Text of President Obama's remarks on financial regulation
— -- Remarks of President Obama: 21st Century Financial Regulatory Reform
As Prepared for Delivery
Since taking office, my administration has mounted an extraordinary response to an historic economic crisis. But even as we take decisive action to repair the damage to our economy, we are working hard to build a new foundation for sustained and lasting growth. This will not be easy. We know that this recession is not the result of one failure, but many. And many of the toughest challenges we face are the product of a cascade of mistakes and missed opportunities which took place over the course of decades.
That is why, as part of this new foundation, we are seeking to build an energy economy that creates new jobs and new businesses to free us from our dependence on foreign oil; to foster an education system that instills in each generation the capacity to turn ideas into innovations, and innovations into industries; and, as I discussed on Monday at the American Medical Association, to reform our health care system so that we can remain healthy and competitive.
This new foundation also requires strong, vibrant financial markets, operating under transparent, fairly-administered rules of the road that protect America's consumers and our economy from the devastating breakdown we've witnessed in recent years.
It is an indisputable fact that one of the most significant contributors to our economic downturn was an unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess. A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis – the Great Depression – was overwhelmed by the speed, scope, and sophistication of a 21st century global economy.
In recent years, financial innovators, seeking an edge in the marketplace, produced a variety of new and complex financial instruments. These products, such as asset backed securities, were designed to spread risk but ended up concentrating it. Loans were sold to banks, banks packaged these loans into securities, and investors bought these securities often with little insight into the risks to which they were exposed. It was easy money. But these schemes were built on a pile of sand. And as the appetite for these products grew, lenders lowered standards to attract new borrowers. Many Americans bought homes and borrowed money without being adequately informed of the terms, and often without accepting their responsibilities.
Meanwhile, excessive executive compensation – unmoored from long-term performance or even reality – rewarded recklessness rather than responsibility. This wasn't just a failure of individuals. This was a failure of the entire system. The actions of many firms escaped scrutiny. In some cases, the dealings of these institutions were so complex and opaque that few inside or outside these companies understood what was happening. Where there were gaps in the rules, regulators lacked the authority to take action. Where there were overlaps, regulators lacked accountability for inaction.
An absence of oversight engendered systematic, and systemic, abuse. Instead of reducing risk, the markets actually magnified risks being taken by ordinary families and large firms alike. There was far too much debt and not nearly enough capital in the system. And a growing economy bred complacency.
We all know the result: the bursting of a debt-based bubble; the failure of several of the world's largest financial institutions; the sudden decline in available credit; the deterioration of the economy; the unprecedented intervention of the federal government to stabilize the financial markets and prevent a wider collapse; and most importantly, the terrible pain in the lives of ordinary Americans. There are retirees who have lost much of their life savings, families devastated by job losses, small businesses forced to shut their doors.
Millions of Americans who have worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and the failure of their government to provide adequate oversight. Our entire economy has been undermined by that failure.
The question is, what do we do now? We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind. So today, my administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.
