For about 10 solid minutes during the State of the Union last night, President Obama was speaking directly to the financial services industry.
His message was this: No one is jealous of you and we’re not going back to the way things were, so get used to seeing more of the federal government.
The video is below if you want to watch it, either way we’ll break down the key points for you here:
- In Obama’s preamble to the point, he says that banks need to “repay a debt of trust” and that the middle class will only prosper if the “same rules from top to bottom” are applied to everyone. That’s when he starts talking about regulation in general (around the 4:00 mark).
- Of course, there can be no regulation talk without the mention of Wall Street, and here’s when the industry needs to start paying attention (4:20): “I will not go back to the days when Wall Street was allowed to play by its own set of rules. The new rules we passed restore what should be any financial system’s core purpose: Getting funding to entrepreneurs with the best ideas, and getting loans to responsible families who want to buy a home, start a business, or send a kid to college.”
In short, expect a tough fight from the White House on anything that smacks of moving away from regulation. And expect Obama to position himself as the man protecting America from the financial services industry. The President went on to chastise the pay-day lenders and non-bank financial institutions that have gotten so much flack from Richard Cordray and the new CFPB.
The President started talking about specifics. Regarding regulation he mentioned new limits on banks’ use of customer deposits and a new requirement for banks to write living wills. But things really got interesting when Obama started talking enforcement action (6:08):
We will also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people’s investments. Some financial firms violate major anti-fraud laws because there’s no real penalty for being a repeat offender. That’s bad for consumers, and it’s bad for the vast majority of bankers and financial service professionals who do the right thing. So pass legislation that makes the penalties for fraud count.
Huffington Post reported that New York Attorney General Eric Scheiderman (who has been active in pursuing litigation against mortgage fraud dating back to the financial crises) will be tapped for a leadership position in this new unit.
The last points the President makes related to Wall Street are on debt and taxes. Bottom line: His words are a clear strategy to take ownership of those reforms away from Republicans. Obama says cutting down the deficit means “making a choice.” The choice, to him, means eliminating what were supposed to be temporary Bush tax cuts in order to pay down the deficit and fund education, defence, research etc.
Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary.
Obama has used that, ‘quarter of millionaires’ line before, and according to The Washington Post’s Fact-Checker blog: “The Congressional Research Service found that among millionaires, the average tax rate is almost 30 per cent. But some 94,500 millionaires — one quarter — do have a tax rate that is lower than 10.4 million moderate-income tax payers.”
You can probably feel it coming … this is the point in the speech where Obama rolls out the Buffett Rule:
If you make more than $1 million a year, you should not pay less than 30 per cent in taxes. And my Republican friend Tom Coburn is right: Washington should stop subsidizing millionaires. In fact, if you’re earning a million dollars a year, you shouldn’t get special tax subsidies or deductions.
Obama goes on to say that this isn’t class warfare, it’s common sense. He ends his sit-down with Wall Street with this message — It isn’t that America is jealous of what you’ve earned, it’s that you didn’t do it alone and we’re not in this country alone:
We don’t begrudge financial success in this country. We admire it. When Americans talk about folks like me paying my fair share of taxes, it’s not because they envy the rich. It’s because they understand that when I get tax breaks I don’t need and the country can’t afford, it either adds to the deficit, or somebody else has to make up the difference – like a senior on a fixed income; or a student trying to get through school; or a family trying to make ends meet. That’s not right. Americans know it’s not right. They know that this generation’s success is only possible because past generations felt a responsibility to each other, and to their country’s future, and they know our way of life will only endure if we feel that same sense of shared responsibility. That’s how we’ll reduce our deficit. That’s an America built to last.
Check out the video here: