Barack Obama is urging Wall Street bankers to embrace reform, rather than fight it as the U.S. President mounts a final push to pass a sweeping financial overhaul.
Just days before an expected U.S. Senate vote on the 1,336-page financial reform bill, Mr. Obama took his message straight to the heart of Wall Street Thursday, chastising banks and their "battalions" of lobbyists for trying to thwart "common sense" rules to prevent abuses and excesses.
"I want to urge you to join us, instead of fighting us," Mr. Obama said in a speech at the Cooper Union, an architecture and engineering college, located barely kilometres from New York's bank towers.
As a presidential candidate, Mr. Obama decried Wall Street executives as "fat cats." Now as he makes his closing arguments for reform, Mr. Obama is still tapping into populist anger on Main Street arising from the 2008 market meltdown.
"A free market was never meant to be a free licence to take whatever you can get, however you can get it," he said in his speech. "Some on Wall Street forgot that behind every dollar traded or leveraged, there is family looking to buy a house, pay for an education, open a business, or save for retirement."
As Mr. Obama makes his case, the financial services industry is furiously trying to water down some of the bill's toughest provisions as the clock ticks down to an expected Senate vote next week.
Industry insiders say the White House is politicizing last week's Securities and Exchange Commission civil fraud case against iconic Wall Street bank Goldman Sachs to garner support for reform.
The Financial Times reported Wednesday that Goldman chief executive Lloyd Blankfein was busily calling clients and telling them the SEC charges are politically motivated and the government is out to destroy his bank.
Democrats and Republicans already agree on much of what's in the bill. But several elements remain in dispute, including new rules on derivatives that could force major banks out of the lucrative business, a $50-billion (U.S.) industry fund to cover the cost of future bailouts and the so-called Volcker rule, which would limit banks' ability to make risky trading and own hedge funds.
In his speech, Mr. Obama highlighted new rules that would force the vast majority of derivatives - financial instruments whose value is based on the price of an underlying asset - to be openly traded and tallied on futures exchanges, such as the Chicago Mercantile Exchange, or regulated clearing houses.
He made no mention of another provision, approved by a Senate committee this week, that would force major banks to spin off their swaps desks or lose access to deposit insurance and central bank funds. Nor did Deputy Treasury Secretary Neal Wolin, who delivered a speech in San Francisco Thursday, also pitching derivatives reform.
The industry and top Republicans warn that the derivatives crackdown will stifle financial innovation and put U.S. markets at a competitive disadvantage.
"It's going to be a lot easier and cheaper for companies that use these products to source them out of Singapore or London or somewhere else," said House Republican leader John Boehner said. "There has to be common sense reforms here that bring more transparency and accountability to the process, without pushing this business off our shores and killing jobs in America."
The trading of derivatives, particularly custom-made ones, is a multibillion-dollar business for many banks. But it's been under a cloud since the financial meltdown. Critics say the murky nature of derivatives exposed global financial markets to undue risk and secrecy. The threat by investors to trigger payment on thousands of credit default swaps helped drag down Lehman Brothers and American International Group in late 2008, plunging the world into crisis.
While Wall Street executives have complained bitterly about parts of the reform package, it hasn't affected stock prices. Financial stocks have continued to move higher.
"Reform is good economics as well as good politics," pointed out economist Ed Friedman of Moody's Economy.com. "The federal government simply does not have the financial capacity to save the banks on a routine basis as it did in 2008."
He added that reform should help prevent the "the kind of reckless lending that characterized the bubble years."