NEW YORK — Speaking Thursday in the shadow of Wall Street, President Barack Obama called on the finance industry to "join us instead of fighting us" as the Senate prepared to vote next week on legislation to overhaul financial regulation in hopes of avoiding more economic calamities like the one that’s gripped the world since 2008.
Obama took care not to demonize the financial industry in remarks at Cooper Union, a private college, and said that "unless your business model depends on bilking people, there is little to fear from these new rules."
Goldman Sachs CEO Lloyd Blankfein, whose firm was charged last week with fraud by the Securities and Exchange Commission, was in the room. So was New York Mayor Michael Bloomberg, who's voiced concerns that the regulations might hurt his city’s economy. The White House invited executives from major banks and finance firms as well as stock market officials and consumer advocates.
The president told them: "I am here because I believe that these reforms are, in the end, not only in the best interest of our country, but in the best interest of the financial sector."
He read a passage from a 1933 edition of Time magazine that described a backlash against a new layer of regulation. "The system that caused so much consternation, so much concern, was the Federal Deposit Insurance Corporation, also known as the FDIC, an institution that has successfully secured the deposits of generations of Americans," Obama said.
The president broadly outlined the elements he considers essential to financial overhaul, but he didn’t endorse specific approaches to resolving sticking points that divide Democrats and Republicans or the Senate versus the House of Representatives.
Obama described five elements he sees as necessary:
- Protecting the economy from a large firm's failure.
He criticized as “cynical politics” Republican attempts to paint the legislation as providing for more taxpayer-financed bailouts. On the contrary, he said, “a vote for reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth.”
One equity firm president in the audience, Edward J. Minskoff, said he thought the legislation would hurt the country by imposing too much government intervention and delivering a financial hit to Manhattan. He also said that politicians who'd pushed subprime loans bore some responsibility for the crisis, too.
“I don’t care about politics, I care about the survival of our country,” Minskoff said. He accused politicians of “a reflex reaction” and said that most members of Congress “have never run a company of any size.”
Alan Shinbaum, who works in the apparel industry and serves as the treasurer of the local Democratic Party committee in his Connecticut town, said he didn’t have a good feel for how the proposed regulations might hurt New York.
“I’m willing to go along with it to see if it works,” Shinbaum said. “Look what we’ve gone through. Something’s got to change.”
In Washington, Republicans vowed to cooperate on the financial legislation but said they still weren't convinced that the bill wouldn’t lead to more taxpayer bailouts.Senate Republican leader Mitch McConnell of Kentucky noted that Obama’s vows against bailouts are a test of his credibility.
“The president has said he didn’t come into office so he could take over companies, but whether or not that’s the case, Americans can’t help but notice that some people did better than others. When it came to bailing out the car companies, the unions fared a lot better than anybody else,” McConnell said.
Key Republicans said they were close to a deal on the legislation. “We’re making more progress. I’m more optimistic than I’ve ever been,” said Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee.
Until last week, Republican leaders had threatened to filibuster the Senate legislation, citing concerns about possible future bailouts, government takeover of private industry and job losses. They changed their tone this week after heavy publicity about the SEC charging Goldman and as polls find Americans supporting more regulation.
The House of Representatives passed its version of financial regulation in December.
The Senate will try to begin formal debate on the financial regulation bill Monday, but it probably will need 60 votes to do so. Democrats control 59 seats. Treasury Secretary Timothy Geithner and Lawrence Summers, the director of the National Economic Council, have been holding private meetings all week with Republican senators.
Democrats got some good news Thursday from the nonpartisan Congressional Budget Office, which found that the Senate bill would reduce federal budgets deficits by $6.6 billion through 2015 and by $21 billion over a decade.
While the precise details are in flux, leaders expect the final legislation to include:
- Creation of a consumer finance protection division, either independent or as part of the Federal Reserve or another government agency.
Mark Zandi, the chief economist for Moody’s Economy.com, said Obama’s speech was “well-balanced” and that, in Congress, “financial reform appears to be a done deal.”
Zandi supports the legislation’s goals of giving regulators broader and more clearly defined resolution authority for failing institutions, putting derivatives trades on transparent exchanges, establishing a consumer finance protection agency and giving shareholders a bigger say in compensation at financial institutions.
However, Zandi is concerned that the president is overstepping in supporting the so-called Volcker rule to limit the size of banks and what risks they can take. “Lopping off parts of financial institutions will prove impractical and ultimately not make the financial system safer,” Zandi said.
Lightman reported from Washington. Kevin G. Hall contributed to this story from Washington.
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