Friday, 22 January 2010

Bank Reform: Obama plays the populist card, Dave follows!

No Drama Obama is not living up to his name. Yesterday's announcement on banking reform was as unexpected as it was brutal in its detail. Limits on further banking consolidation in a bid to limit 'Too Big To Fail'; limits on interaction with hedge funds which rely on market volatility to make big profits (or losses) and limits on proprietary trading (using the bank's own money to invest in high risk investments) when they should be building their capital base.

Sounding more than a little bit peeved (presumably at the size of the combined investment banking bonus pot) Obama labelled much of what the investment banks do as "reckless" and sent this message "work with us, not against us," continuing "If these folks want a fight, it's a fight I am ready to have."

The reaction from the financial markets was expected with banking stocks on both sides of the Atlantic being hit (although it was interesting to note that HSBC, which has always been far more conservative and was never heavily exposed to the mortgage CDO market, only took a minor knock on the London Exchange).

However, some perspective is necessary. Obama faces what is increasingly looking like a difficult set of mid-term elections in early November. There is unquestionably a political calculation here as Main Steet America remains furious with its banks. Over here the Tory party's quick reaction last night welcoming the Obama initiative was equally as populist, with one eye on the General Election, while the Labour Government remains leaden-footed and cautious.

It is a strange world when the Tory party is aligned with the Guardian (today's editorial "At last, action") and the Financial Times (today's editorial "A dangerous populist flirtation with Glass Steagall") is more closely aligned with the Labour Party.


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