Considering President Obama’s propensity for continuous machine gun-like rapid fire communication, it is important to sort out which administration missives demand attention and which can be safely ignored. I take my cue from the number of politico’s lined up behind the podium.
Based on this metric, Thursday’s briefing deserved our attention. This was a 10-bagger. Ten – count them – ten administration and congressional luminaries lined up like so many potted plants serve as backdrop to the presidential announcement. There you have Paul Volcker, Bill Donaldson, Joe Biden, Chris Dodd, Barney Frank, Christine Rohmer, Peter Orszag, Larry Summers, Tim Geithner and somebody else I don’t recognize. The occasion was President Obama’s announcement of the latest refinement to the administration “Financial Reform” initiative:
“It’s for these reasons that I’m proposing a simple and common-sense reform, which we’re calling the “Volcker Rule” — after this tall guy behind me. Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.”
He cautioned financial industry lobbyists to not fight his “common sense reforms … “ continuing “if these folks want a fight, it’s a fight I’m ready to have.“ The remarks came one week after he announced “we want our money back, and we’re going to get it. And that’s why I’m proposing a Financial Crisis Responsibility Fee to be imposed on major financial firms…” and one day before hitting the road for an Ohio Townhall where he promised to “never stop fighting to protect you from the kind of deceptive practices we’ve seen from some in the financial sector”. Clearly, the predicted presidential populist pivot against the banks is well underway.
Coincidentally (or not), all this bank bashing takes place in the context of a surprising rejection from the Massachusetts electorate, and equally breathtaking Democratic party retreat on the health care reform bill.
Wall Street reacted badly, falling in anticipation of the President’s speech, sliding further while he was speaking, and continuing to drop after he finished. This was possibly the worst Wall Street reaction to an administration initiative since Tim Geithner announced the plan to save Wall Street almost one year ago. Then, Tim Geithner was standing next to Obama as financial reform was introduced and later when the details were fleshed out over the summer. There is less certainty where he and Larry Summers stand now. At least in their role as potted plants, they appear to have moved closer to the exit than the president.
Whether financial reform is more politics than policy, or optics over substance, or whether it goes the way of health care reform, will be dependent on Congress and the bills being shaped in Chris Dodd’s Senate and Barney Frank’s House committees. It cannot be encouraging to reform proponents that Barney Frank went directly from his role as stage prop to an interview on CNBC where he soft pedaled the reforms announced minutes before.
Wall Street professionals were understandably confused:
I have not seen Rick Santelli quite this exercised since he inadvertently inspired the Tea Party movement last spring.
Let’s wrap this up with a quick Financial Reform Bill status check: The President is on the stump, giving speeches, sitting for interviews, and conducting town-halls in a media blitz supporting this major reform initiative. He campaigned on this reform and his administration has promoted several iterations of the bill since taking office. In the meantime, Democrats in the House and Senate are crafting reform bills that are inconsistent (if not incompatible) with each other and with the President’s promises.
No one knows what version, if any, will pass.
I think I have seen this movie before.
cross posted from Divided We Stand United We Fall