Obama Versus the Banks
Jan 24, 2010
Posted by Jody Eisenman | Filed under Uncategorized
I do not envy the President. One year into office, Obama is facing a double digit unemployment rate and a rising tide of dissatisfaction among much of his traditional support. Meanwhile, housing prices have barely recovered off their steep drop. Foreclosures remain high, and many homes that have been repossessed by the banks remain unsold, as banks are unwilling to dump them on an already fragile market. Although Obamas’ dramatic spending has apparently rescued the banks and Wall Street, it has not had a tangible effect on much else. If the government continues its’ massive spending, there are fears of inflation. On the other hand, there is no real tangible plan afoot to create new jobs. Instead, there is a lot of pent up frustration by unemployed and underemployed people against the “fat cats” of Wall Street, who are supposedly making fortunes. http://online.wsj.com/article/SB20001424052748704281204575003351773983136.html
As such, Obama has now proposed a banking regulation overhaul. These proposals will seek to limit risk, which greatly contributed to the financial meltdown we experienced. Along with this proposal, Senators McCain and Cantwell have proposed restoring the Glass-Steagall Act. This act, which instituted separation of banks and investment companies (as well as creating the FDIC in 1933), was repealed in 1999. This repeal directly led to the creation of financial “supermarkets” like JP Morgan Chase and Bank of America. Former Federal Reserve head Paul Volcker has come out in favor of the McCain/Cantwell bill. In addition to the banking overhaul, Obama has proposed a fee to be imposed on any bank with more than $50 billion in assets in order to recoup all the lost TARP money, which is believed to be in the area of $120 billion. The administration believes that the tax, if passed, will recoup all the money in a dozen years.
Berkshire Hathaway head Warren Buffet, who was holdings in Goldman Sachs and Wells Fargo, is, not surprisingly, opposed to this tax.“Look at the damage Fannie and Freddie caused, and they were run by the Congress,” Buffett said. “Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”
As a result of this uncertainty, the stock market retreated this week. The Dow fell 436 points this week, with most of it coming the last two days. Not surprisingly, the banks led the decline, with JP Morgan and Morgan Stanley losing more than 8 per cent. This coming week should be very interesting.
