Associated Press | President Barack Obama has chosen the place
where the economic meltdown began to argue that it can never happen
again and plead for legislation imposing stronger oversight on the
financial industry. Without it, he says, America is doomed to repeat
the past.
In a speech Thursday at New York’s Cooper Union college, near Wall
Street, Obama is expected to outline the need for new financial
regulations and explain what the nation would be risking if the
existing framework is allowed to remain in place unchanged.
The president also was calling on Wall Street to join — not fight — the overhaul effort.
Obama spoke at Cooper Union as a presidential candidate in March 2008 and decried practices that he said too often rewarded financial manipulation instead of productivity and sound business practices.
“I take no satisfaction in noting that my comments have largely been borne out by the events that followed,” Obama said in excerpts of his prepared remarks for Thursday, which the White House released several hours before the speech.
“But I repeat what I said then because it is essential that we learn the lessons of this crisis, so we don’t doom ourselves to repeat it. And make no mistake, that is exactly what will happen if we allow this moment to pass –; an outcome that is unacceptable to me and to the American people,” he said.
The sweeping regulation, representing the broadest attempt to overhaul the U.S. financial system since the 1930s, aims to prevent another crisis. Democrats are preparing to bring the Senate version of the bill up for debate, but solid GOP opposition has complicated the effort. The House passed its version of the bill in December.
The bills would create a mechanism for liquidating large, interconnected financial firms considered too big to fail. At the height of crisis in 2008, the Bush administration and the Federal Reserve were forced to provide billions of taxpayer dollars to prop up the giant insurer American International Group Inc., several banks and various financial institutions. The moves were highly unpopular with voters.
The bills also, for the first time, would impose oversight on the market for derivatives — complicated financial instruments whose value is derived from the value of other investments. The measures also would create a council to detect threats to the broader financial system and establish a consumer protection agency to police consumers’ dealings with banks and other financial institutions.
The Senate Agriculture Committee on Wednesday approved a bill by its chairwoman, Sen. Blanche Lincoln, D-Ark., to limit banks’ ability to trade derivatives and to make such transactions more open. Lincoln’s proposal is more sweeping than those offered by the Obama administration and the House, but it is expected to become part of the Senate financial overhaul bill.
Both political parties agree that an overhaul is in order, but Senate Republicans are insisting on changes to the bill. All 41 Senate Republicans signed a letter last week saying they would block the measure.
Republicans contend that Democratic plans to create a $50 billion fund, paid for by the industry, to help unwind failing institutions would encourage Wall Street banks to take risks and to expect future bailouts. Democrats say the fund would lead to bankruptcy, not rescue. The Obama administration does not support the fund and would not object to its being removed from the bill.
At the same time, Senate Banking Committee Chairman Chris Dodd, D-Conn., and Sen. Richard Shelby of Alabama, the panel’s top Republican, have been trying to negotiate a compromise measure that could win GOP support.
Democrats have accused Senate Republican leader Mitch McConnell of Kentucky of aiding efforts by the financial industry and others to fend off the attempt to impose tighter regulation.
Obama said Thursday that he believes in the power of a free market, but that in a 21st century economy there no longer is a dividing line between Main Street and Wall Street. That means decisions made in corporate boardrooms can have lasting effects on decisions made around kitchen tables, he said.
“A free market was never meant to be a free license to take whatever you can get, however you can get it,” Obama said in remarks identical to those in his speech two years ago.
“That is what happened too often in the years leading up to the crisis,” he said. “Some on Wall Street forgot that behind every dollar traded or leveraged, there is family looking to buy a house, pay for an education, open a business or save for retirement. What happens here has real consequences across our country.”
New York Mayor Michael Bloomberg was expected in the audience of approximately 700 financial industry leaders, consumer advocates, presidential advisers, local officials, students, faculty and others for Obama’s speech.
The billionaire Bloomberg, who got his start on Wall Street in the 1960s, has argued that too much regulation could jeopardize the economy as much as others say tighter regulation would protect it. The industry helps fill New York City’s coffers with millions of dollars in revenue from taxes on Wall Street profits.
But Bloomberg’s administration says the mayor backs the idea of regulating derivatives, creating a council to detect threats to the financial system and establishing a consumer protection agency.
——–
Associated Press writers Jim Kuhnhenn in Washington and Sara Kugler in New York contributed to this report.
He wants to beat up Goldman… But won’t return their campaign donations. Hmmmmm..
Wall Street probably wrote the bill and many top politicians get their campaign funds from Wall Street.
He is ASKING Wall Street??? How about TELLING them that regulations are on the way.
Let’s “out” every pol in Washington as to the amount of money every Wall Street firm and every bank has contributed to each campaign. Anyone recieving more than $10,000 total would then recuse themselves from deliberation. Then perhaps someone from Canada could come down here and write the regulations, vote on them, pass them, and we could all sleep better at night. Why Canada? Not one US pol would be left in Washington to vote and Canada is close to home.
Hey ChiGirl,
You need to examine Obama’s lousy voting record if you’re in favor of reform. In 2005, he joined 44 other Democratic senators in voting AGAINST additional regulatory oversight for Freddie Mac and Fannie Mae – at the same time he was their THIRD LARGEST recipient of campaign contributions (likely more than you’re arbitrary, $10,000 limit for recusal, right?). So Freddie and Fannie continued to follow their congressional mandate, and political will that home ownership be increased (dating back to 1992 and then-President Clinton, I might add), without additional oversight. Long story short, Obama was part of the problem then and is part of the problem now.
You should check the facts before you write or open your mouth. You and the other liberal idiots who want to blame Wall Street alone for this crisis. How about the folks who took on mortgages they knew they couldn’t afford? How about DEMOCRATIC policies aimed at winning elections by spurring home ownership for those DEMOCRATS likely knew couldn’t afford the homes they bought under Freddie and Fannie “protection?”
You know why Wall Street folks make more money than others? Because they’re smarter. And they play the system as well as any politician, perhaps better.
Again, try checking your facts and learning a little history before you attack Wall Street. And if you think Canada does things so well, then move and change your name to CanookGirl.
McClatchy has an interesting little piece on how the head of GS was visiting the White House even as GS lawyers were negotiating w/ the SEC.
http://www.mcclatchydc.com/2010/04/21/92637/goldmans-connections-to-white.html
The current administration is mighty shady.
Obama was the largest contributor to Obama’s campaign with $1 million dollars. The Goldman Sachs CEO had 4 meetings with Obama over the last several months. The financial “reform” bill proposed by the Dems and Obama gives Obama the power to provide funding, our tax dollars, for unlimited bailouts. This “reform” bill does nothing to clean up the Democrat run Fannie and Freddie Mac outfits that started this entire financial mess (thanks to Chris Dodd and Barney Frank). Obama has not held a real private sector job in his life. Now he is telling us how the financial sector needs to be run. God help us all.
More government control. Welcome to the USSA.
You said “The financial “reform” bill proposed by the Dems and Obama gives Obama the power to provide funding, our tax dollars, for unlimited bailouts.”
The article said “The Obama administration does not support the fund and would not object to its being removed from the bill.”
Can you read or are you just a parrot?
You said “try checking your facts and learning a little history…”
The Republican are the ones who repealed Glass-Steagall and subsequently allowed deposit banks to use our deposits to fund their risky investments. Don’t kid yourself, it had far less to do with people buying homes they couldn’t afford than it did with Wall Street and the banking industry playing fast and loose with our money.
BTW, if you are upset that people who couldn’t afford homes bought them, why aren’t you asking yourself what on earth made the banks loan unqualified people the money…..fact is, if they hadn’t approved the loans, the people wouldn’t have gotten them. Anyone can try, not everyone should succeed.
Sqwauk sqwauk
Shut up stupid parrot
For the parrots:
In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. The new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC), insuring bank deposits, and strengthens the Federal Reserve’s control over credit.
In 1956, the Bank Holding Company Act is passed, extending the restrictions on banks, including that bank holding companies owning two or more banks cannot engage in non-banking activity and cannot buy banks in another state.
In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act, overriding the opposition of Chairman Paul Volcker. The vote comes after the Fed Board hears proposals from Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions to allow banks to handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-backed securities. Thomas Theobald, then vice chairman of Citicorp, argues that three “outside checks” on corporate misbehavior had emerged since 1933: “a very effective” SEC; knowledgeable investors, and “very sophisticated” rating agencies. Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it boiled down to the issue of two different cultures – a culture of risk which was the securities business, and a culture of protection of deposits which was the culture of banking.
In August 1987, Alan Greenspan — formerly a director of J.P. Morgan and a proponent of banking deregulation — becomes chairman of the Federal Reserve Board. One reason Greenspan favors greater deregulation is to help U.S. banks compete with big foreign institutions.
In January 1989, the Fed Board approves an application by J.P. Morgan, Chase Manhattan, Bankers Trust, and Citicorp to expand the Glass-Steagall loophole to include dealing in debt and equity securities in addition to municipal securities and commercial paper.
In December 1996, with the support of Chairman Alan Greenspan, the Federal Reserve Board issues a precedent-shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities underwriting (up from 10 percent).
This expansion of the loophole created by the Fed’s 1987 reinterpretation of Section 20 of Glass-Steagall effectively renders Glass-Steagall obsolete. Virtually any bank holding company wanting to engage in securities business would be able to stay under the 25 percent limit on revenue.
In August 1997, the Fed eliminates many restrictions imposed on “Section 20 subsidiaries” by the 1987 and 1989 orders. The Board states that the risks of underwriting had proven to be “manageable,” and says banks would have the right to acquire securities firms outright.
In 1997, Bankers Trust (now owned by Deutsche Bank) buys the investment bank Alex. Brown & Co., becoming the first U.S. bank to acquire a securities firm.
On April 6, 1998, Weill and Reed announce a $70 billion stock swap merging Travelers (which owned the investment house Salomon Smith Barney) and Citicorp (the parent of Citibank), to create Citigroup Inc., the world’s largest financial services company, in what was the biggest corporate merger in history.
The transaction would have to work around regulations in the Glass-Steagall and Bank Holding Company acts governing the industry, which were implemented precisely to prevent this type of company: a combination of insurance underwriting, securities underwriting, and commecial banking. The merger effectively gives regulators and lawmakers three options: end these restrictions, scuttle the deal, or force the merged company to cut back on its consumer offerings by divesting any business that fails to comply with the law.
Weill meets with Alan Greenspan and other Federal Reserve officials before the announcement to sound them out on the merger, and later tells the Washington Post that Greenspan had indicated a “positive response.”
Unless Congress changed the laws and relaxed the restrictions, Citigroup would have two years to divest itself of the Travelers insurance business
Citicorp and Travelers quietly lobby banking regulators and government officials for their support.
One week before the Citibank-Travelers deal was announced, Congress had shelved its latest effort to repeal Glass-Steagall. Weill cranks up a new effort to revive bill.
Weill and Reed have to act quickly for both business and political reasons. Fears that the necessary regulatory changes would not happen in time had caused the share prices of both companies to fall. The House Republican leadership indicates that it wants to enact the measure in the current session of Congress.
in the 1997-98 election cycle, the finance, insurance, and real estate industries (known as the FIRE sector), spends more than $200 million on lobbying and makes more than $150 million in political donations. Campaign contributions are targeted to members of Congressional banking committees and other committees with direct jurisdiction over financial services legislation.
After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.
Jimmy Check your facts. The groundwork was laid loooong b-fore Feddie and Fannie issues. And it was laid by a Republican Congress with a Democratic president.
Julie,
Are you at all educated in finance, or are you just towing the Democratic line?
First of all, prior to the repeal of Glass-Steagall commercial banks were among the most active traders, participating not only in money markets but also debt capital markets and securitizations.
Second, banks approved risky home loans because they were able to offload them through securitization vehicles AND because they were underwritten with implicit federal backing (enter Fannie and Freddie).
There is a concept in finance called “diversification.” Securitization, unless bastardized by laws or policies or other interference in the market, provides for diversification and allows investors with different appetites for risk to take on the level with which they’re comfortable (for example, CDOs might be sliced into ten different risk buckets, called tranches; those bearing the most risk earn the highest return).
Now to derivatives. The term comes from an asset that derives its value from another asset. Take a credit default swap, since you’re so into headlines. It’s a swap, a derivative asset that provides insurance against borrowers not paying their debts. It’s a risk management tool that ultimately can be traded in a market independently of the underlying debt.
My point is that idiots like you who read the term “CDO” don’t understand what you’re reading and don’t bother to educate yourselves. You read “CDO” and “derivative” and automatically assume people are playing fast and loose with money. Diversification and risk management are good things; making a market in credit default swaps is also a good thing – it’s called innovation. We’re the richest country on earth because we innovate, not because we manufacture or produce.
So in 1992, when your beloved Democrats were in charge, Fannie and Freddie were told to make more home loans. Why? Democrats wanted inner city home ownership because they were elected on the margin by people in inner cities. So Fannie and Freddie guaranteed more home loans, to people who could afford them and people who could not.
Banks made the loans because the federal backing was there, even if tacitly. Wall Street had originated CDOs and other securitization vehicles before, but the federal backing, again even if tacit, made home loans an ideal candidate for securitization.
Again, though, some people could afford the loans and others could not. I put less than 5% down on my first mortgage because I knew I could afford the payments, not just because a bank told me I could afford the payments. I was responsible with my home loan and I’m now penalized through direct and indirect taxes for those who were not.
My point here is not just that you have no early idea what you’re talking about and just wax philosophically against big banks without assigning all the blame to those who earned it, but that banks, Wall Street, appraisers and others involved in the home loan process helped some people who didn’t have the down payments get into houses. Was there predatory lending and dirty mortgage broking going on? Sure. But there were also doofus, idiot, irresponsible borrowers making $12,000 per year borrowing $500,000.
Again, fast forward to 2005, when for 13 years Fannie and Freddie had made more loans because Democrats told them to do so. Obama had a chance to help regulate it, but he and the other 44 Democrats in the Senate voted along party lines to do nothing. Now he wants to regulate the financial sector. Why? Simple: he wants to be re-elected, by that inner city voter base that hates banks and Wall Street because they lost the home they never should have been in to begin with, all things equal (that last phrase is something we say in finance and economics, but you clearly are a student of neither).
It wasn’t politically popular for a budding young senator who wanted to be President to regulate Fannie and Freddie when things were heating up, because that inner city electorate might have been locked out of home ownership and lost out on that “American dream.” But now that it’s politically popular to hate Wall Street, he’s on the bandwagon.
You’re the idiot, and the parrot. You’ve bought into the Obama illusion, the headlines and the crap. Try reading a finance or economics text before you type again.
Julie,
Are you just copying timelines, because you clearly don’t understand everything in the article you seem to have copied into the Comment box.
I think you’re a socialist, and that you’d be better off in Cuba. Maybe you should talk to Cuban-Americans, though, to see which country has the better economic system.
Was there predatory lending and dirty mortgage broking going on? Sure. But there were also doofus, idiot, irresponsible borrowers making $12,000 per year borrowing $500,000.
They can’t get the loan if the bank doesn’t approve it. Period. I rest my case.
“Are you just copying timelines, because you clearly don’t understand everything in the article you seem to have copied into the Comment box.”
No Jimmy, that would be you.
My point is that idiots like you who read the term “CDO” don’t understand what you’re reading and don’t bother to educate yourselves.
I think the point is that you don’t understand the difference between a deposit bank and an investment bank. I don’t think you understand the concept of risk – Volker did.
“Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it boiled down to the issue of two different cultures – a culture of risk which was the securities business, and a culture of protection of deposits which was the culture of banking.”
Which is EXACTLY what happened, and it is exactly what happened in 1933.
Read Jimmy, stop listening to talk radio. What you responded with had NOTHING to do with the real issue which is banks using people’s deposits to engage in risky investments.
Julie,
Having worked for both a commercial bank (what kind of idiot calls it a “deposit bank?”) and a separate investment bank, I can assure you that you are the one who doesn’t understand the difference between the two.
First, banks weren’t the only institutions issuing sub-prime loans, you moron. Private lenders with looser credit standards also made home loans, and continue to do so. But here’s the deal, though, before you “rest your case” on that brain the rest of us refer to as your @$$: if you borrow money, you have to pay it back. If you can’t pay it back, you shouldn’t borrow it. There are two parties or more to every transaction, and unless borrowers signed papers with guns to their heads, they’re responsible for the loan, too.
That’s the problem with liberals like you – you think everyone should share in the upside, enjoy the benefits of home ownership and be better off in the short term, and not be left out of the party. But when the @#$% hits the fan, the wealthy, “fat-cats” should bail everyone out, right?
THEY BORROWED THE MONEY, DOOFUS – NO ONE MADE THEM DO TAKE IT.
Second, how many depositors lost money because banks, commercial or investment, traded in fixed income securities with their demand deposits? I’d guess very few. You should take a look at a bank’s balance sheet some time to understand how capital works.
Third, Volcker confused the issue like you are (have you even spent time in banking, or are you just, again, caught up in the headlines?). The two cultures are not mutually exclusive. Take Wachovia, for example, since I grew up in North Carolina. I never worked for them, but I kknow Wachovia’s problems didn’t stem from the investment bank using depositors’ funds to make sub-prime loans. Both sides of the house took independent risks and both were hurt at the same time. The retail and commercial banks made bad real estate bets (housing, commercial real estate). The investment bank got stuck holding bad leveraged loans and took losses on structured products. They weren’t gambling with deposits. You really are an idiot.
Fourth, this is NOT 1933. Get current. Risk management and market structures have changed. Ask most investment bankers whether they can even talk to their own research department without a lawyer or a compliance officer present and they’ll look at you like you have four heads. To say nothing of leaving depositors’ money in the retail or commercial bank.
Fifth, on the concept of risk, I’d wager that my knowledge of it, having worked in finance, accounting, banking and mergers and acquisitions for more than 14 years, eclipses your puny grasp of economics. Here’s the other side of the risk coin: RETURN. The more risk you bear, the more you return you get. We measure it with a Sharpe Ratio. You measure it by the size of your @$$, which I’m guessing is quite large (it’s OK, you’ll find a guy some day – maybe he can teach you about economics).
Julie,
The “real issue” is uneducated people like yourself buying into whatever politicians ask you to buy into.
Have you been foreclosed upon, or what?
Julie,
Or do you own a golf shop and people just aren’t buying these days?
Julie,
The other “real issue” is that no one wants to be held responsible for their own actions.
If an adult signs on the dotted line and borrows money, assuming no one has a gun to their head, they are responsible for the loan. The banks, and, because you failed to recognize them, other lenders, did not make people borrow money.
People make choices and should be held accountable for their own actions. That’s the problem with this country – no one wants to take responsibility anymore. It’s easier to blame someone else – the government, Wall Street and the banks, etc. If people took more individual responsibility, there’d be less to collectively worry about.
But it’s also not going to get King Obama re-elected if he tells people they have to be more responsible for themselves, is it? Easier to shift the blame.
Again, I don’t think you understand the first thing about finance or economics, either. “Deposit bank” – seriously, who calls it that?
Julie,
No response until you finish scouring the Internet for the next liberal script?
Well all, I have to log off now – Julie, I assume your silence is acknowledgement that people should be held accountable for their own actions. No argument for that, is there?
Julie,
Was I right about the golf store??
Julie,
If I was right about the golf store, how could an accountant/CPA be so liberal?
Julie P.-M.??