President Barack Obama’s sudden decision to finally get tough on banks and their constant abuse of consumers and the public trusts signals an end to the financial industry friendly tactics of Treasury Secretary Tim Geithner and a return to the more regulation options pushed by Paul Volcker.
It could also mean Geithner is headed for the exits.
For some, Geithner can not leave the Obama administration soon enough. Critics have long regarded him as too cozy with the financial industry he was supposed to regulate. Others saw him as one of the architects of the financial crisis that helped spur the greatest recession since the great depression.
The banking industry, which got everything it wanted from Geithner, disagrees.
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.
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.
Advocates of Volcker’s ideas were delighted. “This is a complete change of policy that was announced today. It’s a fundamental shift,” said Simon Johnson, a professor at MIT’s Sloan School of Management. “This is coming from the political side. There are classic signs of major policy changes under pressure . . . but in a new and much more sensible direction.”
Industry officials, however, said they were startled and disheartened that Geithner was overruled, in part because they supported the more moderate approach Geithner proposed last year.