Schism between White House and Wall Street

Barack Obama, like Néstor Kirchner, needs to regain popularity and sustain domestic consumption. The preparation of a draft amendment to the financial law will be very important.

So, financial reform should be interesting. But the bankers in the U.S. have shown anger towards those who helped rescue them. We will have to see how they react in Argentina, especially since Nestor either directly or indirectly controls several top banks.

On Thursday, April 22nd at noon, President Barack Obama made a private speech at Cooper Union College in downtown Manhattan to explain the White House plan to reform financial markets, which is in the final stage in Congress, and give a last push for approval.

The U.S. president stressed that the reform will help prevent having to use public funds to save private banks.

Barack Obama has attacked banks and promoted financial reform, but with the exception of Goldman Sachs CEO Lloyd Blankfein, most CEOs of large banks in the country missed the event, showing a split between Wall Street and the White House.

“A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth. End of story,” said Obama, a few meters from Wall Street.

Obama has not used a populist tone, but rather a didactic one. He reiterated his confidence “in the power of free market,” but warned that for it to function properly there must be clear rules, strict enough to avoid “a free license for everyone to do whatever they want.”

Obama also warned: “We also need to reform Washington … We have seen battalions of lobbyists on Capitol Hill, as companies spend millions to influence the outcome of this debate. We have seen misleading arguments and attacks designed not to improve the law, but weaken or kill … I think we can and must put aside this kind of cynical politics.”

In his speech, which lasted about half an hour, he argued that it is crucial to adopt a major reform of financial markets to prevent a further collapse which will destabilize the rest of the economy, causing serious consequences for the population such as the growth of unemployment, evictions and the disappearance of savings.

“It is essential that we learn the lessons of this crisis, so that they’re not repeated. And do not be mistaken, this is exactly what will happen if we let this opportunity pass,” he said.

“Without it, our house will continue sinking in quicksand, leaving our families, businesses, and the global economy vulnerable to future crises.”

Obama then explained the main structure of the White House plan to reform the financial markets.

Part of the plan is the creation of a fund from a special tax on big banks. This fund will assist in the event of a bank failure, thus avoiding the need for taxpayers to finance the rescue.

“The goal is that taxpayers do not get caught because a company is ‘too big to fail,’” he said.

There will also be a strict regulation of the derivatives market, which Republicans rejected, thus preventing a bipartisan consensus.

Among the proposals is the creation of a consumer protection agency in the financial sector to prevent any further deception and abuse in mortgage lending.

This legislation gives more power to shareholders in determining executive bonuses on Wall Street (astronomical wages have led executives to focus on the next quarter at the expense of next year, or next decade, according to Obama).