Obama's financial reform speech

Full text of Obama's speech on Wall Street reformas prepared for delivery at Cooper Union college in New York City on TApril 22, 2010

"It's good to be back in the Great Hall at Cooper Union, where generations of leaders and citizens have come to defend their ideas and contest their differences. It's also good being back in Lower Manhattan, a few blocks from Wall Street, the heart of our nation's financial sector.

"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 has been lost, forcing seniors to put off retirement, young people to postpone college, and 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.

"As a result of the decisions we made - some which were unpopular - we are seeing hopeful signs.  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 we have more work to do. Until this progress is felt not just on Wall Street but Main Street we cannot be satisfied. Until the millions of our neighbors who are looking for work can find jobs, and wages are growing at a meaningful pace, we may be able to claim a recovery - but we will not have recovered. And even as we seek to revive this economy, it is incumbent on us to rebuild it stronger than before.

"That means addressing some of the underlying problems that led to this turmoil and devastation in the first place. One of the most significant contributors to this recession was a financial crisis as dire as any we've known in generations. And that crisis was born of a failure of responsibility - from Wall Street 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. I take no satisfaction in noting that my comments 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 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.

"As I said two years ago on this stage, 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. But a free market was never meant to be a free license to take whatever you can get, however you can get it. That is what happened too often in the years leading up to the crisis. Some on Wall Street forgot that behind every dollar traded or leveraged, there is a 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.

"I have 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, leaving our families, businesses and the global economy vulnerable to future crises. That is why I feel so strongly that we need to enact a set of updated, common-sense rules to ensure accountability on Wall Street and to protect consumers in our financial system.

"A comprehensive plan to achieve these reforms has passed the House of Representatives. A Senate version is currently being debated, drawing on the ideas of Democrats and Republicans. Both bills represent significant improvement on the flawed rules we have in place today, despite the furious efforts of industry lobbyists to shape them to their special interests. I am sure that many of those lobbyists work for some of you. But I am here today because I want to urge you to join us, instead of fighting us in this effort. I am 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 our financial sector. And I am here to explain what reform will look like, and why it matters.

"First, the bill being considered in the Senate would create what we did not have before: a way to protect the financial system, the broader economy, and American taxpayers in the event that a large financial firm begins to fail. If an ordinary local bank approaches insolvency, we have a process through the FDIC that insures depositors and maintains confidence in the banking system. And it works. Customers and taxpayers are protected and the owners and management lose their equity. But we don't have any 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. That's why, to save the entire economy from an even worse catastrophe, we had to deploy taxpayer dollars. And although 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 the rest - the American people should never have been put in that position in the first place.

"It is for this reason that we need a system to shut these firms down with the least amount of collateral damage to innocent people and businesses. And from the start, I've insisted that the financial industry - and 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 is a legitimate debate taking place about how best to ensure taxpayers are held harmless in this process. But what is not legitimate is to suggest that we're enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it's not factually accurate. In fact, the system as it stands is what led to a series of massive, costly taxpayer bailouts. Only with reform can we avoid a similar outcome in the future. A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That's the truth.

"And 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: which 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 did not trust that our system was one in which it was safe to invest or lend. As we've seen, that harms all of us. By enacting these reforms, we'll help ensure that our financial system - and our economy - continues to be the envy of the world.

"Second, 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 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 and complex that few within these companies - let alone those charged with oversight - were fully aware of the massive wagers being made. That's what led Warren Buffett to describe derivatives that were bought and sold with little oversight as "financial weapons of mass destruction." And that's why reform will rein in excess and help ensure that these kinds of transactions take place in the light of day.

"There has 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 help allay risk and spur investment. And there are a great many companies that use these instruments to that end - managing exposure to fluctuating prices, currencies, and markets. A business might hedge against rising oil prices, for example, by buying a financial product to secure stable fuel costs. That's how markets are supposed to work. The problem is, these markets operated in the shadows of our economy, invisible to regulators and to the public. Reckless practices were rampant. Risks accrued until they threatened our entire financial system.

"That's why these reforms are designed to respect legitimate activities but prevent reckless risk taking. And that's why we want to ensure that financial products like standardized derivatives are traded in the open, in full view of businesses, investors, and those charged with oversight. I was encouraged to see a Republican Senator join with Democrats this week in moving forward on this issue. 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 this kind of oversight and transparency are those whose conduct will fail its scrutiny.

"Third, this plan would enact the strongest consumer financial protections ever. This is absolutely necessary. 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 around kitchen tables across America, by folks taking on mortgages and credit cards and auto loans. And while it's true that many Americans took on financial obligations they knew - or should have known - they could not afford, 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 suffered. Millions of people have lost homes - and 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, doing home repairs in California or using your home equity to start a small business in Florida.

"That's why we need to give consumers more protection and power in our financial system. This is not about stifling competition or innovation. Just the opposite: with a dedicated agency setting ground rules and looking out for ordinary people in our financial system, we'll empower consumers with clear and concise information when making financial decisions. Instead of competing to offer confusing products, companies will compete the old-fashioned way: by offering better products. 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.

"Finally, these Wall Street reforms will give shareholders new power in the financial system. They'll get 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 companies 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 about enormous executive bonuses at firms even as they were relying on assistance from taxpayers, it offended our fundamental values.

"Not only that, some of the salaries and bonuses we've seen created 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 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. That has to change.

"I'll 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 we also need reform in Washington. And the debate over these changes is a perfect example.

"We've seen battalions of financial industry lobbyists descending on Capitol Hill, as firms spend millions to influence the outcome of this debate. We've seen misleading arguments and attacks designed not to improve the bill but to weaken or kill it. And we've seen a bipartisan process buckle under the weight of these withering forces, even as we have produced a proposal that is by all accounts a common-sense, reasonable, non-ideological approach to target the root problems that led to the turmoil in our financial sector.

"But I believe we can and must put this kind of cynical politics aside.  That's why I am here today. We will not always see eye to eye. We will not always agree. But that does not mean we have to choose between two extremes. We do not have to choose between markets unfettered by even modest protections against crisis, and markets stymied by onerous rules that suppress enterprise and innovation. That's a false choice. And we need no more proof than the crisis we've just been through.

"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 balance. But managing that tension, one we've debated since our founding, 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 our well-worn principles with each new age, we ensure that we do not tip too far one way or the other - that our democracy remains as dynamic as the economy itself. Yes, the debate can be contentious. It can be heated. But in the end it serves to make our country stronger. It has allowed us to adapt and thrive.

"I read a report recently that I think fairly illustrates this point. It's from Time Magazine. And I 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. The system that caused so much concern and consternation? The Federal Deposit Insurance Corporation - 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 excess, that ensure that it is more profitable to play by the rules than to game the system. And that is what these reforms are designed to achieve: no more, no less. Because that is how we will ensure that our economy works for consumers, that it works for investors, that it works for financial institutions - that it works for all of us.

"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. Ultimately, there is no dividing line between Main Street and Wall Street. We rise or we fall together as one nation. So I urge you to join me - to join those who are seeking to pass these common-sense reforms. And I urge you to do so not only because it is in the interests of your industry, but because it is in the interests of our country.

"Thank you. God bless you. And may God bless the United States of America."