US President Barack Obama returned to Manhattan's Cooper Union college on yesterday, two years after a campaign speech that laid out his vision for Wall Street, to castigate a financial industry that he said has too often forgotten the ordinary Americans who have suffered from its reckless irresponsibility.
The speech comes at a pivotal moment in Senate negotiations over a sweeping measure to re-regulate the financial industry. After trading barbed accusations, senators from both parties now say they are near a deal that would preserve the framework of Mr Obama’s plan.
By appearing just two miles from Wall Street, Mr Obama hopes to raise the political pressure and seal the deal.
“A free market was never meant to be a free license to take whatever you can get, however you can get it,” Mr Obama said.
“That’s what happened too often in the years leading up to this crisis. Some — and let me be clear, not all — but some on Wall Street forgot that behind every dollar traded or leveraged there’s family looking to buy a house, or pay for an education, open a business, save for retirement. What happens on Wall Street has real consequences across the country, across our economy.”
As he has done several times in the year-long debate, the president implored industry executives to call back the lobbyists engaged in “furious efforts” to thwart or water down his legislation.
“I’m sure that some of these lobbyists work for you and they’re doing what they are being paid to do,” he said.
“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. I’m here because I believe that these reforms are, in the end, not only in the best interest of our country, but in the best interest of the financial sector.”
For the first time recently, Mr Obama didn’t threaten to veto the bill if it didn’t come up to his standards, a marked change in tone. He made that threat during his State of the Union address and again as recently as a few days ago. That suggests the White House feels the long process of securing the overhaul is close to completion.
Although differences remain about how to regulate Wall Street, the populist rhetoric that infected the debate has cooled. Senate Banking Committee Chairman Christopher Dodd has been locked in negotiations with Senator Richard Shelby over a potential compromise, which some believe could come within days.
In his speech, Mr Obama dodged discussing elements of the bill that may change, including the power of state regulators over national banks and certain provisions designed to beef up the powers of company shareholders that Republicans strongly oppose.
He also acknowledged that certain companies could be exempt from legislation that would redraw the market for derivatives. Some companies, such as agricultural concerns and airlines, use derivatives to hedge their exposure to constantly changing prices of commodities like oil.
Investors, however, trade them as pure speculative bets, something the administration wants to restrict. By making that distinction clear, the president could win over support from senators worried about the breadth of the planned restrictions.
“The only people who ought to fear the kind of oversight and transparency that we’re proposing are those whose conduct will fail this scrutiny,” Mr Obama said.
The crowd at the Great Hall of Cooper Union, filled with students and supporters, was receptive. Much of the front three rows were reserved for Wall Street executives whose responses were considerably more subdued. Their hands remained in their laps when the president spoke of his bank fee to recover the remaining bailout funds and his plea to call off the industry lobbyists seeking to shape the bills.
JPMorgan Chase CEO Jamie Dimon, a long-time Democratic supporter who has grown frustrated with Washington, wasn’t in attendance. The bank’s chief risk officer Barry Zubrow was there instead. Goldman Sachs’s two top executives, Lloyd Blankfein and Gary Cohn were present.
The firm was charged last week with fraud by the Securities and Exchange Commission for its role in selling mortgage-related investments. Other big financial firms represented included Barclays, Morgan Stanley and Credit Suisse.
The legislation would grant the federal government the power to seize teetering financial giants and dismantle them the same way the Federal Deposit Insurance Corporation now can seize failing banks.
It would create a new financial consumer regulator, would boost the strength and budget of the Securities and Exchange Commission and would impose new transparency rules on the trading of derivatives, the complex financial instruments that helped bankrupt Lehman Brothers and nearly wipe out American International Group and Merrill Lynch.
Mr Obama is treating his return to Cooper Union as something of a triumphal homecoming, with a touch of “I told you so” in the speech. Two years ago, he called on Congress to give the Federal Reserve more supervisory power over the biggest financial institutions and to demand tougher new capital and liquidity requirements.
Pending legislation largely follows that demand. Congress appears ready to meet his request, now two years old, for a new financial consumer regulator. His calls for stronger, international accounting standards and financial stability requirements have been taken up by the Group of 20 nations, although talks are proceeding haltingly.
His 2008 suggestion of streamlining the hodgepodge of “overlapping and competing regulatory agencies” has been abandoned. But he is dwelling more on the warnings he issued in that first Cooper Union address.
“I take no satisfaction in noting that my comments have largely been borne out by the events that followed,” he said. “But I repeat what I said then because it is essential that we learn the lessons from this crisis, so we don’t doom ourselves to repeat it. And make no mistake: That is exactly what will happen if we allow this moment to pass and that’s an outcome that is unacceptable to me and it’s unacceptable to you, the American people.”
“One of the most significant contributors to this recession was a financial crisis as dire as any we’ve known in generations,” Mr Obama said in the highly anticipated speech at Cooper.
He told the crowd that America must learn from the mistakes of the economic crises and enact legislation to help prevent it from happening again.
Mr Obama’s push for financial reform has intensified in recent weeks and he has lashed out at Republicans for meeting with Wall Street lobbyists. In his speech said legislative proposals in Congress would help restructure the rules that allowed Wall Street to take risky bets that Americans ended up paying for.
He said he wouldn’t accept compromises that would weaken the bill, particularly in the area of derivatives, complex financial instruments that played a role in the economic crisis.
He also said that financial reforms must set limits on the size of risks that banks can take, and include provisions that would make it easier for a failing institution to unwind before taxpayers would be affected.
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