In New York City today just a short subway ride from the financial district, President Barack Obama called on lawmakers to take swift action on financial regulatory reform, which would forever change the way Wall Street does business. The most sweeping changes since the Great Depression would break up too-big-too-fail institutions, cast a light on some of the darkest corners of the financial system, and offer new consumer protections.
"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," Obama told an audience Thursday at New York's Cooper Union college. "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."
Wall Street didn't take the president's lecture well: The major averages swooned, with the Dow Jones Industrial Average ($INDU) tumbling about 80 points at for a while. Now that Obama has put health care reform firmly in his administration's win column, the financial services industry knows this time around the president means business.
An End to Gaming the System
"In the end, our system only works -- our markets are only free -- when there are basic safeguards that prevent abuse, that check excess, that ensure that it is more profitable to play by the rules than to game the system," the president said. "And that is what these reforms are designed to achieve: no more, no less."
Obama pushed the Senate's proposed Restoring Financial Stability Act would change how the industry is regulated more dramatically than any time since the Great Depression -- and Wall Street couldn't have missed the meaning of the timing.
The Securities and Exchange Commission brought fraud charges against Goldman Sachs (GS) late last week. Then just days later, Wall Street's most powerful, illustrious (and illustrative) investment bank, said it earned more than a billion dollars a month in the first three months of 2010. Goldman CEO Lloyd Blankfein was among the who's who of finance in the president's audience at Cooper Union.
Perhaps making Obama's job that much easier, on Wednesday Goldman's chief rival Morgan Stanley (MS) likewise topped analysts' average estimate, booking a first-quarter profit of more than a billion dollars. (The whitest of white-shoe firms also ladled out $4 billion in employee compensation in the first quarter, the company said.)
On Wednesday, a Senate panel voted to limit the ability of Wall Street firm's to trade derivatives -- those complicated, almost incomprehensible securities created by Wall Street's best and brightest that were behind the near-collapse of the financial system. Now the pressure is even higher on the Senate to back up the president's stern call to action by passing the full overhaul now in front of it.
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