President Barack Obama’s new plan to limit the operations of the country’s largest banks has hit stock prices hard.
The Dow Jones Industrial Average dropped 2 percent Thursday and slid another 0.8 percent in early trading today.
After starting the year with heady gains, the Dow is now down 1.2 percent this month.
"Obama scared everybody," stock trader Todd Leone at Cowen & Co. told The Wall Street Journal.
Aid to banks from the government played a major role in the market’s recent rally, he said.
"That is what really pushed us up, the stimulus and cheap money. When that stops, people will be nervous.”
However, Leone’s not a total pessimist.
“I think companies really are in better shape now," he said.
Under Obama’s proposal, banks whose deposits are insured by the government wouldn’t be able to trade their own money in financial markets or own hedge funds or private equity funds.
The changes were heartily endorsed by former Federal Reserve Chairman Paul Volcker and resisted by top White House economic adviser Larry Summers and Treasury Secretary Tim Geithner.
The stock market apparently sides with Summers and Geithner.
“Anything that restricts” the size of banks “runs the risk of hurting the international competitive position,” Alan Gayle, senior investment strategist for RidgeWorth Investments, told The New York Times.
“The concern is that these rule changes could restrict the long-term growth potential in financials.”
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