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Obama Outlines Sweeping Financial Reforms in Wall Street Speech

One year to the day after the colossal failure of Lehman Brothers Holdings Inc. sent markets into a tailspin and raised questions about the adequacy of U.S. financial regulations, President Barack Obama said Monday that the need for intense government involvement in the financial sector was "waning," but he still laid a blueprint for wide-reaching regulatory reforms. "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," Obama told listeners at Wall Street's Federal Hall in Lower Manhattan. "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." Obama used the opportunity to outline the government's planned list of safeguards and rules, which he said would be developed and implemented "in a way that does not stifle innovation and enterprise." Those proposals were also "released Monday in a Treasury report":http://treas.gov/press/releases/docs/Next%20Phase%20of%20Financial%20Policy,%20Final,%202009-09-14.pdf/ that describes a "new phase" of the administration's "strategy to stabilize and rehabilitate financial markets." "Utilization of the extraordinary government programs put in place to contain the financial crisis has already declined substantially," the Treasury said in a press release.
"Most of these programs were designed to become unattractive once financial markets normalized." Yet the administration's acknowledgement of a transition from crisis to recovery came with a slate of new proposed programs. Central to these is the development of a Consumer Financial Protection Agency to watchdog the industry and its treatment of private citizens. Obama on Monday said the new agency would expand consumers' choices in the free market. "By setting ground rules, we'll increase the kind of competition that actually provides people better and greater choices, as companies compete to offer the best product, not the one that's most complex or confusing," he said. In addition to calling for safeguards and tighter supervision of financial institutions, Obama also championed the creation of a "resolution authority" â€" an FDIC-style body that would take systematic action to protect markets from the fallout when large financial institutions fail. "This is intended to put an end to the idea that some firms are ‘too big to fail,'" Obama said. "For a market to function, those who invest and lend 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."
Obama also said he'd get tough on other countries who failed to take similar measures to prevent systemic failures that could have a global effect. "No trading system will work if we fail to enforce our trade agreements," he said, adding that "enforcing trade agreements is part and parcel of maintaining an open and free trading system." Despite the full-court press by administration officials Monday, analysts remained skeptical whether the proposed government actions would be effective by themselves in staving off future economic disasters. "The American regulatory structure is in total disarray and what has been proposed to fix it is partial, and even then there is heavy resistance," Hal Scott, Nomura Professor of International Financial Systems at Harvard Law School, told Reuters. "I don't see us coming out with any significant change to the structure. The right rules and the wrong system is what we might end up with." The Wall Street bankers and CEOs who listened to Obama's speech Monday seemed even less impressed. While the head of Goldman Sachs said he thought the president had done a "good job," most of the executives in the crowd sat in stony silence, as if receiving a stern lecture from the president, according to the _Wall Street Journal_. Supporters of the president's proposals, like U.S. Rep. Barney Frank (D.-Massachusetts) â€" chairman of the House Financial Services Committee â€" seemed unmoved by the audience's chilly reception of the president. "It's not that important if these CEOs listened," Frank said. "The fact is there is real political will for change. And there is going to be change."

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