Obama Aims to Sell Financial Overhaul in N.Y. Speech - NYTimes.com
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April 21, 2010
Obama Looks to Close Sale on Financial Reform
By JACKIE CALMES
WASHINGTON — Just over three years ago, early in his uphill campaign for president, Senator Barack Obama
wrote to the Federal Reserve chairman and the Treasury secretary calling for a summit conference to address
signs of trouble in the housing and financial markets.
While Mr. Obama could not have known how bad things would get, then as now he saw a muscular role for
government in enforcing regulations in the public’s interest, while weighing them against the industry’s
interests so both would benefit.
It is an approach that he is likely to outline again on Thursday, as the president speaks near Wall Street in a bid
to make the closing argument for the regulatory overhaul now before the Senate.
“Throughout our history there have been times where the financial sector swung way out of balance,” Mr.
Obama said on Wednesday in an interview with CNBC and The New York Times, citing the period that led to
the Depression as the primary example.
“We have gotten into one of those places where we need to update those rules of the road,” he said. “And if we
do so, not only is that good for the economy, not only does it protect consumers and investors, it’s also good for
the financial sector, because it will rebuild trust.”
Well before the financial system nearly collapsed in September 2008, Mr. Obama, more than any other
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Obama Aims to Sell Financial Overhaul in N.Y. Speech - NYTimes.com
presidential candidate, was warning about holes in the regulatory fabric and crises on the horizon. Even for
him, however, banking regulation was hardly the high-priority issue it would become once he reached the
White House.
Besides the March 2007 letter to the Fed chairman, Ben S. Bernanke, and Henry M. Paulson Jr., Treasury
secretary in the Bush administration, Mr. Obama as a candidate gave speeches calling for tougher regulations,
one at the Nasdaq stock exchange in September 2007 and another in March 2008 at the Cooper Union in New
York City — where he will return for his speech Thursday.
Advisers say Mr. Obama’s early attention to the financial system’s problems stemmed from discussions with
wealthy investors on the fund-raising circuit and with community activists on the campaign trail who fretted
about perceived abuses with subprime mortgages and looming foreclosures. In both the Illinois Legislature
and in the United States Senate, Mr. Obama had sponsored bills against predatory lending and mortgage
fraud.
But as a presidential candidate, many early donors and academics had his ear on financial issues. Among them
were the investors Mark T. Gallogly, Joshua Steiner, Warren E. Buffett and Lee Sachs; Mr. Steiner and Mr.
Sachs were veterans of the Clinton administration’s Treasury and Mr. Sachs later would join Mr. Obama’s
Treasury.
Other advisers included Daniel K. Tarullo, whom Mr. Obama has since named a governor at the Federal
Reserve; at that independent agency, Mr. Tarullo no longer can advise Mr. Obama. And coordinating Mr.
Obama’s economic team was Austan Goolsbee, the University of Chicago professor who is now a member of
the president’s Council of Economic Advisers. Mr. Goolsbee brought one of his mentors, Paul A. Volcker, the
former Fed chairman, into the Obama campaign councils. Also on the team was Mr. Obama’s friend Penny
Pritzker, the Chicago business executive who was his national finance chairwoman for the 2008 campaign.
Except for Mr. Tarullo, such figures still influence Mr. Obama as president. But he mostly is guided by his inhouse administration team, led by Treasury Secretary Timothy F. Geithner.
Mr. Obama chose Mr. Geithner, who had been president of the Federal Reserve Bank of New York, despite Mr.
Geithner’s cautions to Mr. Obama that he should choose someone unconnected with the regulatory lapses that
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Obama Aims to Sell Financial Overhaul in N.Y. Speech - NYTimes.com
led to the chaos.
Another top adviser, Lawrence H. Summers, the director of the White House National Economic Council,
similarly has been a magnet for blame from the political left and right. He was Treasury secretary at the end of
the Clinton administration, and worked with Congress to deregulate the banking industry.
By 2009, however, Mr. Summers and Mr. Geithner were pushing for stronger regulation — especially of the
unregulated nonbank institutions and complex derivative investments that had sprung up — in line with the
principles Mr. Obama had outlined in the campaign.
Mr. Geithner took the lead, turning to Patrick M. Parkinson, a longtime Fed economist he knew, to write the
administration’s bill. (Last October, Mr. Bernanke named Mr. Parkinson the Fed’s top banking regulator.)
Mr. Geithner successfully argued for sending Congress a more detailed draft than the White House had sent on
overhauling health care, to put its stamp more fully on the product. But he and Rahm Emanuel, the White
House chief of staff, were unsuccessful in pushing regulatory legislation ahead of the health care bill; they were
concerned that with time and an improved economy, opponents in the industry and among antiregulation
Republicans would become emboldened. That is what ultimately happened, officials say. But, they argue, delay
was probably inevitable.
Several Democratic leaders in Congress considered the health issue a higher priority, and Mr. Geithner, in the
administration’s early months, was consumed with stabilizing the financial industry before trying to fix it.
The bill now before the Senate, like one the House passed late last year, hews closely to the principles that Mr.
Obama outlined more than two years ago at the Cooper Union — a fact he will underscore in his return
appearance there on Thursday.
Those principles called for regulating any institution with access to government funds, as well as products like
derivatives, regardless of what entity offered them; requiring banks to hold more capital as a cushion against
crises; streamlining the number of regulatory agencies to make them more accountable; and creating a new
council to monitor systemic risks.
For all the emphasis on government regulation, Mr. Obama on Thursday will affirm his belief in free markets
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Obama Aims to Sell Financial Overhaul in N.Y. Speech - NYTimes.com
— the point he made in 2007 and 2008.
But, as he said in his first appearance at the Cooper Union, “Under Republican and Democratic
administrations, we failed to guard against practices that all too often rewarded financial manipulation instead
of productivity and sound business practices.”
John Harwood contributed reporting.
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