WASHINGTON -- Barack Obama is about to learn the price of picking on Wall Street.
The U.S. President's love-hate relationship with Wall Street is on full display this week as he tapped executives for big political donations while simultaneously shaming them for thwarting his planned financial-system overhaul.
Mr. Obama was in New York City last night for a lavish $30,400 (U.S.) per couple political fundraiser - cash the Democratic Party needs to keep its hold on Congress in next year's midterm elections.
The event comes at an awkward time for the White House, which has been trying to stir up public outrage over bad behaviour on Wall Street and kick-start stalled efforts to reform financial regulation in the wake of the financial crisis.
"Alienating Wall Street in that context is risky business," agreed Lawrence Mitchell, a George Washington University law professor and author of Speculation Economy: How Finance Triumphed Over Industry.
"Obama needs that money."
The Obama administration has adopted an increasingly confrontational tone against Wall Street in the face of fierce lobbying to water down key parts of a sweeping regulatory overhaul.
Among other things, the financial industry wants to shackle a proposed new consumer regulator, limit the government's ability to shut down systemically important financial institutions and block stricter rules for derivatives trading.
The momentum for reform has stalled in recent months amid evidence that the economy is slowly recovering and the credit crisis is easing. That allowed the various industry players to attack key parts of the Obama administration's reforms.
"I don't see a populist uprising," Prof. Mitchell remarked. "As the market comes back, people forget about it. Obama's lost the momentum on meaningful long-term reform."
The major banks, who just months ago relied on a massive government bailout, are now racking up big profits and paying out multimillion-dollar bonuses again.
The White House is hoping that new evidence of brazen behaviour on Wall Street will rekindle public and Congressional outrage.
Last week, the U.S. Justice Department and the Securities and Exchange Commission filed charges and arrested six people in an alleged web of insider trading involving some of the biggest names in the investment business, including billionaire hedge fund manager Raj Rajaratnam, co-founder of the Galleon Group.
Some hedge fund managers worry the case will help smooth passage in Congress of stricter rules for hedge funds, subjecting them to oversight by a new systemic regulator.
Jacob Frenkel, a former federal prosecutor and SEC enforcement lawyer, acknowledged the insider trading case makes Wall Street look bad.
But Mr. Frenkel said he doubts the timing of the charges was aimed at pushing the reforms along. More likely, the Obama administration wants to show that it's a tough cop on securities following the market meltdown and the SEC's failure to uncover the Bernard Madoff Ponzi scheme, he said. "It creates a deterrent effect," argued Mr. Frenkel, now a lawyer at Shulman Rogers in Potomac, Md.
White House officials have also tried to shame bankers for pocketing big bonuses at Goldman Sachs, JPMorgan Chase and Bank of America.
"The bonuses are offensive," Obama adviser David Axelrod complained over the weekend as he urged banks to stop resisting reform and ramp up their lending.
"They ought to think through what they are doing, and they ought to understand that a year ago a lot of these institutions were teetering on the brink, and the United States government and taxpayers came to their defence."
Democratic leaders in the House of Representatives want a complete reform bill passed before the end of the year. The package would then have to be reconciled with a similar effort in the Senate.
© 2007 The Globe and Mail. All rights reserved.
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