President Barack Obama challenged the financial industry yesterday to join rather than fight the effort to overhaul market regulations as he sought to close the deal for enactment of his proposals.
Speaking to an audience in New York that included Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc., which is being sued by federal regulators over alleged fraud linked to derivatives, Obama said the industry will benefit under stronger oversight, and so will the nation.
“Ultimately, there is no dividing line between Main Street and Wall Street,” Obama said in his speech at Cooper Union, about two miles from the financial district. “We will rise or we will fall together as one nation.”
Obama gave the address as Senate negotiators sought to agree on a compromise that would get legislation encompassing the president’s objectives through Congress.
The effort has been helped by the administration’s ramped-up lobbying campaign and last week’s announcement by the Securities and Exchange Commission that it is suing Goldman Sachs, alleging the firm misled investors in a collateralized debt obligation. The company is contesting the SEC’s claims.
While Obama criticized the “reckless risk-taking” that led to the worst financial crisis since the Great Depression and the “battalions of financial industry lobbyists” trying to influence the pending legislation, he sought to enlist support from those he wants to regulate.
“I urge you to join me not only because it is in the interest of your industry, but also because it’s in the interest of your country,” he said.
Financial industry executives interviewed after the speech generally approved of Obama’s address and its tone.
Robert Nichols, president of the Financial Services Forum, an industry group based in Washington, said Obama’s “rhetoric was a lot more conciliatory” than in the past remarks. Part of the reason, he said, may be that movement has occurred toward a compromise in Congress.
“We’re getting closer to agreement,” he told Bloomberg Television after the speech. “So elevated rhetoric really doesn’t do any good in terms of getting there.”
Charlie Cook, publisher of the independent Cook Political Report in Washington, said Obama’s tone reflects the administration’s attempt to get the legislation signed into law before second anniversary in September of the Lehman Brothers Holdings Inc.’s collapse in the biggest bankruptcy filing in history. That also would have it finished before the November congressional elections.
“The White House desperately needs a bill,” Cook said. “And hostile rhetoric makes it more difficult to get something to go through.”
Robert Diamond, president of Barclays Plc, said the administration, Congress and the banking industry are “working very closely, and very constructively” on the legislation Obama is seeking. “Strong banks want strong regulation,” he said in a Bloomberg Television interview outside Cooper Union.
Whatever emerges from the negotiations in Congress, Peter Solomon, founder of investment bank Peter J. Solomon Co. and a former vice chairman of Lehman Brothers, said the financial industry will adapt.
“Wall Street is smarter than any regulation or laws, and they’ll figure out how to make profits and they’ll figure out how to adjust,” he said after the speech. He called the regulatory legislation “a very constructive bill.”
Other executives and officials who attended the speech included former Federal Reserve Chairman Paul Volcker, who is an Obama adviser; Gary Cohn, president of Goldman Sachs; Barry Zubrow, chief risk officer for JPMorgan Chase & Co.; and Tom Nides, executive vice president and chief operating officer of Morgan Stanley, according to the White House. The audience also included labor leaders, local officials and students and faculty of Cooper Union.
Republicans kept up criticism of the Democratic-sponsored legislation. House Republican leader John Boehner of Ohio said the bill will “provide permanent bailouts for Wall Street.’”
In his remarks, Obama sought to rebut such criticism. He said it wasn’t legitimate “to suggest that somehow the legislation being proposed is going to encourage future taxpayer bailouts, as some have claimed. That makes for a good sound bite, but it’s not factually accurate.”
Scott Reed, a Republican strategist, said Obama’s speech “did nothing to move the needle” in getting the legislation passed. That work is being done by Democratic Senator Christopher Dodd of Connecticut, chairman of the banking committee, and Alabama Senator Richard Shelby, the panel’s ranking chairman, he said.
“Dodd and Shelby are driving this,” Reed said.
The legislation, which may come to the Senate floor as early as next week, would set up a new regulator within the Federal Reserve to guard consumers against abuse and deception in such instruments as mortgages, credit cards or loans. It would also create the mechanism to dismantle systemically important financial firms when they fail, and strengthen oversight of derivatives and hedge funds.
The House has already passed its version of the regulatory legislation, and the House and Senate would have to merge their bills.