WASHINGTON – President Barack Obama will head to Wall Street today to try to breathe new life into efforts to overhaul the financial regulatory system, an undertaking he has said is essential to halting the abuses and failures that led to the current crisis.
While the health care debate has raged nationwide throughout the summer, financial reform virtually vanished from the public radar, even as an army of lobbyists worked on Capitol Hill to reshape the president’s agenda.
In New York, Obama will try to retake the initiative, capping other recent efforts in which top government officials have emphasized improvements in the economy and made the case anew for rewriting the nation’s financial rulebook. He will urge members of the financial community “to take responsibility, not only to support reforming the regulatory system but also to avoid a return to the practices on Wall Street that led us to the financial crisis,” an administration official said on Sunday.
Building up to that message, Treasury Secretary Timothy Geithner said recently that “greater urgency” is needed to push through regulatory reform, and insisted that “fundamental change is necessary.” National economic adviser Lawrence Summers said in an interview that “this crisis will leave a legacy of strengthened regulation.”
The toughest challenge to the administration’s agenda is likely to arise in the Senate, where few legislators seem obligated to follow the White House’s blueprint of reform, and where some of the president’s proposals could get steamrolled in coming months.
In June, Treasury unveiled an 85-page paper that laid out a vision of regulatory reform in painstaking detail. Key pieces include a new federal consumer agency to oversee financial products such as mortgages and credit cards, expanded authority for the Federal Reserve to monitor the economy for systemic risks, streamlining the system of banking regulation, and creating a mechanism that allows the government to take over and unwind large, failing financial institutions.
Since then, progress has slowed, and lawmakers have chipped away at details. A bill taking shape in the Senate Banking Committee is likely to cede less power to the Federal Reserve and could seek more consolidation of banking regulation agencies than the administration originally proposed. Of the five primary federal bank regulators, the White House plan calls only for eliminating the Office of Thrift Supervision.
Aware that any bold legislation can get bogged down and die a slow election-year death, Obama has been eager to push regulatory reform through Congress by year’s end, and the White House no doubt hopes that the president’s address today will serve as a catalyst.
That goal looks more realistic after the decision of Sen. Christopher Dodd, D-Conn., to remain in charge of the banking committee, rather than taking over as chairman of the Health, Education, Labor and Pensions Committee, previously chaired by Sen. Edward Kennedy, D-Mass. Having Dodd focused on financial reform, especially while he faces a tough election back home, could keep the legislation on track.
Rep. Barney Frank, D-Mass., the powerful chairman of the House Financial Services Committee who supports many of the administration’s regulatory reform proposals, already has helped pass legislation that would rein in certain executive compensation practices. He has vowed to push through a bill creating the new consumer agency as early as this month, followed by other elements of the president’s plan.
Business lobbyists have been working to bend the legislation their way – for example, fighting the proposed Consumer Financial Products Agency, warning that another layer of government regulation would increase costs, stifle innovation and curtail choices for consumers. Few have been more vocal than the U.S. Chamber of Commerce, which recently set up a Web site, www.stopthecfpa.com, and has undertaken an advertising campaign to oppose the agency.
Such relentless and well-funded opposition, with an assist from the contentious health care debate, was enough to slow the pace of some of the financial reforms working their way through Congress earlier this summer and to threaten to stall them indefinitely.
Obama is scheduled to speak at midday from Federal Hall, which sits at 26 Wall St., within blocks of the companies in which American taxpayers still own significant stakes.
Obama’s visit marks the one-year anniversary of the collapse of Lehman Brothers, which was followed by an extraordinary federal intervention to prop up some of the nation’s largest financial institutions and prevent a catastrophic economic collapse. First came the bailout of insurance giant American International Group, followed by federal programs to unfreeze credit markets, government-imposed takeovers and mergers, a $700 billion program to rescue ailing banks, bailouts of Detroit automakers and a colossal economic stimulus package.
At a press conference recently, a reporter asked the president about his approach to Wall Street. “We’ve got to pass financial regulatory reform,” Obama said. “And this is an example of where folks say, well, should the Obama administration be taking on too much? The fact of the matter is that if we don’t pass financial regulatory reform, then banks are going to go back to the same things that they were doing before.”