President Barack Obama called on the financial industry to drop its “furious efforts” to fight his regulation plan, saying a failure to impose tougher rules on the market will put the U.S. economic system at risk.
The U.S. was almost dragged into a second Great Depression by “a failure of responsibility -- from Wall Street all the way to Washington,” Obama said today in a speech he delivered at Cooper Union in New York, about two miles from Wall Street.
“Some on Wall Street forgot that behind every dollar traded or leveraged, there’s family looking to buy a house, or pay for an education, open a business, or save for retirement,” Obama told an audience of about 700 people, including Lloyd Blankfein, chairman and chief executive officer of
Goldman Sachs Group Inc., local officials, consumer advocates, faculty and students. “What happens here has real consequences across our country.”
Obama repeated the arguments he’s been making for overhauling financial industry regulations over the past two years, a drive that is nearing its final stages. His push to get the legislation through Congress got a boost when Democrats and Republicans resumed negotiations after weeks of trading accusations. The effort was also helped by the administration’s ramped-up lobbying campaign and the announcement last week by the Securities and Exchange Commission that it is suing
Goldman Sachs for alleged fraud linked to derivatives.
Others who attended the speech included Robert Diamond, president of
Barclays Plc and former
Federal Reserve Chairman Paul Volcker, an Obama adviser. Gary Cohn, president of
Goldman Sachs; Barry Zubrow, chief risk officer of JPMorgan Chase & Co.; and Tom Nides, executive vice president and chief operating officer of Morgan Stanley, also told the administration they would attend.
Diamond said afterward the administration, Congress and the banking industry are “working very closely, very constructively” on the legislation Obama is seeking. “Strong banks” want regulation, Diamond said in a Bloomberg Television interview outside Cooper Union.
The audience for the speech was the broader public, not just executives, White House spokesman Robert Gibbs told reporters aboard Air Force One on the way to New York.
“The speech wasn’t intended to gather CEOs and speak directly to them,” Gibbs said. “It’s intended to speak to the country” about the legislation’s importance, Gibbs said.
Obama said financial firms as well as taxpayers will benefit by the imposition of new standards to prevent “reckless risk-taking,” the creation of a mechanism to unwind institutions whose failure threatens the financial system, and a more transparent market for trading derivatives.
He criticized the “battalions of financial industry lobbyists descending on Capitol Hill” to influence the legislation. Obama also sought to directly rebut charges by congressional Republicans that the legislation would guarantee future government bailouts of failing firms.
“There is a legitimate debate taking place about how best to ensure taxpayers are held harmless in this process,” he said. “But what is not legitimate is to suggest that we’re enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it’s not factually accurate.”
At issue is legislation sponsored by Senate Banking Committee Chairman Christopher Dodd, which may come to the Senate floor as early as next week. It would set up a new regulator within the
Federal Reserve to guard consumers against abuse and deception in such instruments as mortgages, credit cards or loans. It would also create the mechanism to dismantle systemically important financial firms when they fail, and strengthen oversight of derivatives and hedge funds.
The House has already passed its version of the regulatory-overhaul legislation, and the House and Senate would have to merge their bills.
In making the case for derivatives regulation, Obama cited the example of American International Group Inc., which he said had to be bailed out with taxpayer money because of “huge and risky bets” with derivatives made “in ways that defied accountability, or even common sense.”
He quoted billionaire investor Warren Buffett who described “derivatives that were bought and sold with little oversight as ‘financial weapons of mass destruction.’”
In urging Wall Street firms to work with him on the regulatory overhaul, Obama said he wants a system that will allow innovation to thrive while also protecting consumers and investors.
“We do not have to choose between markets unfettered by even modest protections against crisis, and markets stymied by onerous rules that suppress enterprise and innovation,” he said.
To give the address, Obama returned to the site where, during the 2008 presidential campaign, he outlined his proposals for a new regulatory regime.
“I take no satisfaction in noting that my comments have largely been borne out by the events that followed,” he said.--
Bloomberg
