Obama Gives Tough Speech on Financial Regulation Reform

President Obama flew to New York on Thursday to deliver a tough stern address focused on financial regulation reform to an audience that included a large number of prominent financial executives, telling them that greater government oversight is in the best interest of the financial industry — and the country. “Unless your business model relies on bilking people, there’s little to fear from these new rules,” he said standing near the Wall Street epicenter and speaking to many financial executives who consider themselves to be “masters of the universe”.

In his statements, Obama, emphasizing the connection between Wall Street and ordinary citizens, recalled a speech he gave two years earlier at the same spot. “I believe in a strong financial sector that helps people to raise capital and get loans and invest their savings. That’s part of what has made America what it is,” the president said.

“But a free market was never meant to be a free license to take whatever you can get, however you can get it,” he said. “That’s what happened too often in the years leading up to this crisis. Some — and let me be clear, not all — on Wall Street forgot that behind every dollar traded or leveraged, there is a family looking to buy a house, pay for an education, open a business, save for retirement. What happens on Wall Street has real consequences across our country, across our economy.”

The real question for president Obama and members of Congress is just how tough a bill on financial regulation reform can be passed into law and yet not greatly offend financial executives who have for years been their most generous campaign contributors? For example, president Obama reportedly received over $900,000 from Goldman Sachs, which arguably is the most profitable Wall Street firm as well as being by Main Street Americans the most hated firm in America.

Certainly, the Wall Street firms have proven through their use of reckless excessive leverage and casino like trading patterns that they are not capable of policing their own trading activities. Wall Street brokerage firms and banks seem to have lost interest in making loans to individuals and small businesses when trading activities have been so profitable. In addition, the extremely generous compensation packages paid to top Wall Street executives based upon their firm’s performance makes casino like gambling difficult for the top guns to resist. Should their humongous bets pay off the executives pocket millions of dollars in performance bonuses.

Should their reckless management of money turn out to be disastrous, as it was in 2007 and 2008, the executives have come to expect that the American government, which means taxpayer, will bail them out. Not only that, but they have come to believe that even when their firms perform in disastrous fashion they are still entitled to multi-million dollar bonuses. There is no evidence of shame or contrition among the ranks of Wall Street executives.

American taxpayers really do hate the too large to fail banks and the Wall Street casino firms. President Obama and his political team realize that in view of the large amount of populist support for financial reform on Main Street it will be tough for the Republicans to oppose a financial reform bill as they opposed health care legislation. The political dynamics of health care and financial reform are completely different and in the president’s favor.

For one thing, people love their doctors and were very suspicious, in many cases hostile, of any changes in healthcare that might interfere with their existing doctor/patient relationship. However, when it comes to financial regulation reform voters are nearly unanimous in their hatred for Wall Street, the too big to fail banks, and the Wall Street executives who ripped off millions of dollars in bonuses as their firms lost billions in 2007 and 2008, and are now making billions for their firms and huge bonuses for themselves due to the nearly free money provided to them by the Federal Reserve Bank and U.S. Treasury.

Of course, ultimately this extremely low-cost source of funds was and is being provided to Wall Street by the American taxpayer. No wonder Wall Street is hated so much by the typical American. At a time when many Americans are still under a great deal of financial stress Wall Street executives are raking in multi-million-dollar bonuses.

The bottom line is this. President Obama has the opportunity to get through Congress meaningful financial reform regulation, including the regulation of the current wild wild West derivatives market. But will he and Congress have the courage and guts to in effect bite the hand that has for so many years been generously feeding them by passing and signing into law really tough financial reform regulation?

I sincerely hope that I am wrong but what I expect to occur is this. Democrats and at least a few Republicans will pitch in and pass tough sounding legislation. President Obama will make a big deal of signing the bill and of putting the legislation on the books. However, a close reading of the legislation will reveal that powerful financial lobbying groups have been effective in watering down the bill as it makes its way through Congress. President Obama and Congress will make a big deal of passing effective legislation, but Wall Street and the Masters of the Universe will once again prove the validity of the Golden rule.

As a brief reminder, the Golden rule states that he who has the gold makes the rules. The United States has become more of a third world like Kleptocracy rather than a Republic or Democracy and even with an enraged Main street demanding real change in how our government works those in positions of power will probably do little more than occasionally throw a few crumbs in the direction of Main Street.

President Obama may talk tough about financial reform legislation but will he carry and be willing to use a big stick? It’s tough for anyone to severely beat up on the hand that has been so generously feeding them and their buddies with campaign contributions. This is president Obama’s opportunity to ram through meaningful reform legislation. But will he hang tough throughout the process in what is sure to be massive pushback by the powerful financial industry lobbying groups and the long money laden octopus like arms of Goldman Sachs? We will soon find out.