Obama Makes Case About Capitalism's Drift

ANALYSIS

(April 22) -- It was a policy speech promoting the congressional overhaul of rules that govern banks and finance. It was a political speech arguing for Democrats' economic credentials ahead of midterm elections this fall.

But even more, President Barack Obama today made a case that the current financial crisis was caused by an American capitalism that has drifted away from the legitimate aim of mutually helping investors and businesses toward a system that allows a Wall Street elite to grow excessively rich at the expense of most Americans.

"A free market was never meant to be a free license to take whatever you can get, however you can get it," Obama said. "Some on Wall Street forgot that behind every dollar traded or leveraged, there's a family looking to buy a house, or pay for an education, or open a business, save for retirement. What happens on Wall Street has real consequences across the country, across our economy."

Obama's short trip to New York has been the focus of Washington all week. But the much-anticipated address on financial regulatory reform at Cooper Union, just a few blocks from Wall Street, was one of relatively low stakes for the president himself.

In recent days Republicans have softened their opposition to the finance bill on its way to the Senate floor following the financial crisis-related charges filed Friday against Goldman Sachs by the Securities and Exchange Commission. There also had to be worries that come November they could be branded the party of Wall Street.

One Republican, Sen. Charles Grassley of Iowa, even joined Democrats on Wednesday in voting for a measure that would restrict how firms trade and sell derivatives, the complex financial products open to abuse in ways that magnified the 2008 market meltdown.

And Richard Shelby, ranking Republican on the Senate Banking Committee, has expressed optimism that he can soon reach a compromise with Chairman Christopher Dodd on the sweeping overhaul of finance rules and oversight even though they have failed to find common ground for more than six months.

Obama and fellow Democrats, still riding a crest of political capital set in motion by the victory on health care, may also be positioned to benefit politically from an improving U.S. economy, another key theme in his speech.

But the president's main economic point was that "the fastest turnaround in [economic] growth in nearly three decades," as he put it, isn't good enough.

"Until this progress is felt not just on Wall Street but on Main Street, we can't be satisfied. Until the millions of our neighbors who are looking for work can find a job, and wages are growing at a meaningful pace, we may be able to claim a technical recovery but we will not have truly recovered," Obama told the economists and banking executives gathered for the speech.

Goldman Chief Executive Lloyd Blankfein was among the 700 people in the audience. Union leaders and consumer advocates also were there.

If there was a message for the finance industry in Obama's discourse, which held much less detail on the subject than previous speeches, it was this disconnect between Wall Street and Main Street and the notion that their interests had diverged.

The Senate bill and a similar measure passed by the House in December are aimed at preventing the need for future taxpayer bailouts and bringing transparency to the shadowy corners of the financial world to help regulators and investors keep better track of individual and systemwide risks, as Obama explained.

To do so, the bills would restrict some of the standard Wall Street practices that produce headline-grabbing profits and lucrative executive paychecks and bonuses that industry critics slam as vastly out of proportion with what most Americans take home. It's no secret, as Obama repeats whenever he discusses the subject, that finance-industry lobbyists are out in force on Capitol Hill to fight or at least shape the resulting bills.

Yet Obama argued that the changes are in the financial sector's best interest, as well as the country's.

Without action, he said, "we'll continue to see what amounts to highly leveraged, loosely monitored gambling in our financial system, putting taxpayers and the economy in jeopardy. And the only people who ought to fear the kind of oversight and transparency that we're proposing are those whose conduct will fail this scrutiny."

While he also blamed the financial crisis on "decisions made around kitchen tables across America, by folks taking on mortgages and credit cards and auto loans" they couldn't afford, Obama urged the bankers to join reform efforts or face the wrath of economically suffering Americans.

"When we read in the past and sometimes in the present about enormous executive bonuses at firms -- even as they're relying on assistance from taxpayers or they're taking huge risks that threaten the system as a whole or their company is doing badly -- it offends our fundamental values," he said.

The White House has treated Wall Street as one of its principal domestic antagonists since the end of last year. Today, the president traveled to the industry's own backyard to drive home the point that many of his fellow Americans are on his side.