President Barack Obama warned financial leaders on Wall Street not to use the recovering U.S. economy to race back into “reckless behaviour” that could cause a new meltdown. He declared that a bailout-weary public will not break their fall again.
Mr. Obama insisted on Monday that there is an urgent need for tighter financial regulation, and he cautioned his audience not to try to block it. He spoke on the first anniversary of the collapse of the Lehman Brothers investment bank, the largest bankruptcy in U.S. history and a stark reminder of the financial crisis that spread into a deep recession despite huge federal bailouts of major companies.
“It is neither right nor responsible after you’ve recovered with the help of your government to shirk your obligation to the goal of wider recovery, a more stable system, and a more broadly shared prosperity,” Mr. Obama said in a stern bid to boost his regulation proposals.
The President’s speech reflected public sentiment that American taxpayers were immeasurably harmed from last year’s financial collapse — and that, barring change, it could happen again. As investment giants return to profit, millions of Americans are still coping with unemployment, home foreclosures and retirement portfolios that got washed away in the storm.
For symbolic emphasis, Mr. Obama spoke from venerable Federal Hall on Wall Street.
“Unfortunately, there are some in the financial industry who are misreading this moment,” Mr. Obama told a quiet audience of leaders from the investment sector.
“So I want them to hear my words,” Mr. Obama said. “We will not go back to the days of reckless behaviour and unchecked excess that was at the heart of this crisis. ... Those on Wall Street cannot resume taking risks without regard for consequences.”
Afterward, he joined former President Bill Clinton for lunch at a New York restaurant. The White House announced Mr. Obama would address the annual meeting of the Clinton Global Initiative on September 22 while in New York for the United Nations General Assembly meeting.
The public is still edgy about Wall Street and the economy. A year after the meltdown, seven of 10 Americans lack confidence that the federal government has taken safeguards to prevent another financial industry meltdown, according to a new Associated Press-GfK poll.
Yet Mr. Obama’s reach goes only so far; his bid for huge regulatory change is up to Congress.
The President’s plan has yet to gain serious traction on Capitol Hill, as Democratic leaders have been consumed by the health care debate and staff members are still wrestling with the complexities. The plan is being fought by a determined financial services lobby with a major assist from big business groups, and infighting among regulators who oversee the various portions of the sprawling financial architecture has further slowed the process.
But the sluggish pace is expected to pick up in coming weeks. Democrats aim to stick to their promise of completing the bill by year’s end, a timeline Mr. Obama badly wants to keep, but they face long odds.
Republican Senator Judd Gregg, who once considered being Mr. Obama’s commerce secretary, was among Republican lawmakers who responded to the President’s message with caution.
He said, “We must be wary of the reality that — in an attempt to address yesterday’s failures — Congress will put in place regulatory schemes which will fundamentally undermine risk taking.”
Anticipating such criticism, Mr. Obama shot back against those pushing for less regulation.
“Do you really believe that the absence of sound regulation one year ago was good for the financial system?” he said. “Do you believe the resulting decline in markets and wealth and unemployment, the wrenching hardship that families are going through all across the country, was somehow good for our economy?”
He also told Wall Street that it had no need to wait for new laws to begin helping consumers with straight talk in the meantime.
Much of Mr. Obama’s speech amounted to a recap of his proposals, first outlined in June.
He has sought tougher capital requirements for banks, arguing that banks’ buying of exotic financial products without keeping enough cash in reserve was a key cause of the crisis. He wants more openness for the markets in which banks trade the most complex products.
Mr. Obama’s plan also would give the Federal Reserve new oversight powers and impose conditions designed to discourage companies from getting too big. And he proposes a consumer protection agency to make rules for financial products, so people know what they’re buying.
The House Financial Services Committee, led by Democratic Representative Barney Frank, who supports much of Obama’s plan, is expected in October to take up the first piece of the legislation, one that would establish an agency focused on consumer protections. The panel has already passed legislation intended to curb excessive compensation at financial institutions.
Mr. Obama’s plan could face significant revisions in the Senate, where Democrats have joined Republicans in questioning whether more power should be given to the Federal Reserve.
The industry is working particularly hard to kill or at least weaken the consumer protection agency idea, which it says will lead to increased costs for consumers, and various corporate interests are fighting the new rules for complex financial transactions, arguing they could stifle legitimate commerce.