Monthly Archives: January 2010

Detroit Pulls Franchise From Car Dealer

By Rachel Pritchett
Detroit has pulled the plug on the Thomas Lincoln Mercury dealership in Bremerton.
The owner and president of the dealership will sell used cars on the lot instead.
“It comes right from Detroit,” owner Aaron Capps said of the decision. “They’ve been after the franchise for the last two years.”
The dealership was selling an average of fewer than 10 Lincolns and Mercurys combined in a month.
“It’s a sad situation, but reality is reality, and that’s what we have to live with,” Capps said.
When he lost the franchise, Capps he was faced with a decision to close or turn to selling used cars. With 76 total employees, he chose to stay open and keep handing out paychecks.
“Everybody keeps their job and we continue to grow,” Capps said.
The decision doesn’t affect nearby Advantage Nissan, which Capps also owns. New cars will continue to be sold there.
Capps is optimistic about the used-car market in this recession, and also about eventually expanding with sons Chuck and Dean into new selling opportunities, such as cars from China and India, and electric cars.
Meanwhile, he figures he can offer as many as 400 used cars.
Thomas Lincoln Mercury has been around since 1955. It was started by Bud Thomas at Sixth Street and Pacific Avenue in downtown Bremerton, then moved to a location closer to the shipyard. It moved to Auto Center Boulevard in 1971. Capps purchased Thomas Lincoln Mercury in 1981, keeping the Thomas name and the reputation that went along with it.
Last week, some 3,600 customers — some longtime ones — received letters announcing the change. The new used-car lot will be called Advantage Used Car and Truck Center.
Capps and his crew no longer will be able to do work covered by a vehicle warranty, but arrangements have been made with other dealerships to have the warranty work done.
“We don’t want any of our customers to be inconvenienced whatsoever. You bring it to us; we’ll take care of it,” he said, adding his crew still can do service work.
According to Automotive News, there were only 357 stand-alone Lincoln-Mercury dealerships in the United States last year.
Capps said that sales and service of cars from Thomas Lincoln Mercury only accounted for about 15 percent of his total car business, in the end.
He said that while his Mercury buyers tended to be local residents, buyers of Lincolns were transient military people or older snowbirds who went south in the winter.
His best-selling Lincoln was the Town Car, no longer made. The most popular Mercury in his three decades of business was the Sable, also no longer being made.
No new Lincolns or Mercurys are on the lot, and the changeover to used cars takes effect as soon as the sign goes up.

Thursday Stocks Drop as Jobs, Manufacturing Data Disappoint

Dow so far down 124 points, to 10,111

NEW YORK (AP) — Stocks fell sharply Thursday as investors absorbed more evidence of a troubled economy.
The Dow Jones industrial average tumbled 150 points following disappointing reports on employment and orders for big-ticket manufactured goods. A lower forecast from technology maker Qualcomm Inc. dragged the Nasdaq composite index lower.
The market also fell in response to a report from Standard & Poor’s that said it no longer considers Britain among the “most stable and low-risk” banking systems. The report drove the dollar higher as investors sought safety. That sent some commodities prices lower, hurting materials stocks.
The S&P report was yet another worry for investors who have been focused on politics, not the economy.
President Barack Obama’s plan to overhaul banking regulations and restrict trading at large financial institutions spooked the market over the past week. The possibility Federal Reserve Board chairman Ben Bernanke wouldn’t be confirmed for a second term also had investors on edge, though those worries have subsided.
“Our full-contact politics is really beginning to affect the markets as it’s migrating into subjects that investors care deeply about like who is our Fed chairman going to be,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors. “That wasn’t uncertain two weeks ago. Now it is.”
The Senate scheduled a vote Thursday to determine whether Bernanke can win approval from at least 60 senators to defeat a filibuster aimed at preventing his reappointment. His term ends Sunday. Senate leaders from both parties said he would be reappointed.
During his State of the Union address Wednesday night, Obama avoided talking about the banking overhaul plan. Uncertainty over details of how that plan might be enacted and how strong trading restrictions would be had helped push the market to its worst three-day stretch since stocks bottomed last March.
Focus on the economy is creeping back to the forefront. The Fed said Wednesday afternoon it would keep interest rates at historic lows and the economy was showing signs of improvement. That helped stocks reverse a slide to end higher.
The Labor Department said weekly jobless claims fell by less than expected last week and the Commerce Department reported durable goods orders didn’t rise as fast as anticipated last month, providing a reminder the economic recovery is likely to be slow.
In midday trading, the Dow fell 153.11, or 1.5 percent, to 10,083.05. The Standard & Poor’s 500 index fell 15.29, or 1.4 percent, to 1,082.21, while the Nasdaq fell 45.86, or 2.1 percent, to 2,175.55.
Stocks have fallen five of the past eight days.
Tech shares were broadly lower after Qualcomm, which makes chips and other technologies used in cell phones, fell $6.39, or 13.5 percent, to $40.81 after it said it expects a “subdued” rebound in the economy and reduced its full-year sales forecast.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.67 percent from 3.66 percent late Wednesday.
The dollar rose against other major currencies, while gold fell.
Crude oil fell 9 cents to $73.58 per barrel on the New York Mercantile Exchange.
In economic news, new requests for unemployment benefits fell modestly, dropping to 470,000 last week. Economists polled by Thomson Reuters had been expecting a bigger drop to 450,000 new unemployment filings.
Orders to U.S. factories for big-ticket manufactured goods rose less than expected in December, increasing just 0.3 percent. Economists had been expecting a 2 percent increase in orders.
For all of 2009, durable goods orders — items expected to last at least three years — tumbled 20.2 percent. It was the largest drop on records that go back to 1992.
On Friday, the government releases its initial reading on fourth-quarter gross domestic product. The GDP number, which measures the entire country’s economic output, likely rose at an annualized rate of 4.5 percent during the final three months of 2009.
Ford Motor Co. said it recorded a profit in 2009 — its first annual profit in four years. The auto maker, which avoided bankruptcy and government bailout money, said it expects to again be profitable in 2010. Ford slipped 6 cents to $11.49.
About four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 398 million shares.
The Russell 2000 index of smaller companies fell 12.05, or 2 percent, to 606.33.
In afternoon trading, Britain’s FTSE 100 fell 1.4 percent, Germany’s DAX index dropped 1.8 percent, and France’s CAC-40 fell 1.9 percent. Earlier, Japan’s Nikkei stock average rose 1.6 percent.

Monday Dow Up 60 Points

Now at 10,233.

NEW YORK (AP) — It was the fat cats’ fault before. But now it’s becoming Obama’s.
With the unemployment rate stubbornly high, people were already shifting blame for their economic woes to President Barack Obama one year into his presidency. Last week, investors joined them.
For 10 months, the stock market climbed at breathtaking speed. But the Dow Jones industrial average suffered its worst week since dropping to a 12-year low in early March. It fell 552 points Wednesday through Friday, including 216 on Friday.
One big reason investors scrambled to sell: Fear over a wave of populism that swept a Republican to an upset victory in the Massachusetts Senate race on Tuesday. When Obama responded on Thursday with a broadside against big banks, the market plunged. On Friday, investors feared mounting opposition in the Senate could derail Federal Reserve Chairman Ben Bernanke’s reappointment. Disappointing corporate earnings and concern that China will slow its economy added to the jitters.
The question now: If the bad news continues, will Obama, who is trying to win votes in the fall elections with his populist attacks, end up losing them instead? Put another way, can Obama win over Main Street by vilifying Wall Street if people fear opening their 401(k) statements again?
“The longer we’re in (power) the more it becomes our problem,” said Tad Devine, a Democratic media consultant and former senior adviser in Sen. John Kerry’s 2004 campaign for president. He added, “This is a pivot point in the presidency when he needs to reassure voters that their future is secure.”
And that’s especially true for voters who have a stake in the stock market. For years the number that politicians worried about was the unemployment rate. In the 1970s a second figure was added — the inflation rate.
Now, with 45 percent of households owning mutual funds, up from 6 percent in 1980, there’s a third: the Standard & Poor’s 500 Index.
It’s anyone’s guess whether jobs and stocks will be up when Americans head to the polls in November. And even before the events of the past week, the stock market was jittery. Investors had driven shares up at their fastest pace in decades, and analysts said many were looking for an excuse to sell.
A clear sign the market was in trouble came a week ago Friday. Chip maker Intel announced profits were a lot higher last quarter than analysts had expected.
Its stock fell anyway.
Last Tuesday after the Martin Luther King Jr. holiday, the indexes hit 18-month highs in anticipation of Republican Scott Brown’s likely victory in the race to replace the late Sen. Edward Kennedy’s seat in Massachusetts. Health insurance and pharmaceutical companies led the gains because a Brown victory endangers the massive health care bill favored by Obama and the Democratic majorities in Congress.
But stocks began falling fast on Wednesday when China announced plans to slow its economy. They fell again the next day after Obama’s speech calling for limits on the size of banks and their risk taking.
The coup de grace for the market came Friday. In a nod to voter anger at Wall Street, a few Democrats said they wouldn’t vote to reappoint Bernanke, whose term ends Jan. 31. But many investors have faith that Bernanke has the tools, the know-how and the political backbone to reel in the unprecedented amount of money pumped into the economy during the financial crisis and avoid a crushing round of inflation. Bernanke still has Obama’s support. The Senate is expected to vote on giving him a second term by the end of the week.
The S&P 500 index closed the week at 1,091.76, down 5.1 percent in three days — its biggest drop since March 2009.
Hank Smith, chief investment officer of equity at Haverford Investments in Radnor, Pa., warned investors to expect more stock gyrations.
“The market is overdue for a pause, a pullback, even a correction,” he said, referring to a fall of 10 percent from a peak.
This week is chock-a-block with news that could help shares retrace their lost ground, or sink further.
The Federal Reserve meets on interest rates, Bernanke faces that reappointment battle in the Senate, a cavalcade of earnings reports is due and the government gives its first estimate of how the economy performed during the final three months of 2009.
Politicians will be watching the market’s reaction closely.
Grover Norquist, the conservative head of Americans for Tax Reform, said the nation’s investor class is increasingly calling the shots in elections. He says Obama is hurting himself with his bank bashing.
“A lot of Americans own 401(k)s — and he’s just made them a lot poorer,” he said, creating “a lot of bitterness” among voters.
Just how much bitterness, if any, voters will have depends on which numbers they fixate on. Even after the recent drop, the S&P 500 is up 61 percent since its low in March, three months after Obama took office. Then again, the index is still 30 percent below its October 2007 peak.
Of course, it’s not just Obama. The vote in Massachusetts scared all incumbents. It’s now every man and woman for himself or herself in Washington. That helps explain the opposition to Bernanke.
There’s another view, too: Policy counts more than ever in this financial crisis, but the market, and the fragile economic recovery upon which it hinges, is still largely the work of big, impersonal forces — even if impatient voters don’t see it that way.
UBS economist George Magnus said a big issue today is that banks and consumers, two years after the recession began, still need to rid themselves of debt. And this painful deleveraging could continue long after the salutary effect of monetary and fiscal stimulus runs out, he said.
He doesn’t think that’s likely to lead to a double-dip recession, but he’s not ruling that out either.
“We’re in a bungee jump recovery,” he said, meaning we’re bouncing back from last year’s deep plunge. But that could be a prelude to a scary fall again. If so, he said, Obama “will get the blame anyway.”

Kitsap Business Briefs

New Building Open at BAC
The Bainbridge Athletic Club’s new steel tennis building is up and running, giving the club five indoor tennis courts and more than 50,000 square feet of facilities.
The club has recently added other fitness spaces, and now features four studios, two major weight-training areas, and a variety of new weight and cardio equipment. The new building will allow for additional flexibility as the tennis courts will be available for alternative athletic uses for all ages at various times.
A grand opening event for the new building is scheduled from 6 to
8:30 p.m. Friday at the club, 11700 Meadowmeer Circle, next door to Meadomeer Golf Club.
E.K. Riley Investments Opens Poulsbo Office
E.K. Riley Investments of Seattle has opened a branch office in Poulsbo at 18467 Skog Court NE. The firm has offices in Washington, Oregon, California, Idaho and Arizona.
Investment Manager Ed Stern will provide full-range brokerage services, including bonds, stocks, mutual funds and insurance annuity contracts to support short- and long-term financial goals in accordance with savings, college and retirement plans.
Stern has more than 20 years of experience in the financial industry, specifically in the Poulsbo area. Lori Stern, who was previously employed with Kitsap Bank on Bainbridge Island, is Stern’s administrative assistant. Reach them at (360) 930-3234, or e-mail Stern at or visit
On the Job
w Licensed massage practitioner Tanya Gunby is now working with Kitsap Physical Therapy on Bainbridge Island. Call (206) 842-6288 for information or to schedule an appointment.
w Eugenie Jones has been named community relations and development manager for Kitsap Community Resources. She is widely known as a columnist whose work is syndicated nationally by Scripps-Howard News Service. Her columns appear locally in the Kitsap Sun and The Kitsap Peninsula Business Journal. Jones previously worked for defense contractors SAIC, McDonnell-Douglas, and successfully owned and operated a performance development firm.
w Rob Stevens is the new operations manager at Kitsap Mall. He previously worked at Armstrong Custom Homes, where he has been the lead project coordinator. With his extensive construction experience, he will work on the construction for new tenants, including Hale’s Alehouse, as well as other projects currently in the planning stages.
w Jennifer Crandall, Mark Eriksson-Humphry and Linda Shigaki have been hired by Washington Community Alliance for Self Help. The new staff will assist in the growth of the Kitsap microenterprise and business-training programs. Crandall will coordinate loan groups, Eriksson-Humphry is the new volunteer coordinator and Shigaki will work with clients to develop and grow their businesses.
Longtime local Kitsap mentor Bill Hoke will assist in part-time community outreach and Stuart Walton of Bainbridge Island, who has been with the CASH program in Kitsap for three years, will continue to teach the business development training classes offered free to the public. Walton will also teach the new veteran’s business training classes.
Jan. 30
What: The Bainbridge Island Chamber of Commerce will hold its fifth annual Healthy Living Expo, an interactive trade show with exhibitors, presentations and demonstrations on healthy eating, nutrition, fitness, cancer prevention, weight loss, safety and more. Organizations also will offer free health screenings, a bloodmobile, and activities for the kids.
Former Mariners pitcher and FSN analyst Bill Krueger, who is actively involved in the Autism Speaks movement, will discuss autism and its effects on children, based on his experiences raising an autistic child.
When: 10 a.m. to 4 p.m.
Where: Woodward Middle School, 9125 Sportsman Club Road, Bainbridge Island
Cost: Exhibitor cost is $200 for a 10-foot by 10-foot space. Cost for food court exhibitors and nonprofit exhibitors will be $80.
Info: or (206) 842-3700

Feb. 3
What: Schelley Dyess, an Edward Jones financial adviser in Port Orchard, is hosting a free 50-minute educational seminar, “Foundations of Investing.”
When: 6:30 p.m.
Where: 2299 Bethel Ave., Suite 102, in Port Orchard.
Cost: Free, but space is limited.
Reservations: Call Trina Sanquist at (360) 876-3835.

Feb. 5
What: Custom Neon of Kingston will celebrate its 10th anniversary with an open house with cake and beverages, and a discount for all new orders placed. The firm specializes in the fabrication of neon pieces for business and residential use.
When: 2 to 6 p.m.
Where: Custom Neon, 5686 Minder Road, No. 206, in the westernmost section of Kennedy Business Park between Poulsbo and Kingston.
Info: (360) 297-0448, or
Kitsap Sun staff

Feb. 24
What: Liberty Bank of Washington is sponsoring a series of “Engaging Business” seminars beginning with the Feb. 24 session entitled “The Top Business Insurance Challenges for the Small Business Owner and How to Fix Them.” Other seminars will be held the last Wednesday of the month with an array of guest presenters on topics ranging from technological innovation in banking for your business to insurance information.
When: Noon to 12:45 p.m.
Where: Community board room at the Poulsbo branch of Liberty Bank
Upcoming: For future events, visit
R.S.V.P.: Contact Lora Haskins at or (360) 394-4759

Port Chief to Resurrect Branding Effort

By Rachel Pritchett
The sell is on.
Port of Bremerton CEO Cary Bozeman soon will put a little pressure on business and community leaders to support a port-led marketing campaign to attract new employers.
“There’s no reason why we shouldn’t do it,” Bozeman said, adding there’s never been an all-hands effort to market Kitsap County.
At a summit as soon as next month, Bozeman expects to ask the leaders — bankers, hoteliers and others who would benefit — each to contribute $5,000 annually for three years to a campaign to spur interest in the port’s marinas, airport and industrial park.
The campaign would take place mostly on the radio, where spots can be bought for not much money. Ads would highlight opportunities at the port initially. The campaign could be expanded to the wider county later.
“What we want people to start thinking is, ‘Why not Kitsap?’” Bozeman said.
The port was the host of a September economic-development conference in which “branding” Kitsap emerged as a priority. Bozeman then offered to spearhead fundraising for a campaign.
The next month, however, he dropped his offer. Another entity, the Kitsap Peninsula Visitor & Convention Bureau, was forming a marketing plan of its own.
“The port has no interest in duplicating what other people are out there doing,” Bozeman said in October.
But Bozeman has since apparently changed his mind, saying a marketing effort to bring in new employers, jobs and families would be more successful — even during the recession — if everyone signed on to one single campaign.
“I still believe that 35 organizations working together is better than 35 groups working independently,” Bozeman said.
The port soon will hire a new marketing director to help.
Meanwhile, the visitors bureau continues work on its own emerging marketing campaign to draw tourists and others to Kitsap.
Just like the port, visitor bureau leaders hope to set up a corporate-giving program to help fund a marketing campaign. The VCB campaign would be focused on the Internet, including blogs.
“It’s all about the Internet, especially when it comes to travel,” said Patricia Graf-Hoke, executive general manager of the visitors’ bureau.
She meets with her board Thursday to lay out more of the plan.
Graf-Hoke said the visitors bureau campaign is being focused on tourism, where the port-led campaign would focus on creating new jobs by attracting employers.
She said she and Bozeman have touched base on their plans.

Friday Stocks Continue Negative Reaction to Plan for Tougher Bank Rules

Dow now at 10,356, down 33 points.

NEW YORK (AP) — President Barack Obama’s plan to change the way big banks make their money plunged the stock market back into the fear and uncertainty that marked the financial crisis.
Obama said Thursday he would ask Congress for limits on how big banks can become and to end some of the risky trades financial companies use to supercharge their earnings. Investors sent stocks tumbling as they worried the plan would destabilize Wall Street’s 10-month rally.
Big bank stocks skidded, yanking the Dow Jones industrial average down 213 points and erasing its gains for 2010. Over the past two days, the Dow dropped 336 points, or 3.1 percent, its worst slump since June. Wednesday’s drop came on more global concerns, that China’s economy would slow and hurt other countries as well.
Todd Leone, managing director of equity trading at Cowen & Co. in New York said some rules need to be changed after the financial crisis of the past two years but that the government was reaching too far.
“They kind of stabbed themselves and there should be some limitations on them,” Leone said of large financial companies. “But you have to let these guys run their businesses. I think they’re too involved and I think that’s why people are upset.”
The market’s reaction, if it’s sustained, will put Obama in a difficult position. Americans may be angry at Wall Street and bankers with huge paychecks, but they’re likely to be more upset if Obama’s tough talk leads to a huge pullback in the stock market and their 401(k) accounts, which are still recovering from the financial crisis. Obama must straddle a line of trying to win populist points without sacrificing one of the biggest rallies in history.
Still, investors are worried, although they have known changes were coming to the nation’s banking system. The plan to reshape the way companies do business went beyond what some traders expected, and it raised concerns that profits would suffer. A return of hefty earnings at some major financial companies was one of the engines of a 65 percent jump in the benchmark Standard & Poor’s 500 index since March.
Traders fled Thursday from the banks with the most to lose. Bank of America, Citigroup Inc. and JPMorgan Chase & Co. each lost more than 5 percent.
Another concern is that the skirmishes between Washington and Wall Street could result in greater government control over banks and in turn, higher costs for the companies. Last week, Obama proposed a 10-year, $90 billion tax on the largest financial institutions to cover any shortfall in the $700 billion fund to bail out struggling financial companies.
The latest proposal aims to clamp down on speculation by commercial banks and keep them from getting so big that a collapse would jeopardize the financial system. That could force the break up of some the nation’s biggest banks.
The Dow fell 213.27, or 2 percent, to 10,389.88, its biggest point and percentage drop since Oct. 30. Its two-day loss is the worst percentage loss since June 16. The drop extended a spate of erratic trading that has seen prices reverse several times since last week. The Dow also has logged four straight triple-digit moves for the first time since May.
It is also down 0.4 percent for 2010.
The broader Standard & Poor’s 500 index fell 21.56, or 1.9 percent, to 1,116.48. The Nasdaq composite index fell 25.55, or 1.1 percent, to 2,265.70.
The proposals capitalize on the public’s distrust of the bankers Obama has called “fat cats” for their role in the financial system’s near-collapse in 2008. And with unemployment at 10 percent, bankers who are blamed for contributing to the recession are suspect.
On Thursday, Goldman Sachs Group Inc. said its profit came to a record $4.79 billion for the final three months of 2009 and that it paid employees $16.2 billion in salaries and bonuses for 2009. That was up 47 percent from 2008 but less than many analysts had predicted. The company also said it would give $500 million to the bank’s charity arm.
Goldman Sachs said trading operations, including the type of trades Obama wants to restrict, brought in about 10 percent of the company’s annual revenue.
Risky bets on investments including mortgage-backed securities contributed heavily to the near-collapse of the financial system in 2008, including the demise of investment firms Bears Stearns Cos. and Lehman Brothers Holdings Inc.
Another test for the market could come Friday. Google Inc. posted a fivefold jump in its fourth-quarter profit after the closing bell on double-digit revenue growth, but the results fell short of expectations. The stock fell $25.98, or 4.4 percent, to $557 in after-hours electronic trading after edging up 0.4 percent in regular trading.
Concerns about the future of the banking system and stocks helped drive up the market barometer known as the fear index. The Chicago Board Options Exchange’s Volatility Index jumped 19.2 percent. A rise in the VIX, which is known as the market’s fear index, signals that investors expect bigger swings in stocks.
Bank of America fell $1.02, or 6.2 percent, to $15.47, while Citigroup slid 19 cents, or 5.5 percent, to $3.27. JPMorgan fell $2.86, or 6.6 percent, to $40.54.
Bond prices jumped as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.59 percent from 3.65 percent late Wednesday.
The dollar rose against other major currencies, while gold fell. A rise in the dollar hurt commodity prices, which become more expensive for foreign buyers when the dollar strengthens. Crude oil fell $1.66 to $76.08 per barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies fell 11.25, or 1.8 percent, to 628.36.
Four stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to a heavy 6.95 billion shares compared with 4.76 billion Wednesday.
Britain’s FTSE 100 fell 1.6 percent, Germany’s DAX index lost 1.8 percent, and France’s CAC-40 fell 1.7 percent. Japan’s Nikkei stock average rose 1.2 percent.

Harborside Steps to be Dedicated Saturday

The Port of Bremerton will formally dedicate its new Harborside Steps on the downtown Bremerton waterfront on Saturday.
U.S. Rep. Norm Dicks, D-Belfair, will be among those delivering remarks during the brief event slated to begin at 2:45 p.m. at the steps, which start at Washington Avenue and Burwell Street.
Dicks was instrumental in getting a $392,000 federal grant to build the steps, which open public access to the Bremerton Boardwalk and Bremerton Marina. They feature a view of Sinclair Inlet, and landings, tables and chairs for pedestrians. Landscaping includes exotic, mature trees and carved granite boulders.
Refreshments will be served. The dedication will happen during the Bremerton Boat Show, which takes place all weekend at the Bremerton Marina. More information on the boat show is at

Thursday Stocks React Negatively to Obama Plan

Dow now at 10,387, down 215 points.

WASHINGTON (AP) — President Barack Obama stepped up his campaign against Wall Street on Thursday with a far-reaching proposal for tougher regulation of the biggest banks.
“We have to get this done,” Obama said at the White House. “If these folks want a fight, it’s a fight I’m ready to have.”
It was a stern, populist lecture from the president to Wall Street for what he perceives as its abandonment of Main Street. Obama said the government should have the power to limit the size and complexity of large financial institutions as well as their ability to make high-risk trades.
He said it wasn’t appropriate that banks have been able to run these trading operations with the protections afforded to regular banking services.
“We have to enact commonsense reforms that will protect American taxpayers and the American economy from future crises,” Obama said. “For, while the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near-collapse.”
Joining Obama for the announcement were former Federal Reserve Chairman Paul Volcker, who heads the president’s Economic Recovery Advisory Board, and William Donaldson, chairman of the Securities and Exchange Commission under President George W. Bush. Volcker and Donaldson have advocated stronger restrictions on banks.
Overhauling financial rules is the one issue on Obama’s legislative agenda that appears still alive after Democrats’ devastating loss Tuesday in the Massachusetts Senate race. The White House is renewing Obama’s demand for an independent consumer financial protection agency as part of any overhaul. That’s one of the major sticking points in the Senate; the House has passed its version already.
The new proposal from Obama intends to limit speculation by commercial banks and to keep financial institutions from growing so big that they pose a risk to the economic system.
“When you see more and more of the financial sector basically churning transactions and engaging in reckless speculation and obscuring underlying risks in a way that makes a few people obscene amounts of money but doesn’t add value to the economy — and in fact puts the entire economy at enormous risk — then something’s got to change,” Obama said in an interview released Thursday by Time magazine.
Obama has branded bank executives as “fat cats” and proposed a fee on large banks to cover shortfalls in the government’s $700 billion financial rescue fund.
Expanding on earlier measures, Obama endorsed Volcker’s proposal to restrict proprietary trading by commercial banks. That would separate commercial banks from investment banks, a line blurred a decade ago by the repeal of the Depression-era Glass-Steagall Act.
This restriction would affect some of the biggest banks, including Bank of America Corp., Goldman Sachs and Citigroup Inc.
“The better answer is to modernize the regulatory framework and not take the industry and the economy back to the 1930s,” said Scott Talbott, chief lobbyist for the Financial Services Roundtable, an industry group that represents large Wall Street institutions.
Goldman Sachs Group Inc. said Thursday it earned $4.79 billion in the fourth quarter as its trading business again outdistanced the rest of the industry. The company rewarded its employees with $16.2 billion in salaries and bonuses for 2009, 47 percent more than the previous year but still lower than many had expected.
There was a new urgency in the Senate to respond to the voter anger at Wall Street and bank bailouts that helped propel Republican Scott Brown to victory in Massachusetts for the seat long held by Democeatic Sen. Edward M. Kennedy, who died in August.
Brown’s victory gave Republicans 41 votes, enough to mount successful filibusters and prevent Democratic legislation on health care or climate change from getting final votes.
But financial regulations could survive.
Administration officials believe that while Republicans may seek to block other aspects of the president’s agenda, Senate GOP leader Mitch McConnell of Kentucky is considering making financial regulations an exception.