'Responsibility Not Recklessness'

" Thanks for being here thank you for your warm while it's privileged to be in historic federal hall. It was here more than two centuries ago but our first congress served at our first president was inaugurated registered chance to. Glance. The Bible. On which George Washington took result. Was here in the early days of the republic that Hamilton and Jefferson debated. How best administer a young economy and ensure that our nation awarded. The talents and drive of its people. Two surgeries later we still grapple with these questions. Questions made more cute in moments of crisis. It was one year ago. Today that we experienced just such a crisis. As investors and pension holders watch -- bread and dismay. And after a series of emergency meetings often conducted in the dead of night. Several of the world's largest and oldest financial institutions. Have fallen either bankrupt. Law. Or bailed out. Lehman Brothers. Merrill Lynch. AIG. Washington Mutual. Wachovia. -- before this began. Fannie Mae and Freddie Mac have been taken over by the government. Other large firms teetered on the brink of insolvency. Credit markets froze -- banks refused to -- not only to families and businesses but to one another. Five trillion dollars of Americans. Household wealth evaporated in the span of just three months. I was just one year ago. Congress and previous administration took difficult but necessary action in the days and months the fall. Nonetheless when this administration walked through the door in January. The situation remainder. The markets have fallen sharply. Credit was not flowing. It was fear that the largest banks. Those that remained standing. Head to -- capital and far too much exposure to risky loans. And the consequences of spread far beyond the streets of lower Manhattan. This is no longer just a financial crisis. It would become -- full blown economic crisis with home prices sinking and businesses struggling access affordable credit. And the economy shedding an average of 700000. Jobs. Every single -- We could not separate what was happening in the court -- of our financial institutions. From what was happening on the factory floors and around kitchen tables. Home foreclosures. Linked those who took out home loans and those who repackage those loans and securities. A lack of access to affordable credit threaten the health of large firms and small businesses. As well as all those who lose jobs depended on. And weakened financial system. -- the broader economy which in turn further weakened the financial system. So the only way to address successfully any of these challenges was to address them together. And this administration. Under. The outstanding. Leadership of Tim Geithner Christina Romer and Larry Summers and others. Moved quickly on all fronts. Initial lives and their financial. Financial stability plan to rescue the system from the crisis. And restart lending for all those affected by the crisis. By opening -- examining the books of large financial firms we help restore. The availability of two things that have been in short supply capital. And conference. My take aggressive and innovative steps in credit markets. We spur lending and not just -- banks but the folks looking to buy homes or cars take out student loans or finance small business. Our homeownership plant itself responsible homeowners refinance. To stem the tide of lost homes and lost home values. And recovery plan is providing help -- the unemployed and tax relief for working families. All the while spurring Consumer Spending. It's preventable layoffs of tens of thousands of teachers and police officers and other essential public servants. And thousands of recovery projects are underway all across America including right here in New York City. Putting people to work building. Wind turbines and solar panels renovating schools and hospitals. Repairing our nation's roads bridges. Eight months later. The work of recovery continues. And all I will never be satisfied what people are out of work and our financial system is weakened. We can be confident that the storms of the past two years are beginning to break. In fact while -- continues to be a need for government involvement to stabilize the financial system. That necessity of -- After months in which public dollars were flowing into our financial system were finally beginning in the street money flowing back to taxpayers. This doesn't mean taxpayers will -- the worst financial straits crisis in decades. Entirely on state. But banks have repaid more than seventy billion dollars. And in those cases where the government stakes. Have been sold completely taxpayers eventually earned a 17%. Return on the investment. Just a few months ago many experts from across the ideological spectrum fear that ensuring financial stability would require even more tax dollars. Instead we've been able to eliminate a 250 billion dollar reserve included in our budget because that fear has not been realized. -- recovery of the financial system won't take a great deal more time and work. The growing instability resulting from these interventions means we're beginning to return to normalcy. But here's what I want emphasized today. Normal -- cannot lead to complacency. Unfortunately. There are some in the financial industry who are misreading this moment. Instead of learning the lessons -- Lehman on the crisis from which were still recovering. Are choosing to ignore those wants us. I'm convinced figures so not just of their own peril. But -- our nation's. I want us everybody here to -- my words. We will not go back to the days of reckless behavior and unchecked access. That was at the heart of this crisis. We're too many were motivated only by an 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. And that's why we need strong rules of the road to guard against the kind of systemic risks that we've seen. And we have a responsibility to write and enforce these rules. To protect consumers of financial products to protect taxpayers. And to protect our economy as a whole. Yes there must. These rules must be developed a way that doesn't stifle. Innovation and enterprise. And I wanna say very clear earlier today we want to work we have the financial industry to achieve that that. But the old way of trip went to this crisis cannot stand. And to the extent that some -- so readily return to them. Underscores the need for change and change -- history cannot be allowed to repeat itself. To what we're calling for his. For the financial industry to join us in a constructive effort to update the rules and regulatory structure. To meet the challenges of this new century. That is what my administration seeks to do we've sought ideas. And input from industry leaders and policy experts academics consumer advocates and the broader problem. We work closely with the leaders in the Senate and the house including. Not only. Barney. But also senators Chris Dodd and Richard Shelby. And and and Barney is already working with his counterpart. So -- us. And we intend to pass regulatory reform through congress. Taken together were proposing the most ambitious overhaul. Of the financial. Regulatory system since the Great Depression. I want to emphasize that these reforms are rooted in a simple principle. We ought to set clear rules of the road that promote transparency. And accountability. That's how we'll make certain the markets across the responsibility. Not reckless. -- make certain that markets reward those who compete honestly and vigorously within the system. Instead of those who were trying to game the system. So let me outline specifically what we're talking about first. We're proposing new rules to protect consumers and a new consumer financial protection agency. To enforce those rules. This Chrysler. Not just the result of decisions made by the mighty -- of financial firms. It was also the result of decisions made by ordinary Americans to open credit cards and take on mortgages. And wall there were many who took out loans they knew they couldn't afford. We're also millions of Americans who signed contracts traded fully understand. Offered by lenders who didn't always told the truth. This in part because there's no single agency charged with making sure that doesn't happen. That's what we intend to change. The consumer financial protection agency will have the power. To make certain that consumers get information that is clear and concise and to prevent the worst kinds of abuses. Consumers shouldn't have to worry about long contracts designed to be unintelligible. Hidden fees attached to their mortgage and financial penalties whether through -- credit card or debit card that appear without warning on their statements. And responsible lenders including community banks. Doing the right thing shouldn't have to worry about who won this competition from unregulated competitors. Now there are those who are suggesting that somehow this will restrict the choices available to consumers nothing could be further from the truth. The lack of clear rules in the past meant we have the wrong kind of innovation. The firm that could make its products -- the best by doing the best job of hiding the real cost. Ended up getting the business. For example we had teaser rates on credit cards and mortgages the -- people live in the surprised them with big rate increases. By sending -- ground rules will increase the kind of competition that actually provide people better and greater choices. As companies compete to offer the best products. Not the ones that are most complex for the most confusion. Second. We've got to close the loopholes that we're at the heart of the crisis. Where there were gaps in the rules regulators lacked the authority to take action. Where there were overlaps. Regulators often lacked accountability for inaction. These weaknesses in oversight. In gender -- systematic. And systemic abuse. Under existing rules. Some companies can actually shot. For the regulator of their choice. And others like hedge funds -- operate outside the regulatory system altogether. We've seen the development of financial instruments like derivatives and credit default swaps. Without anyone examining the wrists. Or regulating all the players. We see lenders profit by providing loans to borrowers who they knew would never repay. Because the lender often load of loans and the consequences -- somebody else. Those who refused to gain the system part of this event. Now one of the main reasons this crisis could take place is that many. Agency's regulators were responsible for oversight of individual financial firms and their subsidiaries. But no one was responsible for protecting the system is hopeful as a whole. In other words regulators were charged with seeing the trees but not before us. And even that some firms -- post. A systemic risk we're not regulated as strongly as others exploiting loopholes in the system to take on. Greater risk -- less group. As a result the failure of one firm threatened the viability of many others. We were facing one of the largest financial crises in history and those responsible for oversight were caught off guard and without the authority to act. That's why won't create clear accountability and responsibility. For regulating large financial firms could pose a systemic risk. While holding the Federal Reserve fully accountable for regulation of largest most inner connected firms. Will create an oversight council to bring together regulators from across markets to share information. To identify gaps in regulation and to tackle issues that don't fit neatly into an organizational chart. Also require these financial firms to meet stronger capital and liquidity requirements. And observe greater constraints on the risky behavior. That's -- the lessons of the past year the only way to avoid a crisis of this magnitude. Is to ensure that a large firms can't take risks that threaten our entire financial system. And to make sure that they have the resources to weather even the worst of the economic storms. Even as we proposed safeguards to make. The failure of large and interconnected firms less likely we've also created proposed creating what's called resolution authority. In the event that such a failure happens and poses a threat to the stability of the financial system. This intended to put an end to the idea that some firms are too big to fail. For market to function those who invest and land in that market must believe that their money is actually at risk. And the system as a whole isn't safe. Until it is safe from the failure of any individual institution. If the bank approaches insolvency we have a process through the FBI's -- protects depositors and maintains confidence in the banking system. This process was created during the Great Depression when the failure of one Barrett led to runs on other banks which in turn threatened the banking system as a whole. That's system works. But we don't have. Any kind of process in place to contain the failure of Lehman Brothers were AIG. 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 trillions of dollars of bastards. Took place in her discussions in the middle of the night. That's why we've had to rely on taxpayer dollars. The only resolution authority we currently have that would prevent a financial meltdown. Involve tapping the Federal Reserve the federal treasury. With so much at stake. We should not be forced to choose between allowing companies to fail in to a rapid and chaotic dissolution of the -- the economy. And in some people. Or alternatively forcing taxpayers to foot the bill. So our plan would put the cost for big firms failures on those who own its stock and loaned it money. For the taxpayers ever have to step in again to prevent a second Great Depression the financial industry will have to pay the taxpayer back. Every cent. We need to close forget to -- not just within this country but among conference. The United States is leading a coordinated response to promote recovery and restore prosperity. Among both the world's largest economies and the world's fastest growing intolerance. At a summit in London in April. Leaders agreed to work together in an unprecedented way to spur global demand. But also to address the underlying problems -- cause such a deep and lasting global recession. Miss work will continue next week in Pittsburgh when I convened the G-20 which has proven to be an effective form. For coordinating policies among key developed and emerging economies. And one that I -- taking on an important role in the future. It's essential to the -- Is reforming what's broken in the global financial system. A system that links economies and spreads both rewards and risks. For we know that abuses in financial markets anywhere can have an impact everywhere. And just -- gaps in domestic regulation lead to a race to the bottom. Sort of gaps in regulation around the world. What we need instead. Is a global race to the top including stronger capital standards as I've called for today. As the United States is aggressively reforming our regulatory system we're going to be working to ensure that the rest of the world does reflect. This is something good shepherd Geithner has already been active are we meeting where. Finance -- ministers around the world to discuss. A healthy economy -- for -- also depends on our ability to buy and sell goods in markets across the wrong. I make no mistake this administration is committed to pursuing expanded trade. And new trade agreements it is absolutely essential -- our economic future. And each time the we have met. The G-20. And the G-8 we have reaffirmed. The need to fight against protectionist. But no trading system won't work if we fail to enforce. Our trade agreements those that are -- So when this happened this weekend. We invoke provisions of existing agreements. We do so not to be provocative or promote self defeating protectionism. We do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system. And just as we have to live up to our responsibility is on trade. Went a little to our responsibilities. On financial reform as well. I have urged. Leaders in congress to pass regulatory reform this year. And both congressman frank and senator Dodd were leading this effort have made it clear that that's what they intended to. Now there will be those who defend the status quo there always are. There will be those who argue we should do less or nothing at all. There will be those who engage in. Revisionist history. Or have selective memories and don't seem to work call what we just went through last year. But to -- cheering only to us. You really believe that the absence of sound regulation one year -- was good for the financial system. Do you believe the resulting decline in markets and welfare and unemployment the wrenching hardship that families are going through all across the country. -- somehow good for our economy. -- good for the American people. I have always been a strong believer in the power of the free market. I believe that jobs are best created not by government but by businesses and African Norse warriors take a risk on a good idea. I believe of the role the government is not to disparage wealth but to expand its reach. But to stifle markets but to provide the ground rules and level playing field that helps to make those markets more -- And will allow us to better tap the creative. And innovative potential market. What we know that it is the dynamism of our people that has been the source America's progress and prosper. So I promise you I did not run for president to bail out banks or intervene in capital markets. But it is important to note that the very absence of common sense regulations. Able to keep up -- fast paced financial sector is what created the need for that extraordinary intervention. I just -- our frustration for the previous administration. The lack of sensible rules of the world so often opposed by those who claim to speak for the free market. Ironically led to a rescue far more intrusive that anything any of us democratic. Or Republican. Progressive or conservative. Would have ever proposed or predict. The same time. We have to recognize that what's needed now goes beyond just the reforms that I mentioned. For what took place one year ago was not earlier fear failure of regulation or legislation. It wasn't just a failure. Of oversight or -- It was also a failure of responsibility. It's fundamentally a failure responsible. The -- Washington to become a place where problems. Including structural problems -- our financial system were ignored rather than salt. It was a failure of responsibility to let homebuyers and derivatives traders a white. To take reckless risks that they couldn't afford to check. It was a collective failure of responsibility. In Washington on Wall Street and across America that led to the near collapse. Our financial system when you're. For restoring a willingness to take responsibility. Even when it's hard to do. Is at the heart of what we muster. Here on Wall Street you have a response -- Reforms I've laid out what pass. And these changes won't become law. One of the most important ways to rebuild the system stronger than it was before. Is to rebuild trust. Stronger than before. And you don't have to wait for a new law to do that. You have to wait to use plain language in your dealings with consumers. -- have to wait for legislation. To put the 2009 bonuses under senior executives operational report. You don't have to wait. For a law to overhaul your pacers to ensure that folks are rewarded for long term performance consider short term gains. The factors many of the firms that are now returning to prosperity. Or debt to the American people. They were not because of this crisis. And yet American taxpayers through their government. Had to take extraordinary action to stabilize the financial industry. They shouldered the burden of the Baylor. And they are still bearing the burden of the follow up. In lost jobs and 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 recover. -- more stable system. Any more broadly shared prosperity. So on mergers to demonstrate that you take this obligation over. To put greater effort in helping families who need their mortgages modified and my administration's homeownership plan. To help small business owners who desperately need loans and were bearing the brunt of the decline in available credit. To help communities that would benefit from the financing you could provide up -- the community development institutions you could support. To come up with creative approaches to improve financial education. And to bring banking to those who live and work entirely outside of the bag -- And of course to embrace. Serious financial -- Not resist. This is we are asking the private sector -- think about the long term. I recognize the Washington. Has to do so as well. When my administration came through the door we not only faced a financial crisis and costly recession. We also found waiting a trillion dollar deficit. So yes we had taken extraordinary action in the wake of an extraordinary economic crisis. But I am absolutely committed to putting this nation only sound and secure. -- born. And that's why we're pushing to restore pay as you go rules. In congress because I will not go along with the old Washington ways which said it was -- to pass spending bills and tax cuts. Without a plan to pay for. That's why we're cutting programs don't work or out of date. That's why -- insisted that health insurance reform. As important as it is not add a dime to the deficit. Now or in the future. There are those who would suggest that we must choose between markets unfettered by even the most modest of regulations. And markets weighed down by onerous regulations would suppress the spirit of enterprise and immigration. If there's one lesson we can learn from last year is that this is a false shorts. Common sense rules of the road don't hinder the market. And make the market's strong. Indeed there are essential to ensuring that our markets function. Fairly. And -- One year ago we saw in stark relief. How markets can spin out of control. A lack of common sense rules can lead to excess and abuse. How close we can come to the -- One year later. Is incumbent upon us to put in place those reforms to prevent this kind of crisis from ever happening again. Reflecting. Painful but important lessons that we work. In the won't help us move from period of reckless. Your responsibility. -- period of crisis. To one of responsibility. And prosperity. That's what we must do. I'm confident that's what we will thank you very much server."