Financial Watch

President Obama’s speech on Wall Street last week signals that a year after one of the worst financial panics in U.S. history, financial reform is on its way. Though reform will not prevent all future crises, it will make them less frequent and less likely to pose the same lethal threat to the economy.

That reform is necessary almost goes without saying. The financial system issued trillions of dollars in bad loans over the last decade – loans unlikely to be repaid under even the best of circumstances – creating the fodder for the subsequent financial panic and Great Recession. Its legal merits aside, the recent Securities and Exchange Commission suit against Goldman Sachs Group Inc. brings into sharp relief all that we feared about the financial system: that it has become opaque, conflicted, and dysfunctional.

Financial shares dragged the stock market lower Friday as investors worried that the government’s mortgage-related fraud charges against Goldman Sachs & Co. could mean intensified scrutiny for the industry.

The Securities and Exchange Commission accused the Wall Street powerhouse of failing to disclose conflicts of interest in selling certain mortgage investments that led to steep losses for clients. Goldman Sachs denied the allegations.

The federal agency also said it was looking into a wide range of practices related to the subprime mortgage crisis, prompting fears that the investigation could broaden.

President Barack Obama will push for his plan to tighten Wall Street regulations in New York on Thursday, the White House said on Monday, as he attempts to overcome solid Republican opposition.

The battle over a financial regulatory overhaul represented a new election-year fault line in Washington after the bruising healthcare debate, and poses a new challenge for Obama as he seeks to gain passage of one of his key domestic priorities.

Democrats have seized on a fraud suit against Goldman Sachs as an example of why Wall Street needs to be cleaned up after a financial crisis that triggered the worst U.S. recession since the Great Depression.

“The battle over reshaping the country’s financial regulation escalated on several fronts Wednesday, with President Obama stepping up his personal efforts to win Senate passage of an ambitious bill while senators from both parties fought to claim the anti-Wall Street mantle. After a White House meeting between Obama and congressional leaders, Republican leaders criticized the Democrats’ proposal for leaving the door open to future bailouts of big financial firms. But the president, who has turned his attention to the financial overhaul after winning passage of health-care legislation, said he was confident that a bipartisan bill could be worked out to ensure that the economy is protected from the collapse of large financial companies.”