Striking a fighting populist stance in a bid to reverse his sagging political fortunes, President Obama yesterday portrayed himself as the champion of Main Street while unleashing an all-out war on Wall Street.
Obama laid blame for the financial crisis squarely at the feet of the banks, railed against their “excess and abuse,” and laid out far-reaching new regulations on them that instantly drew sour reactions from Mayor Bloomberg and others concerned about the vitality of the financial industry.
Speaking in sometimes fiery language two days after Republican Scott Brown’s Senate win in Massachusetts altered the political landscape, Obama said he had welcomed input from the financial sector.
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“But what we’ve seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people,” he said hotly.
“If these folks want a fight, it’s a fight I’m ready to have,” Obama said. “And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform.
“We’ve come through a terrible crisis. The American people have paid a very high price,” he said. “We simply cannot return to business as usual.
“That’s why we’re going to ensure that Wall Street pays back the American people for the bailout,” said Obama, who approved much of the bailout. “That’s why we’re going to rein in the excess and abuse that nearly brought down our financial system. That’s why we’re going to pass these reforms into law.”
The proposed reforms would give the federal government the power to limit the size and activities of large financial institutions. The new rules, which need congressional approval, would force banks to get rid of their proprietary trading desks — meaning they cannot trade in financial markets for their own profit.
So-called prop desks are often among the most profitable areas at large banks like Citigroup and JPMorgan Chase — and investment banks like Goldman Sachs and Morgan Stanley would have to change radically or stop being banks.
Obama’s plan drew harsh criticism from the markets, which tanked yesterday, and bank stocks fell so hard that the federal government itself lost $1.5 billion on the shares of Citigroup it owns.
“My recollection is that the big banks that got in trouble, most of them — Bear Stearns, Lehman, Merrill — those weren’t commercial banks. Those were the investment banks,” Bloomberg said. “So I don’t know why that would really solve the problem.”
And Bloomberg did not spare Congress.
“I just find it sort of ironic that congressmen, senators who make more than double what the average person working in finance makes,” he said.
“They’re the rich ones, and they’re talking about trying to restrict bonuses and taxing the industries that are our lifeblood.”
Sen. Kirsten Gillibrand (D-NY) issued a statement supporting Obama’s plan, saying, “If we hope to avert the type of catastrophic meltdown we witnessed last year, we must contain the levels of risk and activities the big banks undertake.”
Sen. Charles Schumer (D-NY), Wall Street’s protector in the past, had no comment.
The Dow Jones industrial average tumbled 210 points after dropping 122 on Wednesday.
Ralph Fogel, investment strategist at Fogel Neale Partners in New York, said of Obama’s proposals: “This is going to have a tremendous impact on big-name brokerage firms. If they stop prop trading, it will not only dry up liquidity in the market, but it will change the whole structure of Wall Street.” With Post Wires