Obama vows to prevent ‘reckless behavior and unchecked excess’ on Wall Street
Amid strong signs the deep recession has ended, President Obama traveled to Wall Street on a key anniversary in the long financial crisis to deliver a blunt message -- all is not forgotten.
Concerned that the improving economy could derail passage of a major regulatory overhaul this year, Obama warned the financial industry Monday that although “the storms of the past two years are beginning to break . . . normalcy cannot lead to complacency.”
Complicated securities and reckless investments helped send the economy spiraling downward and spurred a government response that pumped $700 billion in federal funds into rescuing the financial system.
“Those on Wall Street cannot resume taking risks without regard for consequences and expect that, next time, American taxpayers will be there to break their fall,” the president said.
Obama went to historic Federal Hall, across the street from the New York Stock Exchange, on the one-year anniversary of the collapse of investment banking giant Lehman Bros. The subsequent market panic a year ago helped turn the recession that began in late 2007 into the worst economic downturn since the Great Depression.
The president’s 30-minute speech was as much a lecture to Wall Street not to repeat its mistakes as it was a pitch for passage of his regulatory overhaul proposals, which are designed to prevent further lapses by giving the government more power to protect consumers and manage risks in the financial system.
Congressional leaders have pledged to pass the legislation this year, but they are running into resistance from some lawmakers and a less-chastened financial services industry.
“I think this is a shot across the bow to show the financial services industry he’s serious about reform and he’s not going to back down,” Travis Plunkett, legislative director for Consumers Union, said about Obama. Consumers Union, which publishes Consumer Reports magazine, strongly backs most of the overhaul.
As he did with his healthcare overhaul last week, the president tried to use a major speech to reinvigorate a key piece of his agenda. And he extended his hand to the industry to help with the process -- but warned it against defending the status quo.
“Yes . . . these rules must be developed in a way that doesn’t stifle innovation and enterprise. And I want to say very clearly here today we want to work with the financial industry to achieve that end,” Obama said.
“But the old ways that led to this crisis cannot stand. And to the extent that some have so readily returned to them underscores the need for change and change now,” he said. “History cannot be allowed to repeat itself.”
Obama was met with a polite but cool reception by several dozen Wall Street executives gathered for the speech, including Citigroup Inc. Chairman Richard Parsons. They applauded only once during his comments -- and tepidly at that -- when the president spoke of the need to create a consumer financial protection agency, which the industry is fighting vigorously.
No chief executives of major Wall Street firms attended. A few executives fiddled with BlackBerrys during the address. Some attendees fidgeted uncomfortably when Obama addressed the high compensation that has returned to some corners of Wall Street.
“Pay is a very sensitive issue,” Don Marron, head of private equity firm Lightyear Capital and former chief of brokerage firm PaineWebber, said after the speech. “Obviously, there have been excesses.
“On the other side, great talent needs to be paid well because if it’s not paid well it’ll leave the banks and go to the hedge funds and private equity funds,” Marron said. “The challenge is to try to do it without regulation that limits the ability, particularly of the big firms, to get the talent they need to make the best use of all the money the government’s given them.”
Obama touted recent signs that the recession might be ending, saying his administration built on the “difficult but necessary” emergency actions of the Bush administration and Congress last fall to help turn around the crisis.
And he noted that after sending billions of taxpayer dollars into the financial system, “we are finally beginning to see money flowing back to the taxpayers” in the form of $70 billion in bailout money repaid by several large banks, at a 17% profit to the government.
“While there continues to be a need for government involvement to stabilize the financial system, that necessity is waning,” Obama said.
But in sharply worded comments, he said all that work would be wasted if Congress does not pass his overhaul of financial regulations.
“One year ago, we saw in stark relief how markets can err; how a lack of common-sense rules can lead to excess and abuse; how close we can come to the brink,” he said.
“One year later, it is incumbent on us to put in place those reforms that will prevent this kind of crisis from ever happening again; that reflect the painful but important lessons we’ve learned; and that will help us move from a period of recklessness and crisis to one of responsibility and prosperity.”
House Speaker Nancy Pelosi (D-San Francisco) promised Monday that “Congress will pass comprehensive reforms.” And two key lawmakers, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) and House Financial Services Committee Chairman Barney Frank (D-Mass.), said they were pressing forward with the legislation.
“Failure to act leaves our economy at risk,” Dodd said. “We will not allow our efforts to be stalled by well-financed special interests intent on keeping the status quo.”
The financial services industry strongly opposes Obama’s plan to create a consumer financial protection agency. It contends that the job is better left to existing agencies.
“There are political pushes and pulls that probably will modify the bill before we get to the end result,” said Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents large institutions. But the bruising fight over healthcare legislation will make it difficult for Congress to pass a regulatory overhaul this year, he said.
Plunkett of Consumers Union said Obama was trying to encourage lawmakers not to waste the opportunity for a major regulatory overhaul
“Hopefully the president’s speech will stiffen the spines of some members of Congress who are wavering,” he said.
Obama urged Wall Street to start changing its behavior and stop resisting his regulatory proposals.
“The fact is, many of the firms that are now returning to prosperity owe a debt to the American people,” he said. “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.”
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walter.hamilton@latimes.com
