Two days after the voters of Massachusetts sent a Republican to the Senate for the first time since 1972 – many of them fueled by populist anger at Washington, DC, and Wall Street – President Obama used fiery, populist rhetoric to introduce new regulations on the financial industry — almost daring the financial sector to take him on.
“Never again will the American taxpayer be held hostage by a bank that is ‘Too Big to Fail,”the president vowed, suggesting ways to limit the size and scope of financial institutions.
The president said he would work to change the current rules for financial institutions “in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest.”
“We cannot accept a system in which shareholders make money on these operations if the bank wins, but taxpayers foot the bill if the bank loses,” he said.
Thus, the president said, he was proposing a new rule he was calling “the Volcker Rule, after this tall guy behind me,” he said, referring to the brobdingnagian former Federal Reserve Chairman Paul Volcker, lurking to his right.
“Banks will no longer be allowed to own, invest or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers,” the president said. “If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so responsibly is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.”
A second rule, the president said, would “prevent the further consolidation of our financial system” by applying the deposit cap in place since the mid-1990s to guard against too much risk being concentrated in a single bank to “wider forms of funding employed by large financial institutions in today’s economy.”
The president cast big banks in an unflattering light.
He said his resolve to enact financial regulatory reform is strengthened by Wall Street returning to old practices, fighting reforms, while there are “soaring profits and obscene bonuses at some of the very firms claiming that they can’t lend more to small businesses, they can’t keep credit card rates low, they can’t pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers — and that’s the claims they’re making.”
Decrying the “army” of Wall Street lobbyists challenging his proposals for financial regulatory reform, President Obama said “if those folks want a fight, it’s a fight I’m ready to have.”
The language matched that used by the President earlier this month – before the Massachusetts loss – when he told Democratic House members nervous about the health care plan hurting them in the November mid-term elections, “if Republicans want to campaign against what we’ve done by standing up for the status quo and for insurance companies over American families and businesses, that is a fight I want to have.”
The president began his remarks today by talking about the more than 7 million Americans who have lost their jobs in the past two years, suggesting that the job losses were the fault of Wall Street. “As we dig our way out of this deep hole, it’s important that we not lose sight of what led us into this mess in the first place,” he said. “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 described the Troubled Asset Relief Program to stabilize Wall Street as a “rescue, undertaken by the previous administration” that he found “deeply offensive, but it was a necessary thing to do.”
He said that Wall Street continues to operate by the same rules that led to its near-collapse – ones that allow “firms to act contrary to the interests of customers, to conceal their exposure to debt through complex financial dealings, to benefit from taxpayer-insured deposits, while making speculative investments; and to take on risks so vast that they pose threats to the entire system.”
Thus, the president said he would close loopholes allowing “big financial firms to trade risky financial products like credit default swaps and other derivatives without oversight, to identify system-wide risks that could cause a meltdown, to strengthen capital and liquidity requirements to make the system more stable, and to ensure that the failure of any large firm does not take the entire economy down with it.”
The president stood in the Diplomatic Reception Room of the White House and was flanked by economic advisers including Treasury Secretary Tim Geithner and Dr. Christie Romer, chair of his Council of Economic Advisers; key Democratic congressional committee chairmen Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn.; and former Bush administration Securities and Exchange Commission chairman William Donaldson,
–Jake Tapper and Sunlen Miller