For the first time in this long first year of Obama’s term in office, the President actually spoke with some fire and proposed something meaningful – the reform of financial institutions. In the past, whether the fiscal stimulus package or health care, the President just tossed the idea out there to Congress and let them hack it to death as only our Congress can do. Obviously, the election in Massachusetts delivered a message that he received.
His basic proposal is to separate risk taking trading activity from normal deposit and loan making operations. In theory, the risk trading would stand on its own. For many of the giant firms this would necessity a break up and sale of the parts. Boo hoo. Wall Street wants things to stay just as they are. While they have been quick to shoot down any ideas for change to prevent a repeated meltdown, they have offered no alternative solutions. Maybe the Administration finally has had enough. Yes, this is politically motivated. But, this could still achieve the reform that is desperately needed. I’ve written often in the past few months how worrisome it is that nothing fundamental has changed. Maybe this is a first step. I just hope it’s not too late.
One thing we do know is that the proposal must have some substance to it, because Wall Street’s financial stocks got hit hard on the proposal and the talking heads on CNBC were all wailing and gnashing of teeth. That’s the first positive sign. The second very big positive sign is that standing beside Obama was not Treasury Secretary Geithner or Bernanke, but Paul Volker – the forgotten man. Volker has been shoved aside from the beginning in favor of Geithner and others like the questionable Larry Summers. But the plan Obama rolled out was basically all Paul Volker. Hurray! I just hope this isn’t phony production staged for political purposes only. I don’t think so because the President did throw the gauntlet down on this one. It would be hard to backtrack on this one.
Of course the President will have to work hard to overcome the gigantic obstacle in front of him called Congress. Even in his own party his proposal will encounter great opposition. Why? Money. Wall Street’s lobbyists have been lavishing money on both sides of the aisle. If we start seeing Congress purposely drag its heels and water down any proposal, all of this will be for naught. But, this is a very encouraging first step.