12:57 p.m. | Updated President Obama ventured into the backyard of Wall Street on Thursday to directly challenge some of the nation’s most influential bankers to call off their “battalions of financial industry lobbyists” and embrace a new regulatory structure to avert another economic crisis, The New York Times’s Peter Baker reports.
In a much anticipated speech at Cooper Union in Lower Manhattan, Mr. Obama castigated the “failure of responsibility” by Wall Street that led to the financial crisis of 2008 and pressed his case for what he called “a common-sense, reasonable, non-ideological” system of tighter regulation to prevent any recurrence.
The Times’s Sewell Chan provides analysis of Mr. Obama’s speech on The Caucus. The Times’s Floyd Norris provides his assessment of the speech on Notions of High and Low Finance.
The president deflected criticism of the sweeping financial regulatory plan in Congress. “That may make for a good sound bite, but it’s not factually accurate,” Mr. Obama said. “It is not true. In fact, the system as it stands is what led to a series of massive, costly taxpayer bailouts. And it’s only with reform that we can we avoid a similar outcome in the future. In other words, a vote for reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth. End of story.”
Mr. Obama said scrupulous business leaders had no reason to resist his regulation plan. “The only people who ought to fear the kind of oversight and transparency that we’re proposing are those whose conduct will fail this scrutiny,” he said.
Among those on hand were some of the city’s prominent bankers — among them, Lloyd C. Blankfein, the chief executive, and Gary Cohn, the chief operating officer, of Goldman Sachs, the Wall Street giant accused by the federal government last week of defrauding investors during the crisis.
Also on hand were top executives from JPMorgan Chase, Morgan Stanley, Credit Suisse, Barclays and Bank of America, as well as Gov. David A. Paterson, Attorney General Andrew M. Cuomo and Mayor Michael R. Bloomberg, who has expressed concern about the regulation plan and its impact on New York.
Mr. Obama’s calls to empower consumers and rein in risky trading were met with cheers and whistles from the audience, which included students, faculty and union leaders.
But the president was also met with skepticism and outright opposition. The New York Post ran a front-page editorial under the banner headline, “Dear Mr. President, Don’t Kill the Golden Goose: City Economy Imperiled in the Name of ‘Reform.’”
The United States Chamber of Commerce took out full-page ads in New York papers addressing the president: “Mayor Bloomberg has pointed out that beating up on Wall Street may be good short-term politics — but not if it gets in the way of the right solutions.”
Republican operatives from Washington said the president was playing politics and ignoring what they said were some of the real culprits behind the crisis, the government-backed housing giants Fannie Mae and Freddie Mac, accusing Democrats of blocking reforms that would have prevented problems.
“How many times will President Barack Obama mention Fannie/Freddie in his speech on ‘reform’?” Brad Dayspring, a spokesman for Representative Eric Cantor of Virginia, the House Republican whip, said in an e-mail to reporters. “Zero. Not once. Guess it remains the Democrats’ dirty little secret.”
In traveling to New York, the president laid out the elements he insists on being in any legislation sent to him for his signature. Among them are more consumer protections, limits on the size of banks and the risks they can take, reforms on executive compensation and greater transparency for controversial securities known as derivatives.
He registered his grievance with what he called the “misleading arguments and attacks” on his plan by industry lobbyists, taking issue specifically with assertions that Democratic legislation would institutionalize bailouts. “That may make for a good sound bite,” he said, “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.”
He called on industry leaders to drop their opposition. “I am sure that some of those lobbyists work for you and they’re doing what they’re paid to do,” he said. “But I am here today specifically when I speak to titans of industry here 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.”
He added: “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.”
The fight to impose tougher regulation on the financial industry has become the president’s top legislative priority in the weeks since he signed his health care program into law and both parties are jockeying for position on the issue with mid-term elections just six months away. The president and his allies have eagerly portrayed Republicans as handmaidens of Wall Street while the Republicans have accused Democrats of trying to strangle the market and even institutionalize the idea of bailouts in tough times.
The partisan tension appeared to ease somewhat as both sides predicted an eventual bipartisan compromise. A Senate committee on Wednesday sent to the floor a bill imposing tougher rules on derivatives, the complex securities at the heart of the 2008 financial crisis, and one Republican senator joined Democrats in advancing the legislation.
In an interview with CNBC and the New York Times on Wednesday and in the speech Thursday, Mr. Obama avoided attacking Republicans directly, suggesting he was angling for a deal. But he still included tough talk about the industry that he accused of putting profit ahead of propriety.
The president’s address at Cooper Union circled back to another speech he gave at the same location in March 2008 warning of financial manipulation, market bubbles and the concentration of economic power. He repeated some of the same lines he gave two years ago and cast himself as a prescient forecaster before the collapse later that year.
“I take no satisfaction in noting that my comments then have largely been borne out by the events that followed,” he said. “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 is an outcome that is unacceptable to me and it is unacceptable to you, the American people.”
Mr. Obama embraced both the financial regulation bill passed by the House last year and the version now emerging in the Senate. Mr. Obama laid out five elements that “must be included” in the final bill:
¶A system to ensure that “American taxpayers are protected in the event that a large firm begins to fail.”
¶The so-called Volcker Rule, named after Paul A. Volcker, the former Federal Reserve chairman who now advises the president and proposed limits on the size of and risks taken by banks.
¶New transparency rules for derivatives “and other complicated financial instruments.”
¶”Strong consumer financial protections.”
¶”Pay reforms” to give investors and pension holders “a stronger role in determining who manages the companies in which they’ve placed their savings.”
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