He says a few things here that are worth noting:
At 0:53 President Obama says:
"This economic crisis began as a financial crisis when banks and financial institutions took huge and reckless risks in pursuit of quick profit and massive bonuses."
This statement is confusing for a number of reasons.
First, the banks took risks knowing they could lose. The people who took these risks are not stupid and were trained to understand the risk they were undertaking. The risk, of course, was in pursuit of quick profits. That is great. When I invest with a company, you can bet I am hoping they are doing things to turn a profit or I am out of there.
Second, President Obama knows a lot about risk. He often brags about how he took a risk after leaving Harvard Law School to do a non-traditional job (community organizing). Yet this risk is fine for him because he took it, but investors should not be allowed to decide the level of risk they are comfortable with. The banks that made the risky investments were funded by shareholders and others who were supposed to know the risks. For President Obama to say that those individual investors, no matter their wealth, should not bet permitted to take a risk he himself is not comfortable with is dangerous and flies in the face of the freedom that he is supposed to protect.
Next clip at 1:28
"To avoid this calamity, the American people... were forced to rescue financial firms facing crises largely of their own creation."
This is where President Obama really misses the point. The people were not forced to rescue the financial firms by the financial firms. We were forced to rescue these firms by Presidents Bush and Obama. They enacted the laws that took our money (actually borrowed China's money) to give to these megaconglomerates so they would not collapse.
Here, President Obama is blaming the financial firms for a decision his administration and the administration before his made. If Goldman Sachs was going under and needed help, they could certainly ask for my help but there is 0% chance I would give it to them without something in return (like stock, or bond). The federal government, on the other hand, forced every one of us to borrow money from China (that our children or children's children) will have to repay in order to give that money to Goldman Sachs and other firms. With all due respect to President Obama, trying to blame the megabanks for your policy decisions is frankly untrue.
At 3:14 he says:
"Never again will the American taxpayer be held hostage by a bank that is too big to fail."
Again, no bank is too big to fail. If it was too big to fail, it wouldn't fail and the bank would still be succeeding. No such bank has ever, or will ever exist. A bank is too big for President Obama and his economic team to feel comfortable letting it declare bankruptcy. This sounds bad on the surface as we are letting one man and his team decide which banks should get which benefits but is even worse considering that this has been an insider politics game for quite some time as outlined in this article.
About how he will prevent future crises:
He proposed two reforms:
1. Banks will no longer be allowed to own, invest in, or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit, unrelated to serving their customers.
Apparently President Obama thinks the banks are doing well enough in the stock market that they can take this hit now. If a bank wants to do any o those things for their "own profit", which is really shareholder profit, they should have the right to. Who is President Obama to tell these firms how to best run their company? He is already trying to change the entire health industry but apparently wants to also bring his desired level of control to the financial sector.
President Obama needs to understand that the markets will work this out. If a firm is taking too many risky bets people won't bet on them (unless they do because there is no longer a fear of losses because his administration has bailed them out). People and firms are value maximizing, not value-minimizing. Let these firms go and people will invest and de-invest based on their desired level of risk, not through Presidential fiat.
2. Prevent further consolidation of our financial system.
He did not go into many details into this so it is tough to know exactly what he means. I will wait to discuss this until the outline is a little more clear.
There are few more things to discuss here but I will have to wait as this article is already getting a little long.
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