Is Obama Going to Break Wall Street?

by James & Miel on April 5, 2009 · 0 comments

Hi All,

There has been some interesting dynamics in Washington the past couple of weeks. If you’re keeping an eye on the financial news, you probably know that President Obama met with the heads of many of the major banks last week. By all accounts, the meeting was NOT cordial. The politco speculates that it was a power play to show who is boss (1).

Now, I am bad a political speculation, but since its marginally related to finance, I’ll take a stab at making some predictions. When the dust from this big economic mess is settled, the big banking houses will come out of this with much reduced clout. Why? The Politco was probably correct. I think Obama will move to break the power of big finance in Washington.

A) The banking industry typically funds both Democrats and Republicans, but generally gives more to Republicans. Click over to to see what I mean.

B) Most senior bankers will oppose his budget and social policies. By weakening their power, Obama increases his chances of implementing his long term agenda. Think about it – who is going to get nailed by the new tax brackets in the presidents 2010 budget? One things for sure, its not joe main street. Instead, Wall Street executives are probably going to fight it tooth and nail via their proxies in congress. Its HARD to get a new, even moderately fresh agenda passed in DC, and Obama has the stated goal of getting single payer health care enacted and making the US more environmentally friendly. Not easy.

C) Right now, the administration is stronger than the banks. Power changes hands fast in Washington, but currently public opinion is running against big finance – heck, even big finance is against big finance at the moment. So, the public and the business community will probably support tougher regulations on lobbying, regulation and more federal oversight.

An additional thought, if Obama does decide to break Citi, Bank of America, JP Morgan, etc., the administration will have to use political force. So if I am correct, I’d look for comprehensive legislation to come out of DC along with spending caps on executive salaries, some anti-trust components, etc.

So what does this mean for your personal finance? Well, probably not a lot, but it does suggest that big finance is going to be out of favor for the next couple of years. It could have an unexpected ripple effect, though, where companies that deal with big finance are hit hard. You might consider factoring this into a buying or selling decision if you’re dealing in stocks of some of the major financial giants. Otherwise, just sit back and enjoy the fireworks.



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