White House’s Stronger Regulation of Wall Street

Following the passage of the financial regulatory reform by the House of Representatives on June 30 this year, the Senate has recently approved the final version of the reform. This is the most stringent financial legislation in America’s history, and this has created the condition for a stronger regulation of Wall Street by the White House. The degree to which the White House will regulate Wall Street’s excessive speculation of so-called financial value conversion, as well as fraudulent actions, will be increased.

Wall Street has a financial culture with a long history, has gone through over a century of great changes and is continually deducing the conversion of financial value. Financial value conversion is gradually turning into an excessively speculative behavior, even to the point of fraud.

Wall Street’s excessive speculation of financial value conversion has caused financial products to either be cleverly broken down or tied up at will to continue coming up with newer financial products that are totally unrecognizable from their original forms. The lever effect of tangible and intangible financial assets has been infinitely magnified here.

Wall Street’s excessive speculation of financial value conversion has driven modern financial values, as well as investors, into a frenzy. Its greed and fraud has also been fully exposed to the world. Wall Street has gradually become the source of greed and fraud in the eyes of the people. As such, some people have even deemed that the real ‘perpetrator’ of the financial crisis was the greediness and trickery arising from the process of financial value conversion by Wall Street.

Even though a crisis has changed the fates of many investment companies and investors in Wall Street, it has not lost its ‘hegemony’ in the American, or even the international, financial sector. After the crisis had passed, the investment companies that survived once again stood up in Wall Street to deduce its future.

Even though the Wall Street financial markets could not shake off their nightmares coming true, Wall Street has been ‘resurrected’ once again through the American government’s intervention in the financial sector on an unprecedented scale after having gone through the gloom of 2008 and 2009. The ‘financial empire’ of yore can once again afford to be extravagant, and it is also capable of ‘challenging’ the White House now.

Relevant reports have indicated that in 2009, the earnings of the investment banking departments of the four major investment banks on Wall Street — Goldman Sachs, Merrill Lynch, Morgan Stanley and JP Morgan Chase — have exceeded $2.8 billion. Their loss during the same period in 2008 exceeded $6 billion (U.S). At the same time, the profits of Wall Street’s financial sectors exceeded pre-crisis levels. The speed of its recovery is unbelievable and beyond imagination. Wall Street’s financial sector’s profits are expected to improve further in 2010.

Wall Street was once a picture of disaster during the financial crisis, and it is too sad to look back upon it. The U.S. government had no choice but to bail it out with a huge amount of money. However, once Wall Street was out of the woods, taking off the then-life-saving ‘Troubled-Assets-Relief-Program’ hat, and untying itself from the many restrictions imposed on it by the U.S. government, it started to recover its financial value system and fully enjoy the long tradition of Wall Street’s upper class financial culture. How will the future of Wall Street unfold before the world? People are still watching for whether history will repeat itself on Wall Street. Who will be victorious in the struggle between the ‘post-crisis’ Wall Street and the White House?

Currently, the operations of some of the large financial organizations are continually improving, and their intention to release themselves from the many limitations imposed on them when they accepted the U.S. government’s aid is becoming clearer. Now, the biggest bank in America, Bank of America, is starting to raise huge funds through allotment of shares in preparation for repaying all $4.5 billion debt they owe to the U.S. government’s Troubled Assets Relief Program (TARP), while Wall Street financial giant Citigroup is also trying to repay TARP debts. Bank of America’s and Citigroup’s actions are deemed by the financial world to be doling out huge amounts of money to ‘redeem’ themselves and break away from the restraints brought about by the government’s aid, thus returning themselves to ‘freedom.’

How Should the Struggle Between Wall Street and the White House Be Interpreted?

At the same time, following the issuance of 2009 fourth quarter financial reports by various banks on Wall Street, the salaries of senior managers, traders, investment bankers, fund managers and other personnel of 38 financial institutions in 2009 inflated along with the improved situation. The total salaries paid out amounted to a record $14.5 billion, a 19 percent increase from 2008. When the news got out, it angered the American public as well as the White House. Americans were livid, and the Obama administration could not afford to sit around any longer. The Obama administration then stated that within the next 10 years, about 50 large-scale financial institutions have to pay about $9 billion in ‘responsibility fees’ to the Treasury as the price for their inglorious ‘roles’ in the financial crisis, hoping that this will appease the American public. At the same time, the Obama administration stated that it would limit the scale and operational scopes of Wall Street giants in order to suppress their wild and intractable ‘challenging behaviors.’

Not long ago, the American Stock Exchange Commission (SEC) accused Goldman Sachs and one of its vice presidents of defrauding investors, thereafter pressing charges against Goldman Sachs. The SEC recently fired another direct shot by launching an investigation into whether the eight major banks of Wall Street supplied misleading information to credit rating agencies to raise the credit ratings of securities related to certain home mortgage loans. Those investigated included the well-known Goldman Sachs, Morgan Stanley, the Swiss National Bank, Citibank, Credit Suisse, Deutsche Bank, the former Merrill Lynch and Credit Agricole. Suddenly, Wall Street once again became the target of public criticism. At the same time, does this mean that the White House has begun its audit on Wall Street during this post-crisis period?

There is currently no further answers as to how much the U.S. government will increase its regulation of Wall Street or whether it will loosen its restrictions on the financial industry. We do not know if the Wall Street financial industry can regain its freedom to the pre-crisis level, but it is clear that Wall Street is slowly regaining its vitality. Its greedy and fraudulent nature seems to have returned. Not only has it not been humbled by the onset of the financial crisis, it has even made its struggle with the White House more apparent.

The passing of the financial regulation reform by both the House and the Senate, as well as the White House’s investigations into the eight major banks and Goldman Sachs’ fraud case are not isolated incidents. The message released by the White House is obviously akin to a further audit on Wall Street. In actuality, the financial regulatory system reform that America mentioned repeatedly since the financial crisis is an attempt to audit Wall Street. The U.S. government is also using this to weaken Wall Street’s influence on the American financial system.

Wall Street and the White House remain the central forces that control the American financial and regulatory systems. The relationship between the two is tricky, and their power struggle pervades throughout the American financial and regulatory systems. Therefore, the Obama administration will have to face the challenge of having to prevent a repeat of the financial crisis on Wall Street and to protect the American government’s leadership position in the financial sector.

In addition, following the faster-than-expected recovery of Wall Street’s financial sector and the rapid increase in asset prices after the crisis, how can the balance of the movements of asset prices be established? Will the investment companies and the investors who have gone through the financial crisis have learned their lessons, and will they maintain rational investments? How should the struggle between Wall Street and the White House be interpreted? We shall wait and see.