WASHINGTON — President Barack Obama has chosen the place where the economic meltdown began to argue that it can never happen again and pleading for legislation imposing stronger oversight on the financial industry. Without it, he says, America is doomed to repeat the past.
In a speech today at New York’s Cooper Union College near Wall Street, Obama was outlining the need for new financial regulations and explaining what the nation would be risking if the existing framework is allowed to remain in place unchanged.
The president also was calling on Wall Street to join — not fight — the overhaul effort.
Obama spoke at Cooper Union as a presidential candidate in March 2008 and decried practices that he said too often rewarded financial manipulation instead of productivity and sound business practices.
“I take no satisfaction in noting that my comments have largely been borne out by the events that followed,” Obama said in excerpts of his prepared remarks for Thursday, which the White House released several hours before the speech.
“But I repeat what I said then because it is essential that we learn the lessons of 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 — an outcome that is unacceptable to me and to the American people,” he said.
The sweeping regulation, representing the broadest attempt to overhaul the U.S. financial system since the 1930s, aims to prevent another crisis. Democrats are preparing to bring the Senate version of the bill up for debate, but solid GOP opposition has complicated the effort. The House passed its version of the bill in December.
The bills would create a mechanism for liquidating large, interconnected financial firms considered too big to fail. At the height of crisis in 2008, the Bush administration and the Federal Reserve were forced to provide billions of taxpayer dollars to prop up the giant insurer American International Group Inc., several banks and various financial institutions. The moves were highly unpopular with voters.
The bills also, for the first time, would impose oversight on the market for derivatives — complicated financial instruments whose value is derived from the value of other investments. The measures also would create a council to detect threats to the broader financial system and establish a consumer protection agency to police consumers’ dealings with banks and other financial institutions.
The Senate Agriculture Committee on Wednesday approved a bill by its chairwoman, Democratic Sen. Blanche Lincoln, to limit banks’ ability to trade derivatives and to make such transactions more open. Lincoln’s proposal is more sweeping than those offered by the Obama administration and the House, but it is expected to become part of the Senate financial overhaul bill.
Both political parties agree that an overhaul is in order, but Senate Republicans are insisting on changes to the bill. All 41 Senate Republicans signed a letter last week saying they would block the measure.
Republicans contend that Democratic plans to create a $50 billion fund, paid for by the industry, to help unwind failing institutions would encourage Wall Street banks to take risks and to expect future bailouts. Democrats say the fund would lead to bankruptcy, not rescue. The Obama administration does not support the fund and would not object to its being removed from the bill.
At the same time, Senate Banking Committee Chairman Chris Dodd, a Democrat, and Sen. Richard Shelby, the panel’s top Republican, have been trying to negotiate a compromise measure that could win Republican support.
Democrats have accused Senate Republican leader Mitch McConnell of Kentucky of aiding efforts by the financial industry and others to fend off the attempt to impose tighter regulation.
Obama said Thursday that he believes in the power of a free market, but that in a 21st century economy there no longer is a dividing line between Main Street and Wall Street. That means decisions made in corporate boardrooms can have lasting effects on decisions made around kitchen tables, he said.
“A free market was never meant to be a free license to take whatever you can get, however you can get it,” Obama said in remarks identical to those in his speech two years ago.
“That is what happened too often in the years leading up to the crisis,” he said. “Some on Wall Street forgot that behind every dollar traded or leveraged, there is family looking to buy a house, pay for an education, open a business or save for retirement. What happens here has real consequences across our country.”
New York Mayor Michael Bloomberg was expected in the audience of approximately 700 financial industry leaders, consumer advocates, presidential advisers, local officials, students, faculty and others for Obama’s speech.
The billionaire Bloomberg, who got his start on Wall Street in the 1960s, has argued that too much regulation could jeopardize the economy as much as others say tighter regulation would protect it. The industry helps fill New York City’s coffers with millions of dollars in revenue from taxes on Wall Street profits.
But Bloomberg’s administration says the mayor backs the idea of regulating derivatives, creating a council to detect threats to the financial system and establishing a consumer protection agency.