Published September 14, 2009
NEW YORK -- Insisting on "common-sense rules of the road," President Obama told the wizards of Wall Street on Monday that he supports a free market, but he won't let financial firms that are "too big to fail" threaten the overall economy again.
Obama marked the first anniversary of the collapse of the Lehman Brothers investment firm in a speech on Wall Street in which he tried to balance demands to reduce the federal government's role in banking while trying to increase oversight of the financial industry.
"With so much at stake, we should not be forced to choose between allowing a company to fall into a rapid and chaotic dissolution that threatens the economy and innocent people, or forcing taxpayers to foot the bill," Obama said in New York City's Federal Hall.
Saying that he's not interested in being banker-in-chief, the president insisted that he does not want to "disparage wealth, but to expand its reach."
"But it is important to note that the very absence of common-sense regulations able to keep up with a fast-paced financial sector is what created the need for that extraordinary intervention. The lack of sensible rules of the road, so often opposed by those who claim to speak for the free market, led to a rescue far more intrusive than anything any of us, Democrat or Republican, progressive or conservative, would have proposed or predicted," Obama said.
The president offered several remedies that would establish more oversight that he says will prevent another chain of events like that which led to a near-collapse of America's financial system last year.
He called for a Consumer Financial Protection Agency that would provide "ground rules" for loans so that people will understand what they are signing.
He also proposed a broad plan to give the Federal Reserve Board new oversight powers and impose conditions designed to discourage companies from getting too big.
And he said that at the Pittsburgh G-20 economic meeting later this month, the U.S. will focus on ways "to spur global demand but also to address the underlying problems that caused such a deep and lasting global recession."
In language that emphasized how close to the brink the United States' economy came last year as a result of unscrupulous lenders and reckless homebuyers, Obama warned financial firms not to think they will get a bailout the next time around.
"There are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them," Obama said.
"We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences and expect that next time, American taxpayers will be there to break their fall," he added.
Though Obama was not president at the time of Lehman's collapse, the investment company's implosion triggered a severe market crisis that, in turn, led to a $787 billion bailout and a series of regulatory reform proposals by a young Obama administration back in June.
Obama said his administration came in eight months ago and provided two things in short supply -- capital and markets.
"We are finally beginning to see money flowing back to the taxpayers," Obama said. "This doesn't mean taxpayers will escape the worst financial crisis in decades unscathed. But banks have repaid more than $70 billion, and in those cases where the government's stake has been sold completely, taxpayers have actually earned a 17-percent return on their investment."
The speech came as five of the nation's largest banks -- Goldman Sachs, JPMorgan, Wells Fargo, Citigroup and Bank of America -- posted second-quarter profits totaling $13 billion. That's more than double what they made in the second quarter of 2008 and nearly two-thirds as much as the $20.7 billion they earned in the second quarter of 2007 -- when the economy was considered strong.
All those banks received tens of billions of taxpayer dollars last year to stay afloat are again betting on the same bonds, commodities and exotic financial products that landed them in trouble.
As of June 30, three banks -- JPMorgan, Wells Fargo and Bank of America -- held $2.3 trillion in domestic deposits, or $3 out of every $10 in deposit in the United States. Three years ago those three institutions held about 20 percent of the industry total.
In his speech, the president leaned on Congress to act on the proposals he has sent them.
But his plans face scrutiny both on and off Capitol Hill. Industry lobbyists are against another regulatory agency, and some have wondered why -- if it's so logical to add another government layer of oversight -- it hasn't been done yet.
On top of that, some lawmakers are fatigued from government intervention into private automakers such as General Motors.
Sen. Chris Dodd, the Democratic chairman of the Senate Banking Committee, is leading the push for new regulatory rules, and his aides hope to have legislation together before the year's end. Already they have conducted hearings on the source of the problem and how best to prevent another.
While sidetracked by a monstrous health care overhaul, presidential economic adviser Larry Summers said a financial overhaul is still doable.
"The president famously said during the campaign that to be president you have to be able to do more than one thing at once," Summers said. "I think that same idea applies to the 535 members of the Congress."
Regardless of the heavy agenda, the president said it is a moral responsibility for banks to pay back the debt that they owe the American people.
"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 -- in lost jobs, lost homes and lost opportunities. It is neither right nor responsible after you've recovered with the help of your government to shirk your obligation to the goal of wider recovery, a more stable system, and a more broadly shared prosperity," he said.
Obama had lunch afterward with former President Bill Clinton.
FOX News' Kelly Chernenkoff and The Associated Press contributed to this report.