NU Online News Service, Sept. 14, 3:36 p.m. EDT
President Barack Obama declared that reforms will be passed this year to prevent the financial industry from relapsing into the habits that almost collapsed financial institutions like American International Group.
Speaking on the one-year anniversary of the fall of Lehman Brothers in New York's Federal Hall, facing the New York Stock Exchange, the president said as the economic crisis is beginning to wane and financial activity returns to a level of normalcy, that normalcy cannot lead to complacency.
"There are some in the financial industry who are misreading this moment," said President Obama. "Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore those lessons.
"We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis where too many were motivated by the appetite for quick kills and bonuses," said the president.
The risk takers, the president went on to say, cannot expect to take risk without consequence and expect taxpayers to pay for it in the future.
He said rules need to be put in place that protect both taxpayers and the economy, but at the same time do not stifle innovation and enterprise.
"History cannot be allowed to repeat itself," he remarked.
Among the financial institutions that received a massive federal bailout to avoid bankruptcy was AIG, which lost billions in its investments in credit default swaps instruments. The government intervention was deemed necessary because the failure of AIG was viewed as having a systemic effect making the economic crisis worse.
To deal with such institutional risks, the president proposed that the Federal Reserve handle the largest, most interconnected firms.
For others, he called for the creation of an oversight council charged with bringing regulators together to share information, identify gaps in regulation, and "tackle issues that don't fit neatly into an organizational chart." These corporations will also have to meet stronger capital and liquidity requirements to put "further restraints on risky behavior."
He also called for a resolution authority that would oversee failures and hold investors responsible for allowing risky behavior to take place and not allow that failure to affect the entire economic system.
"With so much at stake, we should not be forced to choose between allowing a company to fail into a rapid and chaotic dissolution that threatens the economy and innocent people, or alternatively, forcing taxpayers to foot the bill," the president said.
President Obama said financial regulatory reform would also include new consumer protections and a consumer financial protection agency to enforce those rules.
While he is confident legislation will be passed, the president said companies should not wait for a law to be passed to reform their own regulations. Wall Street, he added, owes it to the American taxpayers who continue to be burdened by the economic fallout to begin making reforms now.
"It is neither right nor responsible that after you recover, with the help of your government, to shirk your obligation to the goal of a wider recovery, a more stable system and a more broadly shared prosperity," President Obama said.
Responding to the president's speech, Jimi Grande, senior vice president of federal affairs for the National Association of Mutual Insurance Companies, said in a statement, "We agree with President Obama that financial services regulation should hold companies and regulators accountable for their actions that contributed to the financial crisis.
"However, it is important to remember that not every regulator failed in this crisis. Great care should be taken to avoid overreacting with any new regulatory proposal that could limit the abilities of regulators that have been effective."
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