Is what’s bad for Goldman Sachs bad for America?

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Has Obama gone too far?

That will be the cry from Wall Street if stocks can’t pull up by the closing bell from today’s steep losses.
The Dow Jones industrial average was down 193 points, or 1.8%, to 10,410 at about 11:25 a.m. PST, on track for its worst decline since Oct. 30.

Big-bank stocks have slumped in the wake of the White House’s proposal today to bring back some version of Glass-Steagall, the law that from 1933 to 1999 largely separated the commercial banking business from higher-risk Wall Street businesses.

President Obama wants to ban banks from owning hedge funds or engaging in securities trading for their own benefit. He also wants to place new limits, so far undefined, on how large financial institutions can get.

“As part of the previously announced reform program, the proposals announced today will help put an end to the risky practices that contributed significantly to the financial crisis,” the White House said in a statement.

The plan clearly would be bad for the likes of Goldman Sachs Group, JPMorgan Chase & Co. and Bank of America Corp. Shares of all three are down 5% or more on the day.

But there’s an interesting split in the market: Shares of many regional banks are trading sharply higher even as the giants tumble. Wall Street clearly sees the smaller players as winners if Obama succeeds in reining in the titans, not just with Glass-Steagall II but also with the “financial crisis responsibility fee” the administration proposed last week.

Among regional banks, SunTrust Banks of Atlanta is up $2.03, or 8.7%, to $25.45; Dallas-based Comerica is up $3.38, or 10%, to $36.95; L.A.-based City National has rallied $1.85, or 3.7%, to $51.58.

As for the broader market, the question is whether it’s more afraid of White House regulatory overreaction -- or the risk that China will go too far in slowing its surging economy. A marked Chinese pullback could hit commodity producers particularly hard.

Of the 10 major stock sectors in the Standard & Poor’s 500 index so far today, the biggest loser is the commodity sector, down about 3.8%. The financial sector is second, off 2.6%.

Meanwhile, global markets remain dogged by fears that Greece’s woeful fiscal situation could lead to a new financial crisis in Europe.

Clearly, Obama wants to punish the big banks. But the stock market, after a relentless 10-month surge, has plenty of better excuses than that to sell off.

To believe that the administration’s latest proposals alone are responsible for sinking the markets is to believe that what’s bad for Goldman Sachs is bad for America.
-- Tom Petruno