Obama's Next Target: Financial Reform

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But the President also needs to rev up his congressional troops in order to have any hopes of passing substantive financial reforms. With financial-services lobbyists working furiously to water down the proposals they don't like, Washington's multitude of regulators battling to protect their turf, and a Congress that seems far less inclined to take aggressive steps now that the worst of the crisis seems to have passed, the Administration needs to put some muscle into passing the host of regulatory reform proposals it offered up last spring or watch them whither away.

momentum could fade

The big danger, warns one lobbyist who recently left the staff of a leading Democrat on Capitol Hill to move to K Street, is that the economy is continuing to stabilize, and memories of the crisis are receding. "With Congress so bogged down on health care and the growing sense that the economy and the markets are getting back to normal, the momentum for regulatory reform could die out," he says.

So count on Obama to make a forceful case on behalf of his proposed reforms. In a note to clients, Jaret Seiberg, a financial-services policy analyst at Washington Research Group, said he expects the President to demand higher capital requirements and leverage limits for all banks, including even higher standards for the biggest financial firms; enactment of the Consumer Financial Protection Agency; and stronger oversight of the credit-ratings agencies. He also warned clients to expect "an attack on speculators who use derivatives and credit default swaps."

The question, however, is how much difference even the most powerful speech can make when it gets down to the nitty-gritty task of getting Congress to craft and pass effective legislation. Seiberg argues that while the speech will attract enormous attention, "we question if it will meaningfully alter the path of financial reform."

Given the strong opposition to the proposed consumer agency, Seiberg doesn't believe it can pass without significant modification. On other issues, the President doesn't need Congress. The Treasury recently proposed higher capital standards for banks, and it can move on those by changing regulations. And though Seiberg believes some legislation is likely to pass on credit ratings and derivatives trading before the election, there is enormous debate over how stiff those measures will be. No matter how strong Obama's speech is, the President, his advisers, and his allies will have plenty of work ahead of them, in financial reforms as in health care.

Sasseen is Washington bureau chief for BusinessWeek.

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