View Full Version : Now for Financial Reform

04-22-2010, 08:13 PM
NEW YORK -- In the latest skirmish over financial reform, a stern President Obama came to a familiar place Thursday (historic Cooper Union in lower Manhattan) to declare war on a familiar foe Washington lobbyists.

With dozens of well-compensated, dark-suited pillars of Wall Street among the 700 people in the audience, Obama pointedly spoke about "the furious efforts of industry lobbyists" to weaken and defeat the legislation, pending in the Senate, to regulate the financial sector. As Obama said in a made-for-TV sound bite (the line was highlighted in speech excerpts released in time for the morning shows), "For those of you in the financial sector, I'm sure that some of these lobbyists worked for you, and they're doing what they are being paid to do. But I'm here today specifically, when I speak to the titans of industry here, because I want to urge you to join us instead of fighting us in this effort."

Missing from the speech was the overt partisanship that punctuated his Saturday radio address on financial reform, which concluded with a sharp attack on Senate Minority Leader Mitch McConnell for making "cynical and deceptive" charges about the bill. At Cooper Union, Obama instead accentuated the positive: "I was encouraged to see a Republican senator joining with Democrats this week in moving forward on this issue." The president was referring to Iowa's Chuck Grassley voting with the Democrats to report tough new regulations on derivatives out of the Senate Agriculture Committee.

Part of the motivation for Obama's rhetorical emphasis on lobbyists is that the speech was aimed at a larger political audience beyond the Washington-New York Acela corridor, a constituency that would find the details of the legislation dizzyingly complex. Better to take aim at the more than 1,500 industry lobbyists who have registered with Congress to work on financial reform legislation. So Obama concluded with an appeal to the Wall Street executives, "I urge you . . . to join those who are seeking to pass these common-sense reforms. And I urge you to do so not only because it is in the interest of your industry, but because it is in the interest of our country."

The president took pains to rebut a major Republican talking point: that a $50 billion fund in the Senate bill for orderly dismantling of troubled financial institutions was a bailout fund. "What's not legitimate is to suggest that somehow the legislation being proposed is going to encourage future taxpayer bailouts, as some have claimed," Obama said. "That makes for a good sound bite, but it's not factually accurate. It's not true. " FactCheck.org, a foundation-supported nonpartisan website that monitors the veracity of political claims, agrees with Obama's interpretation.

But it is the prior massive bailouts of major Wall Street banks like Citigroup and insurance giants like American International Group (AIG) that compound the political difficulties of Obama and the congressional Democrats in passing the legislation. Voter rage directed at Wall Street is intense -- and cuts across party lines. A flashpoint of anger is the seven-digit bonuses that are a Wall Street tradition.

Little in the legislation, though, directly addresses the not-like-the-rest-of-us compensation packages that enrich the financial world. The best that Obama could offer Thursday: "These Wall Street reforms will give shareholders new power in the financial system. They will have what we call a say on pay, a voice with respect to the salaries and bonuses awarded to top executives." That is pretty tepid stuff -- especially when the controversial banking house of Goldman Sachs awarded more than $16 billion in bonuses in January.

Goldman CEO Lloyd Blankfein and Gary Cohn, the firm's president, were seated in the third row at the speech and rose to join in the standing ovation for Obama. But because of the security needs of the White House, Blankfein and Company had to arrive at Cooper Union more than 90 minutes before the speech and were subjected to the indignity of dealing with a scrum of photographers and reporters. They ducked all questions, a modesty that was understandable since the Securities and Exchange Commission filed suit last Friday against Goldman for allegedly not making full disclosures in the marketing of packages of subprime mortgages. But asked after the speech about Obama's critique of banking lobbyists, Cohn said disingenuously: "I don't have a view on lobbyists. Hundreds of financial firms have lobbyists."
In his speech, the president highlighted another aspect of the Senate bill that has come under Republican fire -- the creation of a Consumer Financial Protection Bureau within the Federal Reserve. (The House, which passed its own version of the legislation last year, establishes the bureau as an independent agency.) Alluding to the fast-and-loose loan practices that brought on the mortgage crisis, Obama said, "While a few companies made out like bandits by exploiting their customers, our entire economy was made more vulnerable. . .That's why we need to give consumers more protection and more power in our financial system." And the president underscored his argument by tartly observing, "Unless your business model depends on bilking people, there is little to fear from these new rules."

Two years ago, leading in the race for the Democratic nomination but with the goal still elusive, Obama came to Cooper Union to deliver a major campaign address on the economy. Most politicians would recoil to relive their speeches from before the September 2008 financial crisis, but Obama has the good fortune to be able to claim to be prescient. As he said in March 2008, six months before the collapse of Lehman Brothers, "Financial institutions must do a better job at managing risks. There is something wrong when boards of directors or senior managers don't understand the implications of the risks assumed by their own institutions."

That risky business almost brought the world economy to its knees. As Obama put it Thursday, "That crisis was born of a failure of responsibility, from Wall Street all the way to Washington, that brought down many of the world's largest financial firms and nearly dragged our economy into a second Great Depression." The problem facing both Obama and the nation, a problem that has unleashed a bitter populist frenzy, is that those suffering today from the aftereffects of that crisis are ordinary voters -- and not the power elite of Wall Street and Washington.