A primer on Obama’s financial-reform speech
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President Obama traveled on Thursday to New York City to explain his financial reform plan to an audience sitting just blocks away from Wall Street. With polls showing that most Americans dislike the big banks and traders and blame them for the current recession and today’s record unemployment, his speech was a mix of politics and economics. Here is a primer on the president’s arguments.
Who is at fault for today’s economic woes, including the loss of more than 8.5 million jobs?
“That crisis was born of a failure of responsibility – from Wall Street to Washington – that brought down many of the world’s largest financial firms and nearly dragged our economy into a second Great Depression,” Obama said, according to a text released by the White House.
It is important that Obama casts a wide net for blame because it opens the door to changes both in how the financial world functions and in how the government responds with more regulation. Unless both are at fault, it is hard to argue for changes in both arenas, and Obama needs to do that to allow the possibility of Republicans to endorse a Democratic bill.
Why was Cooper Union chosen for the speech?
As a candidate, Obama first addressed Wall Street regulation in a speech at Cooper Union, a New York university, so returning allows him to show that this is an issue with which he has been concerned for a while.
“It was that failure of responsibility that I spoke about when I came to New York more than two years ago – before the worst of the crisis had unfolded,” Obama said on Thursday. “I take no satisfaction in noting that my comments have largely been borne out by the events that followed.’
Some critics call Obama a socialist. How does the president see himself?
“As I said two years ago on this stage, I believe in the power of the free market. I believe in a strong financial sector that helps people to raise capital and get loans and invest their savings,” Obama said.
The president may be a capitalist, but he is a far cry from a robber baron. “A free market was never meant to be a free license to take whatever you can get, however you can get it,” he said.
What does the president want the legislation to do?
The American taxpayer should never have to bail out failures on Wall Street, as they did in the recent crisis, Obama argues. The president said the government acted properly to supply tax dollars and that much of the money will be recovered. But policy should not be created on the run.
To that end, Obama wants the financial system to shoulder the costs of faltering institutions. That fund, derided by Republicans as an invitation to future bailouts, is needed, Obama argued, though its exact shape is open to political debate. This is an invitation to Republicans to continue presenting their ideas in talks with Senate Democrats to craft a bipartisan approach. Democrats need Republicans to prevent a filibuster from stopping financial regulation in this midterm election year.
What else should a bill have?
There should be limits on the size of institutions and the kinds of risk that they can undertake, Obama said. He called for using the guideline known as the Volcker Rule and making it part of the proposed law. Coupled with this is greater transparency so that investors can better know what exactly it is they are investing in and what are the dangers.
This call has taken on greater urgency as investigators explore the causes of the financial collapse and focus on investment vehicles like derivatives. Obama has said he will veto any bill unless it regulates derivatives and other investment vehicles that most people blame for the Wall Street meltdown.
“Without action, we’ll continue to see what amounts to highly leveraged, loosely monitored gambling in our financial system, putting taxpayers and the economy in jeopardy,” Obama said. “And the only people who ought to fear this kind of oversight and transparency are those whose conduct will fail its scrutiny.”
What about consumer protection?
Obama called for a bill including the “strongest consumer financial protections ever. This is absolutely necessary. Because this financial crisis wasn’t just the result of decisions made in the executive suites on Wall Street; it was also the result of decisions made around kitchen tables across America, by folks taking on mortgages and credit cards and auto loans. And while it’s true that many Americans took on financial obligations they knew – or should have known – they could not afford, millions of others were, frankly, duped. They were misled by deceptive terms and conditions, buried deep in the fine print.”
What about Wall Street shareholders?
Obama called for a greater voice and power for shareholders on Wall Street and for the Securities and Exchange Commission to help them. The idea is to try to bring the model of popular democracy to the boardrooms.
“They’ll get a say on pay: a voice with respect to the salaries and bonuses awarded to top executives. And the SEC will have the authority to give shareholders more say in corporate elections, so that investors and pension holders have a stronger role in determining who manages the companies in which they’ve placed their savings,” Obama said.
What about Washington politics?
At the heart of the Washington woes on financial reform is the same culprit that Obama blamed in the past: a cynical politics that marks the nation’s capital.
“We’ve seen battalions of financial industry lobbyists descending on Capitol Hill, as firms spend millions to influence the outcome of this debate. We’ve seen misleading arguments and attacks designed not to improve the bill but to weaken or kill it. And we’ve seen a bipartisan process buckle under the weight of these withering forces, even as we have produced a proposal that is by all accounts a common-sense, reasonable, non-ideological approach to target the root problems that led to the turmoil in our financial sector,” the president said.
And the way to fight that kind of destructive politics, the former community organizer argued, is through discussion and compromise.
“I believe we can and must put this kind of cynical politics aside,” Obama said. “That’s why I am here today. We will not always see eye to eye. We will not always agree. But that does not mean we have to choose between two extremes.’
-- Michael Muskal
