The White House vs. Wall Street: The War of the Century

Forget about Iraq, forget about Afghanistan and forget about Iran. The most relevant war President Barack Obama is waging is against Wall Street, if one regards this street of New York as the embodiment of the financial markets.

On Saturday, Obama used his weekly TV and radio address to make a war communiqué. First, he held the failures in the financial industry accountable for a crisis he thinks could have been avoided. That did not happen because ”special interests have waged a relentless campaign to thwart even basic, common-sense rules — rules to prevent abuse and protect consumers,” he explained.

It sounds like an allusion to the most recent scandal involving Goldman Sachs, accused of causing losses of around $1 billion to consumers of a type of opaque investment called Abacus 2007-ACI.

He is not alone in this war. Prime-Minister Gordon Brown has just joined him asking U.K. financial authorities to investigate Goldman Sachs as well, accusing the firm of “moral bankruptcy.”

But Goldman Sachs is not the only one they have their eyes on. “The banks are still an issue. They are a risk to the economy,” said Brown.

Obama agrees, to the point of saying that without the approval of the Wall Street reform plan by Congress, a plan intended to change ” … what led to the crisis, we’ll doom ourselves to repeat it.”

The president made it a point to show the costs of the crisis: ” … 8 million jobs lost, trillions in savings erased … “

On the other side of the trench, Monday’s Financial Times quotes the analysis from the Centre for Economic Performance at the London School of Economics, according to which bankers and top end executives of the financial services industry had ” … unprecedented income growth over the past decade with the highest paid receiving nearly a third of the UK’s total wage bill … “

According to the article, “The study reveals that the self-styled ‘masters of the universe’ were the big winners in the pay stakes under Labour, with the top 10 per cent of workers seeing their share of wages rise from 27 per cent to 30 per cent between 1998 and 2008.*”

This bunch took home an extra £12 billion [about $18.4 billion] per year by the end of the decade, according to the study, an unparalleled amount of money by any country’s standards.

It is natural that the “masters of the universe,” or as I prefer to call them, privateers, would rise against Obama’s reform, the main points of which aren’t revolutionary at all.

It is about enacting a strong consumer financial protection, about bringing transparency to financial deals, about closing the loopholes that allowed for the “recklessness and irresponsibility” of the financial system, about “holding Wall Street accountable” and giving shareholders new powers in the financial system.

Obama denounces the privateers’ “special interests” that weakened the chances of imposing common-sense rules. Just the other day, in fact, according to the president, they called the leader of the Senate Republicans and the chair of the Republican Senate campaign committee ” … to talk about how to block progress on this issue.”

This is, in fact, a war that is of interest to the whole world.

*EDITOR’S NOTE: British spellings (“labour” and “per cent”) intentionally retained in quote.