By Alexi Mostrous and Neil Irwin
Washington Post Staff Writers
Tuesday, September 15, 2009
NEW YORK, Sept. 14 -- President Obama delivered a stern message to Wall Street on Monday: Don't forget what we did for you.
A year after the failure of investment bank Lehman Brothers and an unprecedented government campaign to prevent the collapse of the financial system, Obama encouraged the industry to reform itself voluntarily and not to stand in the way of new laws meant to prevent excesses from returning.
His administration has two major messages: The economy and financial system are indeed stabilizing. But that should not be an excuse for Wall Street to resume practices that precipitated a deep recession and trillions of dollars in government bailouts.
"Normalcy cannot lead to complacency," Obama told an audience of bankers, traders, lawmakers and others at Federal Hall, steps from the New York Stock Exchange.
"There are some in the financial industry who are misreading this moment," he said. "Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them. . . . We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis."
Obama and his aides have been particularly critical of banks once again paying large bonuses to their employees, relying on high ratios of borrowed money, and continuing to engage in lending practices that can harm consumers.
Obama was seeking to refocus attention on proposals to overhaul financial regulation. His administration has identified this as a priority, but efforts have lost some momentum as the financial crisis has eased and lawmakers are occupied with the health-care debate.
In his speech, Obama offered a reminder that financial firms survived the meltdown last fall only because of expansive efforts by the government, which came at potentially huge cost to taxpayers. Among the dramatic actions were bailing out American International Group, offering a Federal Deposit Insurance Corp. guarantee of bank debt, letting investment banks Goldman Sachs and Morgan Stanley come under the Federal Reserve's protective umbrella, and creating a $700 billion financial rescue fund.
"Many of the firms that are now returning to prosperity owe a debt to the American people," Obama said. "American taxpayers, through their government, took extraordinary action to stabilize the financial industry. They shouldered the burden of the bailout and they are still bearing the burden of the fallout."
Obama eschewed the rousing rhetoric of his recent speeches about health-care reform, instead taking the sober tone of a teacher disappointed by his students. He was interrupted only once by applause.
Even absent legislation, he said, financial firms should use plain language in dealings with consumers, put bonuses for senior executives up to a shareholder vote, rework compensation practices to encourage long-term performance, help struggling homeowners modify their mortgages, and assist small-business owners and communities that need loans.
He also urged support for the far-reaching changes to financial regulation that he has proposed. These include creating a new agency with broad powers to protect consumers of financial products such as mortgages, giving the Federal Reserve new powers to oversee risks to the overall financial system, and obligating firms to meet stronger capital and liquidity requirements.
Financial industry officials, at least those who spoke publicly, said they agree with the president that fundamental changes are necessary.
"I agree with his comments on responsibility," said T. Timothy Ryan Jr., chief executive of the Securities Industry and Financial Markets Association. "We recognize that we have a responsibility to acknowledge that we helped contribute to the pain the nation is experiencing and that we have a responsibility to do what we can to diminish the chance it happens again."
But behind the scenes, financial companies have pushed to dilute or delay elements of the administration's plan on Capitol Hill. There is particular resistance emerging over how much power to give to a new regulator of consumer financial products. An ad campaign launched by the U.S. Chamber of Commerce, for example, has argued that it might crimp the ability of businesses to get credit.
Sally Greenberg, the executive director of the National Consumers League, an advocacy group invited to hear Obama's speech, said she was encouraged by the president's focus on protecting consumers. "It's going to be difficult because of the special interest groups," she said. "But for the first time in eight years we've got a seat at the table."
New York Mayor Michael R. Bloomberg (I), who moves in the worlds of both politics and finance, praised Obama's approach.
"Is he going to get beaten up? Sure. Is he going to get everything he wants? No," Bloomberg said in an interview after the speech. "But he deserves a lot of credit. At least he's willing to put some of his political capital on the line for what he believes in."
Irwin reported from Washington.