Monday Obama admonished the financial industry and lawmakers to accept his proposals to reshape finanacial regulations to protect the nation from a repeat of the excesses that drove Lehman Brothers into bankruptcy and wreaked havoc on the global economy last year.
But with the markets slowly healing, Mr. Obama’s plan to revamp financial rules faces a diminishing political imperative. Disenchantment by many Americans with big government, along with growing obstacles from financial industry lobbyists pressing Congress not to do anything drastic, have also helped to stall his proposals.
Mr. Obama chastised Wall Street denizens in the audience at Federal Hall, at the foot of Wall Street. “Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them,” Mr. Obama said. “They do so not just at their own peril, but at our nation’s.”
The speech came on the first anniversary of the collapse of Lehman Brothers and implicitly recognized that time was an enemy of reform. Throughout history, most major laws to change the financial system arose from the cauldron of a crisis. Senior officials have acknowledged that as the financial system begins to mend, a kind of political inertia sets in as lawmakers have less of an incentive to act boldly , the New York Times reports.
He vowed “to do everything I can” to fight banking industry efforts to kill his proposal for a financial products safety agency and stuck by his call to make the Federal Reserve responsible for ensuring the stability of the overall system.
“I’m very optimistic about us getting a set of rules in place that prevent the kind of crisis that we’re seeing from happening again,” Obama said in a White House interview yesterday.
He opposed setting limits on pay to financial industry executives, even in the face of public outrage over some of the multimillion-dollar bonuses and salaries Wall Street companies are still handing out.
“Why is it that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or NFL football players?” he said, Bloomberg reports.
In the meantime, Lehman Brothers' bankruptcy a year ago was believe to mark the death of the investment bank and the superiority of deposit-taking commercial banks.
Big leveraged trading bets and thin capital cushions ultimately led Lehman to bankruptcy and Bear Stearns and Merrill Lynch into distressed sales, feeding the conventional wisdom that the era of dominance for big Wall Street banks had come to a close.
But the troubles of Citigroup and soon Bank of America showed that having a large deposit base didn't preclude big problems. And, conversely, the quick rebounds of Goldman Sachs, a former investment bank, and JPMorgan Chase, which has a big retail banking business, suggests a simple lesson to take away from the past year: Good managers and well-run companies are more important to a company's success than its business model alone.
In the days after Lehman's collapse, the advantage of having a large base of deposits -- the core of the commercial banking model -- became more apparent than ever. The biggest weakness that dragged down companies like Bear Stearns and Lehman is that they relied heavily on short-term funding, borrowing billions each night to fund their businesses.
Goldman and Morgan Stanley, the remaining two major, standalone Wall Street investment banks, were able to survive last fall by getting quick approval for bank holding company status from the Federal Reserve. This made them eligible for certain government aid programs, but also was a nod to the growing conventional wisdom that being a commercial bank was preferable to being an investment bank, the Street.com reports.