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Obama warns Wall Street against reckless behaviour

business Updated: Sep 15, 2009 14:53 IST

AFP
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US President Barack Obama bluntly warned on Monday that some Wall Street bosses were ignoring lessons of the financial crisis, as he demanded a new age of prudence after bloated years of unchecked excess.

"The old ways that led to this crisis cannot stand," the US leader said, in an outspoken address delivered in the shadow of US finance firms he blamed for unleashing global contagion. "History cannot be allowed to repeat itself."

A year after Lehman Brothers failed, triggering the meltdown, Obama also called on Congress to act this year on regulatory reforms he hailed as the most sweeping bid to tame industry over-exuberance since the Great Depression.

While blaming much of the crisis on the United States, Obama made clear a week ahead of the G20 summit in Pittsburgh that he would press global powers to do more to rein in finance industry abuses.

But his prime message after travelling to historic Federal Hall on Wall Street in New York was that, as the economy slowly mends, some key players in America's finance sector were willfully ignoring the lessons of the crisis.

"They do so not just at their own peril, but at our nation's," Obama said, noting that many big Wall Street banks and finance house had received huge government bailouts at taxpayer expense.

"So I want everybody here to hear my words: 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 only by the appetite for quick kills and bloated bonuses."

"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."

The president, speaking blocks from the New York Stock Exchange, also urged bosses of top finance firms to make a symbolic downpayment in their effort to restore public trust, by taking a cautious tack on pending bonus pay awards.

While lambasting Wall Street, the president admitted that Washington -- and in a wider sense the American people -- were culpable for a crisis which sent unemployment up to nearly 10 per cent at home and spread misery abroad.

"It was a collective failure of responsibility in Washington, on Wall Street and across America that led to the near-collapse of our financial system one year ago."

Duncan Niederauer, head of the stock exchange operator NYSE Euronext had an initially warm reaction to the speech.

"President Obama's address today was welcome and timely," he said.

"The financial crisis created a once-in-a-generation opportunity to modernize our outdated financial regulatory system."

But Eric Cantor, the Republican whip in the House of Representatives, said "smarter regulation," and not necessarily more, was the answer to the financial crisis.

Days after slapping duties on tire imports from China, in the most serious trade dispute of his administration with the Asian giant, Obama also denied accusations of protectionism.

"When, as happened this weekend, we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism, we do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system."

Obama argued that the leadership of his administration when it took office in January had helped stave off an even worse crisis.

But he warned that "normalcy cannot lead to complacency," vowing to press G20 powers to match his move to "aggressively reform" the financial system.

Obama fleshed out a previously announced strategy for reforming regulatory systems which is awaiting action in Congress, warning that a pre-crisis lack of "common-sense rules" had led the US economy to the brink.

He said his administration would give more power to the Federal Reserve to regulate interconnected firms that pose a risk of systemic failure.

Top firms will be required to meet stronger capital and liquidity requirements and submit to greater restraints on "risky" behavior.

The reforms also propose the establishment of a "resolution authority" to step in and dismantle, failed finance firms.

He also vowed to set up a new Consumer Protection Agency to enforce rules prohibiting predatory lending policies by credit firms and mortgage lenders.