President Barack Obama took on financial executives today, asking them to give up efforts to derail an overhaul of financial regulation, saying the new legislation "represents significant improvement on the flawed rules we have in place today."
In a speech today at Cooper Union, where Abraham Lincoln gave a stirring anti-slavery speech as a presidential candidate in 1860, Obama outlined the need for new financial regulations and explained what the nation would be risking if the existing framework is allowed to remain in place unchanged.
In traveling to the city, the president intended to answer the vociferous opposition to his comprehensive reform bill -- to blast what he described as the "furious efforts of industry lobbyists" to shape legislation according to their special interests.
"I am sure that many of those lobbyists work for some of you," Obama said. "I believe in the power of the free market ... but a free market was never meant to be a free license to take whatever you can get, however you can get it."
Obama outlined the key pillars of the reform legislation, which represents the broadest attempt to overhaul the U.S. financial system since the 1930s. It 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.
Obama said the overhaul goal is to ensure that "taxpayers are never again on the hook because a firm is deemed 'too big to fail.' Only with reform can we avoid a similar outcome in the future," he said.
"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," he said.
The bills would create a mechanism for liquidating large, interconnected financial firms considered too big to fail. At the height of the 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.
"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," he said.
But while stepping up the pressure for financial overhaul plays well on the national front, at least one top local lawmaker fears extensive regulation will stifle economic growth in the city.
Mayor Michael Bloomberg has opposed the Obama administration's plan to reform Wall Street, arguing that too much regulation could jeopardize the economy as much as others say tighter regulation would protect it.
Firms could feel so suffocated by extensive regulation that they may take their business elsewhere -- and thus the foundation of New York's economic well-being could crumble, critics say.
The city nets $70 million in taxes for every $1 billion earned on Wall Street, according to The New York Post.
As the city struggles to cope with burgeoning deficits that already threaten key products and services as well as the livelihood of thousands of New Yorkers, critics of the overhaul fear such overreaching changes will only worsen the city's economic predicament.
The billionaire Bloomberg, who got his start on Wall Street in the 1960s, attended the speech, along with an audience of approximately 700 financial industry leaders, consumer advocates, presidential advisers, local officials, students, faculty and others.
While he opposes certain aspects of regulation, 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.
City Comptroller John Liu says that's the "minimum" needed to turn Wall Street around. Unlike Bloomberg, who argues regulation will result in job loss, Liu says it's the lack of regulation and strong oversight that's to blame for unemployment.
"Our real problem in New York is that for a city our size, we have become far too dependent on one industry," Liu said in a statement. "This over-dependence is allowing some to argue that New Yorkers must be supportive of multi-million dollar bonuses for individual executives, and that we should not even think of taxing those bonuses, even as we face the largest budget deficit in generations," he said.
"It is a weird logic that only underscores the need for reform. We do need reform that encourages investment rather than speculation, reform that fosters sound business practices on Wall Street, and reform that brings consumer needs more in focus," the comptroller added.
That's the case Obama made when he spoke at Cooper Union as a presidential candidate in March 2008. He decried practices that he claimed 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 today.
"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 Senate Agriculture Committee on Wednesday approved a bill by its chairwoman, Sen. Blanche Lincoln, D-Ark., 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, D-Conn., and Sen. Richard Shelby of Alabama, the panel's top Republican, have been trying to negotiate a compromise measure that could win GOP 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.
"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," Obama said in his speech today.
He stressed that he believes in the power of a free market, but that in a 21st century economy no dividing line exists 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.
"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 commonsense reforms," Obama said today. "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."