President Obama Tells Wall Street to Back Reform

The President:
Thank you very much. Everybody, please have a seat. Thank you very much. Well, thank you. It is good to be back. (applause) It is good to be
back in New York, it is good to be back in the
Great Hall at Cooper Union. (applause) We’ve got some special guests
here that I want to acknowledge. Congresswoman Carolyn
Maloney is here in the house. (applause) Governor David Paterson is here. (applause) Attorney General Andrew Cuomo. (applause) State Comptroller Thomas
DiNapoli is here. (applause) The Mayor of New York
City, Michael Bloomberg. (applause) Dr. George Campbell, Jr.,
president of Cooper Union. (applause) And all the citywide elected
officials who are here. Thank you very much
for your attendance. It is wonderful to be
back in Cooper Union, where generations of leaders and
citizens have come to defend their ideas and contest
their differences. It’s also good to be
back in Lower Manhattan, a few blocks from Wall Street. (laughter) It really is good to be back,
because Wall Street’s the heart of our nation’s
financial sector. Now, since I last spoke
here two years ago, our country has been
through a terrible trial. More than 8 million people
have lost their jobs. Countless small businesses
have had to shut their doors. Trillions of dollars in
savings have been lost — forcing seniors to
put off retirement, young people to
postpone college, entrepreneurs to give up on the
dream of starting a company. And as a nation we were forced
to take unprecedented steps to rescue the financial system
and the broader economy. And as a result of the
decisions we made — some of which, let’s face
it, were very unpopular — we are seeing hopeful signs. A little more than one year ago
we were losing an average of 750,000 jobs each month. Today, America is
adding jobs again. One year ago the economy
was shrinking rapidly. Today the economy is growing. In fact, we’ve seen the fastest
turnaround in growth in nearly three decades. But you’re here and I’m here
because we’ve got more work to do. Until this progress is felt not
just on Wall Street but on Main Street, we can’t be satisfied. Until the millions of our
neighbors who are looking for work can find a job, and wages
are growing at a meaningful pace, we may be able to
claim a technical recovery — but we will not have
truly recovered. And even as we seek to
revive this economy, it’s also incumbent on us to
rebuild it stronger than before. We don’t want an economy that
has the same weaknesses that led to this crisis. And that means addressing some
of the underlying problems that led to this turmoil and
devastation in the first place. Now, one of the most significant
contributors to this recession was a financial crisis as
dire as any we’ve known in generations — at
least since the ’30s. And that crisis was born of a
failure of responsibility — from Wall Street all
the way to Washington — that brought down many of the
world’s largest financial firms and nearly dragged our economy
into a second Great Depression. It was that failure of
responsibility that I spoke about when I came to New York
more than two years ago — before the worst of the
crisis had unfolded. It was back in 2007. And I take no satisfaction in
noting that my comments then have largely been borne out
by the events that followed. But I repeat what I said then
because it is essential that we learn the lessons from this
crisis so we don’t doom ourselves to repeat it. And make no mistake, that is
exactly what will happen if we allow this moment to pass —
and that’s an outcome that is unacceptable to me and
it’s unacceptable to you, the American people. (applause) As I said on this
stage two years ago, I believe in the power
of the free market. I believe in a strong financial
sector that helps people to raise capital and get loans
and invest their savings. That’s part of what has
made America what it is. But a free market was never
meant to be a free license to take whatever you can get,
however you can get it. That’s what happened too often
in the years leading up to this crisis. Some — and let me
be clear, not all — but some on Wall Street forgot
that behind every dollar traded or leveraged, there’s a family
looking to buy a house, or pay for an education, open a
business, save for retirement. What happens on Wall Street has
real consequences across the country, across our economy. I’ve also spoken before about the need to build a new foundation for economic
growth in the 21st century. And given the importance
of the financial sector, Wall Street reform is an
absolutely essential part of that foundation. Without it, our house will
continue to sit on shifting sands, and our
families, businesses, and the global economy will be
vulnerable to future crises. That’s why I feel so strongly
that we need to enact a set of updated, commonsense rules to
ensure accountability on Wall Street and to protect consumers
in our financial system. (applause) Now, here’s the good news: A
comprehensive plan to achieve these reforms has already passed
the House of Representatives. (applause) A Senate version is
currently being debated, drawing on ideas from
Democrats and Republicans. Both bills represent significant
improvement on the flawed rules that we have in place today,
despite the furious effort of industry lobbyists to shape this
legislation to their special interests. And for those of you in the
financial sector I’m sure that some of these lobbyists work for
you and they’re doing what they are being paid to do. But I’m here today
specifically — when I speak to the
titans of industry here — because I want to
urge you to join us, instead of fighting
us in this effort. I am here — (applause) I’m here because I believe that
these reforms are, in the end, not only in the best
interest of our country, but in the best interest
of the financial sector. And I’m here to explain
what reform will look like, and why it matters. Now, first, the bill being
considered in the Senate would create what we did
not have before, and that is a way to protect the
financial system and the broader economy and American taxpayers
in the event that a large financial firm begins to fail. If there’s a Lehmans or an AIG,
how can we respond in a way that doesn’t force taxpayers to pick
up the tab or, alternatively, could bring down
the whole system? In an ordinary local bank when
it approaches insolvency, we’ve got a process, an orderly
process through the FDIC, that ensures that
depositors are protected, maintains confidence in the
banking system, and it works. Customers and taxpayers are
protected and owners and management lose their equity. But we don’t have that kind of
process designed to contain the failure of a Lehman Brothers
or any of the largest and most interconnected financial
firms in our country. That’s why, when
this crisis began, crucial decisions about what
would happen to some of the world’s biggest companies — companies employing tens of thousands of people and holding hundreds of billions of dollars in assets — had to take place in hurried discussions in the middle of the night. And that’s why, to save the
entire economy from an even worse catastrophe, we had
to deploy taxpayer dollars. Now, much of that money has
now been paid back and my administration has proposed
a fee to be paid by large financial firms to recover
all the money, every dime, because the American people
should never have been put in that position in
the first place. (applause) But this is why we need a system
to shut these firms down with the least amount of collateral
damage to innocent people and innocent businesses. And from the start, I’ve
insisted that the financial industry, not taxpayers,
shoulder the costs in the event that a large financial
company should falter. The goal is to make certain that
taxpayers are never again on the hook because a firm is
deemed “too big to fail.” Now, there’s a legitimate debate
taking place about how best to ensure taxpayers are held
harmless in this process. And that’s a legitimate debate,
and I encourage that debate. But what’s not legitimate is
to suggest that somehow the legislation being proposed
is going to encourage future taxpayer bailouts,
as some have claimed. That makes for a
good sound bite, but it’s not factually accurate. It is not true. In fact, the system
as it stands — (applause) — the system as it stands is what led to a series of massive, costly taxpayer bailouts. And it’s only with reform that
we can avoid a similar outcome in the future. In other words, a vote for
reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth. End of story. And nobody should be
fooled in this debate. (applause) By the way, these changes have
the added benefit of creating incentives within the industry
to ensure that no one company can ever threaten to bring
down the whole economy. To that end, the bill would
also enact what’s known as the Volcker Rule — and there’s a tall guy sitting in the front row here, Paul Volcker — (applause) — who we named it after. And it does something very
simple: It places some limits on the size of banks and the
kinds of risks that banking institutions can take. This will not only safeguard
our system against crises, this will also make our system
stronger and more competitive by instilling confidence here at
home and across the globe. Markets depend on
that confidence. Part of what led to the turmoil
of the past two years was that in the absence of clear
rules and sound practices, people didn’t trust that our
system was one in which it was safe to invest or lend. As we’ve seen, that
harms all of us. So by enacting these reforms,
we’ll help ensure that our financial system —
and our economy — continues to be the
envy of the world. That’s the first thing, making
sure that we can wind down one firm if it gets into trouble
without bringing the whole system down or forcing
taxpayers to fund a bailout. Number two, reform would bring
new transparency to many financial markets. As you know, part of what led to
this crisis was firms like AIG and others who were making
huge and risky bets, using derivatives and other
complicated financial instruments, in ways that
defied accountability, or even common sense. In fact, many practices were
so opaque, so confusing, so complex that the people
inside the firms didn’t understand them, much less those
who were charged with overseeing them. They weren’t fully aware of the
massive bets that were being placed. That’s what led Warren Buffett
to describe derivatives that were bought and sold with little
oversight as “financial weapons of mass destruction.” That’s what he called them. And that’s why reform will rein
in excess and help ensure that these kinds of transactions
take place in the light of day. Now, there’s been a great deal
of concern about these changes. So I want to reiterate: There
is a legitimate role for these financial instruments
in our economy. They can help allay risk
and spur investment. And there are a lot of companies
that use these instruments to that legitimate end — they are managing exposure to fluctuating prices or currencies, fluctuating markets. For example, a business might
hedge against rising oil prices by buying a financial product
to secure stable fuel costs, so an airlines might have an
interest in locking in a decent price. That’s how markets
are supposed to work. The problem is these markets
operated in the shadows of our economy, invisible
to regulators, invisible to the public. So reckless practices
were rampant. Risks accrued until they
threatened our entire financial system. And that’s why these reforms are
designed to respect legitimate activities but prevent
reckless risk taking. That’s why we want to ensure
that financial products like standardized derivatives
are traded out in the open, in the full view of
businesses, investors, and those charged
with oversight. And I was encouraged to see a
Republican senator join with Democrats this week in moving
forward on this issue. That’s a good sign. (applause) That’s a good sign. For without action, we’ll
continue to see what amounts to highly-leveraged,
loosely-monitored gambling in our financial system, putting
taxpayers and the economy in jeopardy. And the only people who ought to
fear the kind of oversight and transparency that we’re
proposing are those whose conduct will fail this scrutiny. Third, this plan would enact the
strongest consumer financial protections ever. And that’s absolutely
necessary because — (applause) — because this financial crisis wasn’t just the result of decisions made in the executive
suites on Wall Street; it was also the result of decisions made across kitchen tables across America, by folks who took on mortgages and credit cards and auto loans. And while it’s true that many
Americans took on financial obligations that they knew or
should have known they could not have afforded, millions of
others were, frankly, duped. They were misled by deceptive
terms and conditions, buried deep in the fine print. And while a few companies made
out like bandits by exploiting their customers, our entire
economy was made more vulnerable. Millions of people have
now lost their homes. Tens of millions more have
lost value in their homes. Just about every sector of our
economy has felt the pain, whether you’re paving
driveways in Arizona, or selling houses in Ohio, or
you’re doing home repairs in California, or you’re using your
home equity to start a small business in Florida. That’s why we need to give
consumers more protection and more power in our
financial system. This is not about
stifling competition, stifling innovation;
it’s just the opposite. With a dedicated agency setting
ground rules and looking out for ordinary people in
our financial system, we will empower consumers with
clear and concise information when they’re making
financial decisions. So instead of competing to
offer confusing products, companies will compete
the old-fashioned way, by offering better products. And that will mean more
choices for consumers, more opportunities
for businesses, and more stability in
our financial system. And unless your business model
depends on bilking people, there is little to fear
from these new rules. (applause) Number four, the last
key component of reform. These Wall Street reforms will
give shareholders new power in the financial system. They will get what
we call a say on pay, a voice with respect to the
salaries and bonuses awarded to top executives. And the SEC will have the
authority to give shareholders more say in corporate elections,
so that investors and pension holders have a stronger role
in determining who manages the company in which they’ve
placed their savings. Now, Americans don’t begrudge
anybody for success when that success is earned. But when we read in the past,
and sometimes in the present, about enormous executive
bonuses at firms — even as they’re relying on
assistance from taxpayers or they’re taking huge risks that
threaten the system as a whole or their company
is doing badly — it offends our
fundamental values. Not only that, some of the
salaries and bonuses that we’ve seen creates perverse incentives
to take reckless risks that contributed to the crisis. It’s what helped lead to a
relentless focus on a company’s next quarter, to the detriment
of its next year or its next decade. And it led to a situation in
which folks with the most to lose — stock and
pension holders — had the least to
say in the process. And that has to change. (applause) Let me close by saying this. I have laid out a set
of Wall Street reforms. These are reforms that would put
an end to taxpayer bailouts; that would bring complex
financial dealings out of the shadows; that would
protect consumers; and that would give shareholders
more power in the financial system. But let’s face it, we also
need reform in Washington. And the debate over
these changes — (applause) The debate over these
changes is a perfect example. I mean, we have seen battalions
of financial industry lobbyists descending on Capitol Hill,
firms spending millions to influence the outcome
of this debate. We’ve seen misleading arguments
and attacks that are designed not to improve the bill but
to weaken or to kill it. We’ve seen a bipartisan process
buckle under the weight of these withering forces, even as we’ve
produced a proposal that by all accounts is a
commonsense, reasonable, non-ideological approach to
target the root problems that led to the turmoil in our
financial sector and ultimately in our entire economy. So we’ve seen business
as usual in Washington, but I believe we can and must
put this kind of cynical politics aside. We’ve got to put an end to it. That’s why I’m here today. (applause) That’s why I’m here today. (applause) And to those of you who are
in the financial sector, let me say this, we will
not always see eye to eye. We will not always agree. But that doesn’t mean that
we’ve got to choose between two extremes. We do not have to choose between
markets that are unfettered by even modest protections
against crisis, or markets that are stymied by
onerous rules that suppress enterprise and innovation. That is a false choice. We need no more proof than the crisis that we’ve just been through. You see, there has always been
a tension between the desire to allow markets to function
without interference and the absolute necessity of rules to
prevent markets from falling out of kilter. But managing that tension, one
that we’ve debated since the founding of this nation, is what
has allowed our country to keep up with a changing world. For in taking up this debate,
in figuring out how to apply well-worn principles
with each new age, we ensure that we don’t tip too
far one way or the other — that our democracy remains as
dynamic and our economy remains as dynamic as it
has in the past. So, yes, this debate
can be contentious. It can be heated. But in the end it serves only
to make our country stronger. It has allowed us to
adapt and to thrive. And I read a report recently
that I think fairly illustrates this point. It’s from Time Magazine. I’m going to quote: “Through
the great banking houses of Manhattan last week
ran wild-eyed alarm. Big bankers stared at
one another in anger and astonishment. A bill just passed… would rivet upon their institutions what they considered a monstrous system…such a system, they felt, would not only
rob them of their pride of profession but would reduce
all U.S. banking to its lowest level.” That appeared in Time
Magazine in June of 1933. (laughter and applause) The system that caused
so much consternation, so much concern was the Federal Deposit Insurance Corporation, also known as the FDIC,
an institution that has successfully secured the deposits of generations of Americans. In the end, our
system only works — our markets are only free — when there are basic safeguards that prevent abuse,
that check excesses, that ensure that it is more profitable to play by the rules than to game the system. And that is what the reforms
we’ve been proposing are designed to achieve
— no more, no less. And because that is how we will
ensure that our economy works for consumers, that it
works for investors, and that it works for
financial institutions — in other words, that it
works for all of us — that’s why we’re working so
hard to get this stuff passed. This is the central lesson not
only of this crisis but of our history. It’s what I said when I
spoke here two years ago. Because ultimately, there is
no dividing line between Main Street and Wall Street. We will rise or we will fall
together as one nation. (applause) And that is why I urge
all of you to join me. I urge all of you to join me, to
join those who are seeking to pass these commonsense reforms. And for those of you in
the financial industry, I urge you to join me not only
because it is in the interest of your industry, but also because
it’s in the interest of your country. Thank you so much. God bless you, and God bless
the United States of America. Thank you. (applause)

Paul Whisler

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