Tensions between White House, Wall Street intensify after Obama takes office

19:32, January 20, 2010      

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Relations between Wall Street and the White House were frosty from the start of the Obama Administration and have deteriorated since then.

One year ago, when U.S. President Barack Obama took office, Wall Street was in the middle of the most severe crisis in a century. Big financial institutions were in trouble while credit markets were frozen and stock markets plunged to multi-year lows.

In February, President Barack Obama announced that executives of finance firms taking government bailouts would have their annual salaries limited to 500,000 dollars, a move aimed at protecting taxpayer interests.

Wall Street and the business community gave a lukewarm response to the pay cap, fearing it may lead to a talent exodus and delay recovery in the finance sector.

Later on, the American International Group (AIG), the largest U.S. insurer under water, became President Obama's another target in March after it revealed a 165-million-U.S. dollar bonus package to its executives.

"How do they justify this outrage to the taxpayers who are keeping the company afloat?" said Obama, asking the government to "pursue every legal avenue to block these bonuses and make the American taxpayers whole."

The tensions between the government and Wall Street got even tightened after the Obama Administration released its proposal in June to make the most sweeping changes in bank regulations in 75 years.

Under the proposal, much of which will be subject to approval by Congress, the government will make the Fed a systemic risk regulator to oversee large institutions whose failure could threaten the stability of the entire system. Hedge funds, derivatives and consumer mortgages will be all under the supervision of the government.

However, several large Wall Street firms were against these portions of legislation that would toughen financial-market regulations.

Bankers said they supported regulatory changes for the financial industry, but they disagreed with some provisions in the legislation. Those include a Senate proposal for a single bank regulator and measures that stripped the Federal Reserve of its authority to regulate banks.

Large banks, from J.P. Morgan Chase to Citigroup Inc., lobbied against parts of the measure. They said the bill would penalize them for being large, through tougher capital requirements and higher fees, and would give the government greater authority to either seize large companies or order them to decrease their size.

In the year of 2009, Obama repeatedly lashed out at Wall Street. Being angered by some banks' continued payment of high bonuses and their reluctance to lend, he called bankers "fat cats," in an escalation of tensions with the industry.

Just a week before the anniversary of his inauguration, Obama took an increasingly tougher line against Wall Street. He proposed Wall Street banks pay up to 117 billion dollars to reimburse taxpayers for the financial bailout.

Big financial firms consider the fee unfair because it will apply even to those companies that have already repaid the rescue funds they received as well as to firms that got no bailout money to start with.

But the White House argues that the industry as a whole benefited from the calm the rescue package brought to the markets.

The bank fee is "not to punish Wall Street firms but rather to prevent the abuse and excess that nearly caused the collapse of many of these firms and the financial system itself," said Obama.

Source: Xinhua
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