President Obama knows that most Americans have no idea how their local bank transforms thousands of monthly mortgage payments into arcane credit default swaps with AIG. But the president recognizes that the banks' financial engineering nearly brought on another Great Depression when the house of cards that their structured financial products created collapsed in 2008. And the president is committed to making sure that the American consumer will never again be put at the mercy of the bankers.
As he said in his State of the Union address on Wednesday night:
"We need to make sure consumers and middle-class families have the information they need to make financial decisions. We can't allow financial institutions, including those that take your deposits, to take risks that threaten the whole economy.
"Now, one place to start is serious financial reform. Look, I'm not interested in punishing banks. I'm interested in protecting our economy. A strong, healthy financial market makes it possible for businesses to access credit and create new jobs. It channels the savings of families into investments that raise incomes. But that can only happen if we guard against the same recklessness that nearly brought down our entire economy.
"Now, the House has already passed financial reform with many of these changes. And -- and the lobbyists are trying to kill it. Well, we cannot let them win this fight. And if the bill that ends up on my desk does not meet the test of real reform, I will send it back until we get it right. We've got to get it right."
Obama proposed a financial reform last June that is designed to protect the American consumer against practices in the mortgage and credit card sectors that helped create the financial crisis. Last October, the House Financial Services Committee took a step towards fulfilling the president's goal when it passed the Consumer Financial Protection Agency Act (CFPA).
But, the president cannot count on an easy win with the CFPA.
Speaking in an online forum immediately following the president's address, American Enterprise Institute fellow and member of the Financial Crisis Inquiry Commission Peter Wallison predicted that Obama will issue his first veto over the consumer protection measure. Although the House bill creates an independent consumer agency, Wallison said that "there is no chance in the world" the Senate will agree on the same provisions for the CFPA.
In light of this basic disagreement, Wallison noted that "the president said that if the financial reform bill reaches his desk and it does not have real reform, that he will send it back," adding, "This is the first time that the president said that he might veto a bill that doesn't have what he has proposed."
Senate Banking Committee Chairman Christopher Dodd of Connecticut, who has announced that he is not seeking reelection, seems to validate Wallison's views. Dodd has indicated lukewarm support for an independent CFPA.
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