hide captionPresident Obama speaks about reforming Wall Street and financial reform legislation during a speech Thursday at The Cooper Union for the Advancement of Science and Art.
Saul Loeb/AFP/Getty Images
President Obama speaks about reforming Wall Street and financial reform legislation during a speech Thursday at The Cooper Union for the Advancement of Science and Art.
Saul Loeb/AFP/Getty Images
President Obama traveled to the nation's economic hub Thursday to urge support for a raft of tough financial regulations, warning that without new curbs on reckless financial behavior, the U.S. is at risk of another economic meltdown.
Speaking at a private Manhattan college blocks from Wall Street, Obama made his pitch for legislation that includes more protection for consumers, limits the size of banks and the risks they can assume, and creates transparency for complex derivatives.
Noting what he called "the furious effort of industry lobbyists to shape this legislation to their special interests," Obama nevertheless urged financial executives in the audience to "join us, instead of fighting us in this effort."
In his speech at The Cooper Union for the Advancement of Science and Art, Obama hammered on the same theme that he railed against when he spoke there as a presidential candidate: the "failure of responsibility" on Wall Street and in Washington.
Since that 2008 address — six months before the collapse of Lehman Brothers — more than 8 million people have lost their jobs and countless businesses have shut their doors as the nation teetered on the brink of a second Great Depression. "I take no satisfaction in noting that my comments then have largely been borne out by the events that followed," Obama told the crowd Thursday.
"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 the American people."
Passage of regulatory legislation has moved to the top of Obama's legislative agenda since he signed the health care overhaul bill in March. Congress is considering two plans for a financial regulatory overhaul: The House has passed a bill, and a Senate version is headed for a test vote.
Republicans have been skeptical of the measure and there was more of that skepticism after Obama's comments on Thursday.
"The truth is, the American people have had enough of the federal government," said House Republican leader John Boehner. He said Obama-backed legislation "will enrich Wall Street at the expense of every other financial institution in the country."
Republican National Committee Chairman Michael Steele said the legislation would result in "piling on additional layers of job-killing bureaucracy that could add more instability to our financial markets."
But Democrats on Thursday set an initial showdown vote for next Monday.
"The time for stalling is over," Senate Majority Leader Harry Reid said. The comment came even as negotiations with Republicans continued on the issue.
The bills give the government power to liquidate large financial institutions in order to limit their impact on the economy in the event of a collapse. The Bush administration and the Federal Reserve gave billions in taxpayer dollars to insurance giant American International Group — one of the institutions considered "too big to fail."
"We need a system to shut these firms down with the least amount of collateral damage to innocent people and innocent businesses," Obama said. "The goal is to make certain that taxpayers are never again on the hook because a firm is deemed too big to fail."
Obama dismissed Republican criticism that a proposed $50 billion fund — paid for by the industry — to help failing institutions would set the stage for permanent government bailouts. Democrats say the fund would lead to bankruptcy, not rescue.
"There's a legitimate debate taking place about how best to ensure taxpayers are held harmless in this process. ... 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," Obama said. "A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That's the truth."
Although passage is far from certain, Senate leaders on both sides have predicted there would be a bipartisan compromise. The president said he was pleased one Republican — Iowa Sen. Chuck Grassley — had voted in favor of a provision that would regulate derivatives.
"The only people who ought to fear this kind of oversight and transparency that we're proposing are those whose conduct will fail this scrutiny," Obama said.
Earlier this week, Treasury Secretary Timothy Geithner warned a House panel that financial failures are inevitable. Addressing a committee investigating the Lehman collapse, Geithner said the financial regulatory system must be overhauled to help limit the damage of future collapses.
"Any strategy that relies on market discipline to compensate for weak regulation and then leaves it to government to clean up the mess is a strategy for disaster," Geithner warned the House Financial Services Committee. Lehman set off global panic in the financial markets in September 2008 when it submitted what was the largest bankruptcy filing in U.S. history.
With many top financial leaders in the audience at The Cooper Union college, Obama called on them to tone down the efforts of an army of lobbyists to derail or water down the legislation. "I am sure that many of those lobbyists work for some of you," he said.
Among those present for the speech was Goldman Sachs chief Lloyd Blankfein. Last week, Securities and Exchange Commission attorneys charged the investment bank with fraud in a broad-ranging civil lawsuit, and the case has increased pressure on lawmakers to back the regulatory overhaul.
The Wall Street Journal reported that executives from Barclays, Morgan Stanley, Credit Suisse and JPMorgan Chase were also present. The paper said the Wall Street titans were subdued during the speech and did not applaud when the president talked about charging banks a fee to recover the remaining bailout money that has not been repaid.
Obama acknowledged that some of the proposed rules are unpopular on Wall Street — the derivatives measure, for example, could cut deeply into a profit center for big investment banks — but called on industry to support the legislation. "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," he said.
Reckless behavior in the financial markets was one of the leading causes of the great recession, Obama said, adding that the rules being debated in the Senate would rein in the worst excesses without stifling the free market. The Senate bill would:
— Limit the size of banks and the kinds of risks they can take.
— Bring transparency to financial markets.
— Provide consumers with increased financial protections.
— Give shareholders increased power to limit salaries and bonuses for top executives.
Reading from a June 1933 issue of Time magazine, Obama noted that legislation that created the Federal Deposit Insurance Corp. was also opposed by Wall Street financiers.
Curbing risky behavior benefits the broader economy as well as Wall Street, he told the crowd.
"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," Obama said.
"This is the central lesson not only of this crisis, but of our history."
NPR's Scott Horsley contributed to this report, which also contains material from The Associated Press