Obama to Wall Street: Return To Normalcy Cannot Lead to Complacency
Earlier today, on the one-year anniversary of Lehman Brothers’ downfall - an event viewed as the penultimate trigger point in the credit crisis, leading to a broader economic crisis which the government sought to stem through the Emergency Economic Stabilization Act of 2008, and the American Recovery and Reinvestment Act of 2009 - President Barack Obama gave a speech on Wall Street in which he noted that: “the growing stability resulting from these interventions means we are beginning to return to normalcy. But what I want to emphasize is this: normalcy cannot lead to complacency.”
Obama called for common-sense, financial regulatory reform, adding: "I have urged leaders in Congress to pass regulatory reform this year and both Congressman Frank and Senator Dodd, who are leading this effort, have made it clear that that's what they intend to do."
"Now there will be those who defend the status quo -- there always are," said Obama, adding, "There will be those who argue we should do less or nothing at all. There will be those who engage in revisionist history or have selective memories, and don't seem to recall what we just went through last year. But to them I'd say only this: Do you really believe that the absence of sound regulation one year ago was good for the financial system? 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? Was that good for the American people?"
On the subject of systemic risk, Obama said:
While holding the Federal Reserve fully accountable for regulation of the largest, most interconnected firms, we'll create an oversight council to bring together regulators from across markets to share information, to identify gaps in regulation, and to tackle issues that don't fit neatly into an organizational chart. We'll also require these financial firms to meet stronger capital and liquidity requirements and observe greater constraints on their risky behavior. That's one of the lessons of the past year. The only way to avoid a crisis of this magnitude is to ensure that large firms can't take risks that threaten our entire financial system, and to make sure that they have the resources to weather even the worst of economic storms.
Even as we've proposed safeguards to make the failure of large and interconnected firms less likely, we've also created -- proposed creating what's called "resolution authority" in the event that such a failure happens and poses a threat to the stability of the financial system. This is intended to put an end to the idea that some firms are "too big to fail."
He reiterated his plan to create a Consumer Financial Protection Agency, and to close regulatory gaps and loopholes domestically and as part of international regulation, a subject he noted will arise at the upcoming G-20 meeting later this month in Pittsburgh.
Read a transcript of Obama’s remarks http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-on-Financial-Rescue-and-Reform-at-Federal-Hall ; here is the list of attendees http://www.whitehouse.gov/the_press_office/Expected-attendees-at-the-Presidents-Federal-Hall-speech-today invited to the speech. (For additional background, see our June 17 post http://financialexecutives.blogspot.com/2009/06/treasury-releases-reg-reform-paper-in.html on the U.S. Treasury Department's report issued in June on Financial Regulatory Reform: A New Foundation.)
Republican Response; Other Commentary
House Minority Leader John Boehner (R-OH) issued a response http://republicanleader.house.gov/News/DocumentSingle.aspx?DocumentID=144549 entitled, President Fails to Provide “Clear Exit Strategy” from Continued Washington Bailouts; Boehner's response links to the Comprehensive Financial Regulatory Reform legislation suggested by House Republicans earlier this year.
Related coverage of the President's speech and the topic of financial regulatory reform in general can be found in Forbes, The Banker-in-Chief on Wall Street http://www.forbes.com/2009/09/14/banking-barack-obama-business-beltway-prexy.html , and The Hard Truth About Financial Regulation http://www.forbes.com/2009/09/11/financial-regulation-reform-business-wall-street-year.html , and in Time, On Finance Reform, Obama's Unlikely Partner http://www.time.com/time/politics/article/0,8599,1922110,00.html?xid=rss-nation-yahoo , about Sen. Richard Shelby (R-AL), ranking Republican on the Senate Banking Commitee.