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NEW YORK - The good times have ended with a bump - or even a crash. Wall Street is grappling with billions of dollars of losses on obscure derivatives, a banking system in crisis and a vengeful public - and a sceptical President is about to take office.
Barack Obama is far from a designer-suited, money-motivated, adrenaline-fuelled investment banker. A relatively austere character, his favourite restaurant is a Chicago pizzeria, he drives a Ford Escape family hybrid and his idea of a good time is a game of basketball.
On the stump, Obama pilloried the financial community, promising a crowd in Indiana days before the election that he would end the "'Wall Street first, Main Street last' economic philosophy we've had for the past eight years".
How worried should Wall Street and the business community be about the new man in the Oval Office? His advisers are not mincing their words.
The former Federal Reserve boss Paul Volcker, who chairs Obama's economic recovery advisory board, was asked to assess the state of financial institutions at a press conference in New York this week. "Where are we with the banking system?" he said. "It's a mess."
Volcker was speaking at the launch of a blueprint on financial reform by the G30, a cerebral group of global central bankers and economists. The document, which is likely to influence the Obama Administration's thinking, proposes regulating larger hedge funds that pose a "systemic" risk, a separation of consumer-oriented banks from risky money-market operations and greater oversight of Wall Street pay.
"Compensation practices contributed to an excess of risk-taking on Wall Street," said Volcker. "They're indicative of a real problem."
Finance and economics were not among Obama's political priorities when he began his run for the White House. Indeed, he rarely addressed the subject of Wall Street until the financial system reached breaking point in a dramatic chain of events kicked off by Lehman Brothers' collapse in September. Seeing nothing to concern them, bankers were big financial backers.
Goldman Sachs, Citigroup and JP Morgan were in the top 10 organisations employing Obama donors: the banks' staff and their families stumped up more than US$2.2 million ($4.1 million).
Since his election, Obama has been talking tough. Naming the veteran regulator Mary Schapiro to head the Securities and Exchange Commission, the President-elect promised a sweeping overhaul of regulation to impose "adult supervision" on the financial industry.
One possibility is the creation of a British-style "super-regulator" along the lines of the Financial Services Authority to replace the "alphabet soup" of US watchdogs, which currently includes the SEC, the Commodities Futures Trading Commission (CFTC), the Office of Thrift Supervision (OTS), the quasi-Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC).
Then there is the thorny issue of hedge funds and private equity.
Democrats in Congress are eager to close loopholes that allow these wealthy financiers to pay far less tax by declaring earnings as capital gains, rather than as income - incurring a typical levy of 15 per cent, as opposed to 35 per cent.
Adam Sussman, of the financial markets consultancy Tabb Group, says many on Wall Street are resigned to radical change: "There's a certain concern about the new administration taking a hard-line stance in over-regulating Wall Street. On the other hand, a lot of people recognise that the financial industry was not able to regulate itself... The industry has resigned itself to taking some tough medicine today, rather than even tougher medicine down the road."
Usually strident in defending their wealth creation, leading investment banks have been deafeningly silent over Obama's policies. It isn't hard to work out the reason: as they are, in effect, wards of the state, swallowing rescue funds from the taxpayer, the likes of Citigroup and Bank of America are not well placed to bargain.
"The best thing Wall Street can do is keep its head down," says Charles Geisst, a historian of Wall Street at Manhattan College. "If we assume the situation is probably worse than in 1932-33, Wall Street has very little bargaining power."
He predicts a "massive shift" in Washington's attitude towards Wall Street. The financial-supermarket model could die, with banks kept out of derivatives, hedge funds and speculative trading.
"The only people on Wall Street who are really safe are the back-office people - they've certainly got plenty to do in keeping these firms afloat,"
says Geisst.
In his appointments, Obama has been careful not to frighten the markets, opting for individuals well known to the Street. His choice for Treasury Secretary, Timothy Geithner, has been immersed in the banking bail-out as president of New York's branch of the Federal Reserve.
Business leaders are keen for the administration to temper the more radical elements of the Democratic party, pointing, for example, to House speaker Nancy Pelosi's fondness for tough-talking scolding of the very rich.
Greg Casey of the Business Industry Political Action Committee, a Washington lobby group, said there was a "cautious optimism that he may not be a partisan tool of the more liberal parts of the Democratic base".
Obama's economic stimulus plan, tipped to total about US$775 billion, will be a crucial first hurdle. The financial world wants much of the money to go on corporate tax breaks, rather than directly to consumers. They generally welcome plans for "shovel-ready" infrastructure works - building roads, bridges and solar panels - to create jobs.
"We're in a deep recession and we've got to do something to stop that," says Casey. "Let's not be so quick to take issue on what we don't like and let's try to build on things where we agree."
To the private sector's relief, Obama has gone quiet on his suggestion of a "windfall tax" on oil companies. But there will be flashpoints. Not everyone in the corporate world shares his enthusiasm for a "cap-and-trade" programme for controlling greenhouse gas emissions.
More contentiously, Obama supports legislation making it easier for unions to seek recognition in workplaces. Unions could collect signatures openly through "card checking" rather than holding a secret ballot.
Employers claim this opens the door to coercion, while labour leaders say secret ballots give companies a lengthy hiatus in which to bombard staff with anti-union propaganda.
Thea Lea, of the AFL-CIO union federation, believes Obama's inauguration marks the dawning of a "pro-union, pro-worker" government, rather than one in awe of business and finance. But then, she adds, all things are relative: "It's almost impossible for any administration to be less sensitive than George W. Bush's.
"This was the most anti-union, anti-labour administration in living memory."
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