President Barack Obama urged Wall Street Thursday to accept proposed regulatory reforms, cautioning bankers that another near breakdown of the nation’s financial industry is unacceptable.
“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,†Obama said in remarks delivered at New York’s Cooper Union. This was the president’s second appearance in Cooper Union’s Great Hall, which has served as a platform for generations of leaders and ordinary citizens to engage in spirited discussion and debate.
Speaking to an audience of approximately 700 people, Obama criticized the “battalions†of financial industry lobbyists who, he said, are working “furiously†to influence the legislation’s outcome. Lawmakers have produced “a commonsense, reasonable, non-ideological†proposal to target the problems that led to the financial crisis, Obama said, urging bankers to join rather than fight efforts to reform the system.
The Rev. Al Sharpton, who attended the speech, said he wants the president to “rein in†the deregulated banks and businesses and make them responsible for what they do. The president “must send a clear message,” that there needs to more accountability, he said.
Despite widespread doubt hovering over the Capitol earlier this week, passage of a financial regulatory reform bill is all but assured. Republican opposition to the proposed overhaul is easing and the final vote might actually be a bipartisan one. It would be foolhardy, however, to take anything for granted, so the White House spent much of Thursday making closing arguments to a variety of audiences based on the key points in Obama’s speech.
The president outlined the legislation’s major goals,
which included ending “too big to fail†and bank bailouts; providing strong consumer protection; making sure that derivatives come out of the shadows; giving shareholders a say in executive compensation; and implementing what he called the “Volker Rule,†which would limit the banks’ size and risky behaviors.Former New York City Councilwoman Una Clarke was pleased with the president’s speech. “He offered up a balance between Wall Street and Main Street,†and making sure Main Street had better access to capital.
“Wall Street and bankers must cooperate for the next generation and not make the same mistake of the last generation,” said Clarke of the need for bankers to increase transparency and access to funding.
But Republican critics say that the bill will ensure taxpayer bailouts for generations to come.
“The Democrats’ plan should really be known as the Bailout Protection Act. It gives unelected bureaucrats enormous latitude to cover the debt of private companies and step in with bailouts for just about any reason at all,†said Republican Study Committee Chairman Tom Price (R-Georgia). “The bailout rules will allow unions and politically favored creditors to get a better deal than regular folks who invested their hard-earned money. It’s the perfect recipe for a destructive political economy.â€
Obama had anticipated such a reaction.
“That makes for a good soundbite, but it’s not factually accurate. It is not true,†the president said to applause. “In fact, the system as it stands–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 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.â€
Recognizing that there will never be
total agreement, Obama read a Time magazine report to the audience that he said illustrated his point that while the debate can be both contentious and heated, in the end the nation is made stronger:“Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed…would rivet upon their institutions what they considered a monstrous system… such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level.â€
The report appeared in Time Magazine in June 1933, he explained to the audience, which responded with laughter and applause. And the system that caused so much concern is the Federal Deposit Insurance Corporation, which secures Americans’ bank deposits.
Before Obama’s speech, Cecilia Rouse, a member of the White House Council of Economic Advisers, spoke with reporters about how the proposed reforms would help African Americans.
Blacks and other minority groups have unquestionably experienced some of the most egregious effects of a financial services industry gone wild. In 2005 and 2006, during the subprime lending boom, African American borrowers were more than three times likely to receive subprime mortgages and two times more likely to receive higher priced refinancing loans. More than 53% of subprime or higher priced loans went to blacks.
“It was a boon time for the housing market and big banks. Banks used mortgage loans with low teaser rates and terms that included no down payments to entice consumers into purchasing homes and unfortunately African Americans were targeted for these types of mortgage products,†said Rouse. (See White House fact sheet)
Black homeownership climbed from 41% in 1995 to more than 50% in 2004, but when the mortgage terms reset
with higher monthly payments, the result was what Rouse described as an “unacceptably high†foreclosure rate and a big drop in black homeownership. Fifty-seven percent of the subprime loans made to blacks in 2006 are now at risk of foreclosure. Because of these and other risky behaviors by banks, more than 8 million jobs and trillions of dollars of household wealth have been lost.“If we don’t change what led to the crisis we’re doomed to repeat it,†said Rouse.
The creation of a Consumer Financial Protection Agency (CFPA), which banks and Republicans oppose, would play a significant role in preventing blacks and other consumers from being duped by banks and other nontraditional forms of financial services, such as check cashers and payday lenders. The agency would ensure greater clarity and transparency in how big banks serve investors and other consumers.
“Banks would have to provide clear, understandable information to consumers and enforce more strongly than ever fair lending laws that protect African Americans and other minorities from discriminatory lending practices,†Rouse said. Mortgage paperwork, for example, would be simplified and subject to greater scrutiny.
The CFPA also would be charged with offering financial literacy programs so that people understand exactly what’s being offered and aren’t taken advantage of.
“That’s really what this bill and CFPA is about… I hope there would be active participation by the [black] community to help design what would be most effective so it’s not just a waste of taxpayer money but programs that help our communities,†said Rouse.
Ten Congressional Black Caucus members, led by Rep. Maxine Waters (D-California) fought to include an amendment that would establish an Office of Minority and Women Inclusion at each of the seven financial regulatory agencies to ensure that the groups harmed most would be represented. They’re
concerned that it won’t be included in the final bill.Rouse said that the administration is aiming for diversity and representation for all Americans, “but we’re working through the specifics and it’s just important that it be a strong institution in general.â€
Pundits are already debating whether Obama’s tone had enough fire or whether in fact the bill is as stringent as he claims. But his goal was to send a clear message to the American public who’ve essentially been collateral damage throughout the economic crisis. Anyone who doesn’t go along with the reforms, obviously isn’t on their side.
The legislation is moving far faster than most people anticipated. Senate Majority Leader Harry Reid (Nevada) has announced that the first procedural vote at 5:15 p.m. on Monday. Once a final bill is signed into law, the president will have yet another accomplishment that he can tick off of the list of things he promised he’d do, which could help boost Democrats’ fate during the November elections.
Key proposals for financial reform:
— A system to ensure that the financial system, the broader economy, and the American taxpayers are protected in the event that a large firm begins to fail
— The Volcker Rule, which sets limits on the size of banks and the risks that banking institutions can take
— Reforms that will bring new transparency to many financial markets, and bring derivatives and other complicated financial instruments out of the dark
— Strong consumer financial protections that will give American consumers more protection and power in our financial system, and
— Say on pay reforms that would give investors and pension holders a stronger role in determining who manages the companies in which they’ve placed their savings.
— Deborah Creighton Skinner contributed to this article.