WASHINGTON -- Addressing "the failure of an entire system," President Obama will announce sweeping regulatory changes for Wall Street -- including safeguards for consumers and checks on CEO pay -- designed to shore up confidence in US financial markets and block another potentialy devastating financial catastrophe.
The proposal would give the Federal Reserve broad authority to police the nation's entire financial system, and would create a new watchdog agency to guard against the types of abuses that played a big role in the current crisis -- including the trading of risky securities based on home mortgages. It also would curb excessive compensation for corporate CEOs, whose eye-popping salaries in the wake of the financial collapse triggered widespread public outrage.
"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," Obama said. "A culture of irresponsibility took root from Wall Street to Washington to Main Street," fueled in part by an intricate, computerized global economy that far oupaced laws drafted after the Great Depression more than 70 years ago.
"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," the president said. "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," Obama said. "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."
In draftinng the new set of regulations, Obama said, his administration sought "a careful balance" between Wall Street's independence and the urgent need for regulation.
"I have always been a strong believer in the power of the free market. It has been and will remain the engine of America’s progress – the source of prosperity unrivaled in history," the president said. "I believe that our role is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still make this nation the envy of the world."
"That’s our goal. To restore markets in which we reward hard work and responsibility, not recklessness and greed – in which honest, vigorous competition in the system is prized, and those who game the system are thwarted," Obama said.
About Political Intelligence
Glen Johnson is Politics Editor at boston.com and lead blogger for "Political Intelligence." He moved to Massachusetts in the fourth grade, and has covered local, state, and national politics for over 25 years. E-mail him at firstname.lastname@example.org. Follow him on Twitter @globeglen.