President Obama today continued his attempt to reform Wall Street in the wake of the worst recession in generations, unveiling a proposal to cut down on the size and risk-taking of the nation's largest banks.
"This economic crisis began as a financial crisis, when banks and financial institutions took huge, reckless risks in pursuit of quick profits and massive bonuses," the president said in remarks at the White House.
The president today was accompanied by his economic team, including Treasury Secretary Tim Geithner, National Economic Director Larry Summers, and adviser Paul Volcker, the former Federal Reserve chairman who has been vocal in calling for such reforms.
After the financial crisis in the fall of 2008, the country's biggest banks have only grown bigger, said the president, emboldened by the recent government bailout's implication that they were "too big to fail" and by widespread failures of smaller community banks.
"While the financial system is far stronger today than it was one year ago, it's still operating under the same rules that led to its near-collapse," the president said.
Now the administration intends to cut back on the size and scope of these institutions, as well as the extent of their risk-taking. The new proposal would crack down on high-risk trades by restricting proprietary trading at commercial banks. Banks would be prohibited from owning or investing in hedge funds and private equity firms.
"Never again will the American taxpayer be held hostage by a bank that is too big to fail," the president said.
As the White House has seen this past year, it is a long hard road from talking tough about Wall Street to enacting real changes in the financial system.
Immediately after the president delivered his statement at the White House, critics started voicing their opposition to his proposal, warning that it would have a negative effect on Wall Street's successes and therefore also Main Street's jobs prospects.
Steve Bartlett, president and CEO of the Financial Services Roundtable, said that while the financial industry supported the administration's goals of responsible lending, creating jobs, and improving the economy, this latest measure would hurt, not help, in meeting those goals.
"The administration's new proposal is inconsistent with achieving these goals," Bartlett said. "The proposal will restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs."
Investors also appeared to oppose the proposal. The Dow Jones Industrial Average was down 213 points, with bank stocks leading the downturn. Goldman Sachs dropped nearly $7 per share. Goldman had reported strong earnings today, but the bank relied heavily on profits made from so-called "proprietary trading," precisely the kind of activity the President wants to restrict.