Democrats was quite different. Rep. Barney Frank (D) of Massachusetts, appearing on CNBC, said, “We are very much on track.” He said his panel, the House Financial Services Committee, would vote on separate pieces of legislation covering derivatives, "resolution authority" for failing nonbank financial institutions, and the regulation of systemic risks.
Others are skeptical that any financial legislation will pass this year. “It’s complicated and heavily lobbied, so you have to believe it will slip,” says Douglas Elliott, a fellow at the Brookings Institution in Washington.
Instead, Mr. Elliott anticipates it will pass next year. “It’s got the prestige of the president behind it, and if the public stays focused on the issue, it will pass,” he says. “The public knows we’ve just had the worst recession since the Great Depression and it originated from the financial sector.”
While Obama offered no new proposals in his speech, he asked Congress to:
• Create a financial protection agency for consumers, which will help ensure that they “get information that is clear and concise, and to prevent the worst kinds of abuses.” This was the only proposal that Wall Street executives applauded.
• Close the loopholes in regulatory authority so some companies cannot shop for the regulator of their choice and others, such as hedge funds, operate outside the regulatory system. Obama is calling for an “oversight council” that would bring together regulators from across markets to “share information, to identify gaps in regulation, and to tackle issues that don’t fit neatly into an organizational chart.”
• Form a resolution authority that will try to ameliorate the threat of financial instability if a large financial institution fails.
The Obama plan also calls for banks and other financial institutions to raise a new, undisclosed level of capital. And he is proposing that if a financial organization fails, the “cost” of the failure would come out of the pockets of stockholders and bondholders.
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