President Barack Obama scolded Wall Street on Thursday for its “furious efforts” to fight tighter regulation, saying the United States was doomed to another financial crisis if reforms were not implemented
In a speech in New York attended by several Wall Street executives, Obama blamed the financial meltdown and the recession that followed on a “failure of responsibility” by both Washington and Wall Street.
His speech tapped into public fury at big banks and pushed a Democratic regulatory reform bill that is gaining traction in the U.S. Senate after months of voluble opposition by the Republican minority.
“A free market was never meant to be a free license to take whatever you can get, however you can get it,” Obama said. “One of the most significant contributors to this recession was a financial crisis as dire as any we’ve known in generations,” he added.
He said the legislation would significantly improve the current flawed regulatory structure, “despite the furious efforts of industry lobbyists” to try to weaken it.
Obama, who has in the past referred to Wall Street executives as “fat cats,” said some of the huge pay packages in the industry encouraged “perverse incentives to take reckless risks,” although he added that he does not begrudge anyone success “when that success is earned.”
The audience, many of them students and professors, applauded loudly at some of Obama’s tougher rhetoric.
He spoke at the historic Great Hall at Cooper Union college in Manhattan, the venue for several notable addresses. Abraham Lincoln once argued there against the expansion of slavery in a speech that helped his 1860 presidential victory.
Cooper Union was also the site of a speech Obama gave on financial reform during the 2008 presidential election campaign. Democrats hope cracking down on Wall Street will help them win voter support at congressional elections in November.
One of Obama’s aims in the speech was to put pressure on Republicans to support reform legislation amid signs several in the opposition party may be willing to back the bill.
The legislation got a boost from fraud charges brought against Wall Street powerhouse Goldman Sachs last week and Treasury Secretary Timothy Geithner said he was “absolutely confident” that the reforms will happen.
“If you just listen to the tone of the last couple of days, it’s changed. I spent a huge amount of time with Republicans over the last few weeks … and I think they really want to be for this,” he said in an interview on CBS’s “The Early Show.”
Wall Street is becoming increasingly resigned to Congress approving financial reform, which would hand Obama another win after his healthcare overhaul was passed in March.
“He wants to keep the momentum going. He wants to essentially carry the ball over the goal line and get the political win. I think this is now about politics, not about economics,” Matt McCormick, portfolio manager at Bahl and Gaynor said on Thursday’s speech.
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Obama addressed an audience of about 700 people, including financial industry leaders, members of the President’s Economic Recovery Advisory Board, local officials and Cooper Union students and faculty.
Goldman Sachs Chief Executive Lloyd Blankfein attended the speech along with Gary Cohn, the bank’s president and chief operating officer.
The White House has signaled increasing optimism about getting the regulations approved and is targeting moderate Republican senators, including Scott Brown of Massachusetts and Susan Collins and Olympia Snowe of Maine.
Democrats hold a 59-41 vote majority over Republicans in the Senate — one vote short of the number needed to overcome procedural hurdles to the bill’s passage.
Several Republicans have taken aim in particular at the proposed mechanism for winding down failing financial institutions, saying it would lead to perpetual bailouts of Wall Street. The White House says that is not true.
House of Representatives Republican leader John Boehner, in an opinion piece in Investors Business Daily, labeled the measure a “job-killing initiative” and said it “would provide the nation’s largest financial firms with permanent bailouts.”
He said Obama “talks a big game when it comes to Wall Street” but was promoting steps that “benefit the likes of Goldman Sachs.”
Obama said such claims “make for a good sound bite” but are inaccurate. He said that bill in fact would put a stop to taxpayer funded bailouts.
The financial reform bill authored by Senate Banking Committee Chairman Christopher Dodd would bring new oversight to hedge funds and derivatives while cracking down on risky bank trading and putting in place protections for consumers of financial products. It might be voted in the Senate next week.
It would also establish a system for unwinding troubled financial companies to prevent a repeat of catastrophes such as the collapse of Lehman Brothers in 2008 and the near-failure of insurance giant AIG.
Among elements deemed by Obama to be essential in the reforms was the “Volcker Rule,” which would ban banks from engaging in proprietary trading, or trading for their own account. It is named after former Federal Reserve Chairman Paul Volcker, an outside adviser to Obama who attended the speech.
(Additional reporting by Steve Eder, Ross Colvin, Matt Spetalnick and Tabassum Zakaria, Editing by David Storey)