For much of last year, Paul Volcker wandered the country arguing for tougher restraints on big banks while the Obama administration pursued a more moderate regulatory agenda driven by Treasury Secretary Timothy F. Geithner.IMHO, Much of Obama's problem with health care legislation is due to lingering bad odor from the Paulson/Geithner "bailout" and "stimulus" packages. Having a confessed tax cheat as Secretary of the Treasury undermines confidence in the US Government as well as the Obama Administration.
Thursday morning at the White House, it seemed as if the two men had swapped places. A beaming Volcker stood at Obama's right as the president endorsed his proposal and branded it the "Volcker Rule." Geithner stood farther away, compelled to accommodate a stance he once considered less effective than his own.
The moment was the product of Volcker's persistence and a desire by the White House to impose sharper checks on the financial industry than Geithner had been advocating, according to some government sources and political analysts. It was Obama's most visible break yet from the reform philosophy that Geithner and his allies had been promoting earlier.
Senior administration officials say there is now broad consensus within the White House and the Treasury for the plan advanced by Volcker, who leads an outside economic advisory group for the president. At its heart, Volcker's plan restricts banks from making speculative investments that do not benefit their customers. He has argued that such speculative activity played a key role in the financial crisis. The administration also wants to limit the ability of the largest banks to use borrowed money to fund expansion plans.
The proposals, which require congressional approval, are the most explicit restrictions the administration has tried to impose on the banking industry. It will help to have Volcker, a legendary former Federal Reserve chairman who garners respect on both sides of the aisle, on Obama's side as the White House makes a final push for a financial reform bill on Capitol Hill, a senior official noted.
Plus, in the American mind, big banks are like big insurance companies. Americans don't trust them, and so clearly can't trust legislation that puts them at the center of anything--much less mandates buying their services. Obama should be able to pass health care legislation, IMHO, but only after he cleans up the banking mess to the satisfaction of the electorate--and changes the legislation in order to favor the needs of the mass of American citizens over those of insurance companies or special-interest groups (such as Nebraskans, abortion advocates, or unions).
