Wall Street firms must be made accountable: Obama
US President Barack Obama has highlighted the need for a thriving and effective financial sector, but insisted that the Wall Street companies must be made accountable in order to protect investors, shareholders and the economy as a whole.business Updated: Apr 22, 2010 14:43 IST
US President Barack Obama has highlighted the need for a thriving and effective financial sector, but insisted that the Wall Street companies must be made accountable in order to protect investors, shareholders and the economy as a whole.
"We've got to have a thriving and effective financial sector," Obama said. "But we also have to have basic rules of the road in place to make sure that investors, consumers, shareholders, the economy as a whole are protected against excess."
The economy needs to be protected against "wild gambles that are taken purely because it's good for somebody's year-end bonus as opposed to because there's some economic function that actually contributes to society as a whole," he said in an interview to CNBC.
The President noted that throughout the American history, there have been times where the financial sector swung way out of balance.
"We have gotten into one of those places where we need to update those rules of the road. And if we do so, not only is that good for the economy, not only does it protect consumers and investors, it's also good for the financial sector," Obama said.
He argued that such a move will rebuild trust and people will have confidence that when they are dealing with banks and other institutions, "they in fact are playing it straight, above board, and they're competing on the basis of who's providing the best services and the best products as opposed to who's got the most creative accounting rules or who's able to concoct the wildest derivatives that may serve no economic function whatsoever."
The President said he is not surprised that there are people who are opposed to his effort to reform the Wall Street and make it accountable.
"Well, that's not surprising. They've made out very well under a regime in which, when things were going well, they were making huge profits. And when things didn't go well and everything crashed, taxpayers were left footing the bill," he said.
A vast majority of Americans, Obama said, think "it is unacceptable to have a situation in which tails you win and heads I lose."
"Taxpayers have been put in the position where they had to make a choice a couple of years ago, either we let the entire economy crash because of irresponsibility on Wall Street, or alternatively we end up having to pony up money," he said.
The core of the Wall Street reforms that the administration is proposing "is to make sure, number one, that we don't have to bail out firms if they acted recklessly, that we can unwind them in an orderly fashion that protects the economy as a whole and taxpayers aren't on the hook.
"Number two, that instruments like derivatives, very complicated instruments that are hugely leveraged and can put everybody at risk -- what Warren Buffett called financial weapons of mass destruction -- that those are all put in an exchange, in a clearing house so that everybody knows exactly what's going on," Obama said.
"And again, taxpayers are not on the hook. And that we've got very strong consumer protections so that we don't have people being fooled or tricked into instruments that end up putting in a very difficult financial situation and erode the health of the economy as a whole," he said.
There is a need to change business as usual so that financial institutions are still making a profit and providing excellent service to companies and that there is still innovation and dynamism, the President said.
"We want to make sure that the core functions in the free market are working, but that we don't find ourselves in the kind of crisis situation that we found ourselves in a year and a half ago," he said.