Obama urges Senate action on controversial finance reforms
US President Barack Obama on Saturday urged senators to grant the Federal Reserve a dramatic expansion of its regulatory powers and to establish a new consumer protection committee to help safeguard Americans from Wall Street’s excesses.
“These reforms are essential,” Obama said in his weekly radio address.
“As I’ve urged over the past year, we need common-sense rules that will allow our markets to function fairly and freely while reining in the worst practices of the financial industry.”
On Monday, the Senate banking committee will debate a proposal by Democratic Senator Christopher Dodd that is designed to halt what he sees as abuse and excess by financial firms.
Dodd’s bill would empower the Federal Reserve to conduct oversight across the financial sector, putting insurance companies and even smaller lenders under their sway.
Federal Reserve Chairman Ben Bernanke has disclosed in public that with the bank’s expanded framework, it assumes the coming elimination of “minimum reserve requirements” for banking institutions.
Unhinging banks from even basic deposit standards would essentially create a class above the daily requirements of capitalism, resting atop a pool of funds with infinite depth, removing the need for what’s currently known as “fractional reserve banking.”
Such a system is described by Investopedia as such: “A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties. Most countries operate under this type of system.”
Only a few other nations have removed their reserve requirements, including Mexico, Canada, Australia and the United Kingdom.
The bill also proposes greater scrutiny of large financial firms; oversight over the sales of complicated financial products such as derivatives; and measures to prevent banks from engaging in risky dealings through their own hedge funds.
Additionally, it would give shareholders inside companies a say in determining executive salaries and bonuses.
And the bill proposes to set up a new Consumer Financial Protection Agency to prevent predatory loan practices and other abuses.
The House of Representatives has already passed a similar reform proposal. A key difference is that Dodd’s reform bill excludes a popular House measure promoted by Rep. Ron Paul (R-TX), which would command the Government Accountability Office to audit the Federal Reserve. A majority of Paul’s peers backed the proposal, but it is currently idle in the Senate.
“I urge those in the Senate who support these reforms to remain strong, to resist the pressure from those who would preserve the status quo, to stand up for their constituents and our country,” Obama said in his address.
“And I promise to use every tool at my disposal to see these reforms enacted: to ensure that the bill I sign into law reflects not the special interests of Wall Street, but the best interests of the American people.”
Dodd’s plan to expand the Fed’s powers has been heavily criticized by financial journalists for the bank’s failure to prevent prior crises, such as the 2008 financial collapse.
“[The] Federal Reserve had regulators in place inside of Lehman Brothers following the collapse of Bear Stearns,” Forbes writer John Carney noted, mocking Dodd’s plan as “incredibly stupid.”
“These in-house regulators did not realize that Lehman’s management was rebuking market demands for reduced risk and covering up its rebuke with accounting sleight-of-hand. When Lehman actually came looking for a bailout, officials were reportedly surprised at how bad things were at the firm. A similar situation unfolded at Merrill Lynch. The regulators proved inadequate to the task.”
This video was published to the Internet by the White House on March 20, 2010.