Barack Obama travelled to Wall Street's home turf today to deliver a rallying call urging banks to put "cynical politics" aside by working with the White House on a broad package of regulatory overhaul that is finally gaining momentum in Congress.
In a full-throated assault on intransigent attitudes in the financial services industry, Obama accused banks of contributing to the global economic meltdown by trading complex derivatives "in ways that defied accountability or even common sense".
During a speech in New York to an audience of 700, including top names from the financial services industry, Obama said he was fed up with Americans being "duped" by predatory behaviour from financial institutions and accused banks of losing touch with broader society. "Some on Wall Street forgot that behind every dollar traded or leveraged is a family looking to buy a house, pay for an education, open a business or save for retirement," he said. "What happens here has real consequences across our country."
Expressing frustration at financial "innovation" that led to the invention of ever more esoteric derivatives, Obama said dealing must take place on open markets, in the light of day: "Many practices were so opaque and complex that few within these companies – let alone those charged with oversight – were fully aware of the massive wagers being made."
Combining combative language with calls for co-operation, the president described Wall Street reform as an essential part of a foundation for recovery: "Without it, our house will continue to sit on shifting sands, leaving our families, businesses and the global economy vulnerable to future crises."
His reforms include a fee on banks to recoup the cost of the government's $700bn (£455bn) bailout programme, the creation of a "consumer financial protection" agency intended to stop predatory lending and the enactment of the "Volcker rule" that would ban banks from operating hedge funds or indulging in speculative trading with their own capital.
Republicans have branded the package as "flawed" and have alighted on a proposed $50bn resolution fund intended to meet the cost of winding down any future failed banks as a backdoor "bailout" provision. Senate minority leader Mitch McConnell last week said the measure "not only allows for taxpayer-funded bailouts of Wall Street banks, it institutionalises them".
JP Morgan's chief executive, Jamie Dimon, last week bemoaned Obama's proposed fee on banks as a "punitive tax" and banks argue that the type of trading prohibited by the Volcker rule did not cause the credit crunch. The financial industry has unleashed a massive lobbying effort in Washington vigorously contesting the White House's measures.However, there have been signs of movement in Congress, with talks resuming on bipartisan co-operation. The Democrats only need support from one Republican senator to stop delaying tactics and, in a potential breakthrough, a moderate Republican, Chuck Grassley, lent his support in a legislative committee to rules forcing derivatives to be traded on a transparent market.
Last week's prosecution of Goldman Sachs provided a fresh reminder to the public of Wall Street misbehaviour and has given fresh impetus to reform. Obama has denied that the securities and exchange commission's action against Goldman was timed for politically gain, saying he only found out about the lawsuit when it was reported on television.
His speech, at Cooper Union in downtown Manhattan, was billed as a set-piece attempt to rally support for what the White House views as the most urgent topic on its legislative agenda, following the successful passage of healthcare reform. Critics, including many in the union movement, want the administration to take a tougher line on multimillion-dollar pay. Obama and his treasury secretary, Timothy Geithner, have refused to set any caps on remuneration but do favour British-style "say on pay" votes at annual meetings.In his address, Obama was careful to frame criticism of compensation as an attack on rewards for failure in the run-up to the credit crunch, rather than an assault on ongoing payouts: "Americans don't begrudge anybody for success when that success is earned. But when we read in the past about enormous executive bonuses at firms even as they were relying on assistance from taxpayers, it offended our fundamental values."