Obama Declares War on Wall Street

On the same day Goldman Sachs (NYSE: GS) reported record profits, President Obama dropped a bomb on Wall Street. Obama is proposing limits on the size and scope of the nation's largest banks to put an end to "risky practices that contributed significantly to the financial crisis."

The news has sent shares of the largest U.S. banks lower. At 12:40 ET, Goldman Sachs is down 4.5 percent. The main sector ETF, Financial Select Sector SPDR (NYSE: XLF), is down 2.6 percent.

Giving limited details, Obama's said his administration will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit. Obama also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.

"While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse," said President Barack Obama. "My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary."

Obama said if Wall Street want to fight the changes, "it's a fight I'm ready to have."

In addition to impacting Goldman Sachs, the new proposal would affect other large banks like Bank of America Corp. (NYSE: BAC), Wells Fargo & Co. (NYSE: WFC), J.P. Morgan Chase & Co. (NYSE: JPM), Morgan Stanley (NYSE: MS) and Citigroup Inc. (NYSE: C).

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