President Obama on Monday proposed what he described as the most sweeping financial overhaul since the Great Depression a year after risky trading practices brought markets to the verge of collapse.
Obama said the financial crisis was "fundamentally a failure of responsibility," but aimed to reassure Wall Street that his "serious financial reform" was necessary and prudent.
"I certainly did not run for president to bail out banks or intervene in the capital markets," he told business executives and politicians at Federal Hall in the heart of New York's financial district. "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."
Speaking on the first anniversary of securities giant Lehman Brothers' bankruptcy filing, the president said the economy was finally pulling out of recession, thanks largely, he said, to the administration's $787 billion stimulus package. But he warned that "history cannot be allowed to repeat itself," and that the financial industry could not simply return to business as usual once normalcy returned.
"Unfortunately, there are some in the financial industry who are misreading this moment," he said. "Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them. They do so not just at their own peril, but at our nation's."
The failure of Lehman Brothers — the biggest bankruptcy in U.S. history — and the panicky sales of Bear Stearns to JPMorgan Chase and Merrill Lynch to Bank of America came amid a freeze in the credit markets that made it difficult for businesses across the country to obtain loans to sustain their daily operations.
While acknowledging that ordinary Americans who over-borrowed were partly to blame for the crisis, the president proposed a new Consumer Financial Protection Agency to act as a watchdog against deceptive credit card and mortgage loan practices.
Calling for "strong rules of the road" to guard against systemic risks, Obama called for closing the loopholes and giving regulators more authority.
"We'll create clear accountability and responsibility for regulating large financial firms that pose a systemic risk," he said.
"While holding the Federal Reserve fully accountable for regulation of the largest, most interconnected firms, we'll 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," the president said.
The third part of the president's proposal is to strengthen international cooperation to spur global demand and address the underlying problems that caused the recession.
"Taken together, we are proposing the most ambitious overhaul of the financial system since the Great Depression," he said.
Markets were down slightly in afternoon trading, but there was no indication that Wall Street was taking any direction from the president's speech.
A new Associated Press-GfK poll released on Monday showed that 7 out of 10 Americans lack confidence that the federal government has taken safeguards to prevent another financial industry meltdown. Even more — 80 percent — rate the condition of the economy as poor, and a majority worry about their own ability to make ends meet.
From NPR staff and wire service reports.
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