President Obama took to Wall Street on Monday to tout his administration's efforts to save the economy from collapse, pledge that government intervention in the markets is beginning to unwind, and make another pitch for regulatory reform.

With Capitol Hill now consumed by the healthcare debate, the speech appeared to be an attempt to mark the one year anniversaries of the failure of Lehman Brothers and rescue of American International Group by shifting the spotlight back to an overhaul of the financial services sector.

"The growing stability resulting from these interventions means we are beginning to return to normalcy," Obama said, according to prepared text of his remarks. "But what I want to emphasize is this: normalcy cannot lead to complacency."

Obama warned that some in the financial industry are in danger or returning to their pre-crisis behavior.

"So I want them to hear my words: 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," he said.

Obama used the speech to once again lay out his plan for reform: giving the Federal Reserve Board the power to oversee systemic risk, creating a consumer protection agency and empowering the government to resolve too big to fail institutions.

Although most political observers have said it would be impossible to pass comprehensive reform this year, Obama did not back away from that timeline, instead emphasizing that work continues on legislation.

"I have urged leaders in Congress to pass regulatory reform this year and both [House Financial Services Committee Chairman Barney] Frank and [Senate Banking Committee Chairman Chris] Dodd, who are leading this effort, have made it clear that that's what they intend to do," Obama said.

The president spent some of his speech attempting to rebut arguments against reform. Critics of the proposed Consumer Financial Protection Agency, for example, have argued that the agency will hamper market innovation by restricting what kinds of products banks and other lenders can offer.

"Nothing could be further from the truth," Obama said. "The lack of clear rules in the past meant we had innovation of the wrong kind: the firm that could make its products look best by doing the best job of hiding the real costs won."

He cited teaser rates on credit cards and mortgages that "lured people in and then surprised them with big rate increases."

Critics have cited the administration's plan because it would require a new consumer protection agency to force lenders to offer a "plain vanilla" product to a consumer first before allowing them to see alternatives. Several Congressional aides have privately said the language is unworkable.
But Obama did not emphasize that part of the plan in his response, instead focusing on how the new consumer protection agency would force more and better disclosures.

"The Consumer Financial Protection Agency will have the power to ensure that consumers get information that is clear and concise, and to prevent the worst kinds of abuses," said Obama. "Consumer shouldn't have to worry about loan contracts designed to be unintelligible, hidden fees attached to their mortgages, and financial penalties … that appear without warning on their statements."

While media reports have also said that the Obama administration is willing to deal on giving the Fed systemic risk power — many lawmakers oppose giving the central bank more authority — the president gave no sign of that in his speech. Instead, he chose to emphasize how the Fed would be working alongside an interagency council — one that only has the power to give advice to the central bank.

"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," he said. "We'll also require these financial firms to meet stronger capital and liquidity requirements and observer greater constraints on their risky behavior."

Obama also said the government needs to be able to resolve systemically important institutions.
"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," he said. "Our plan would put the cost of a firms's failure on those who own its stock and loaned it money. And if 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."

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.