Obama warns Wall Street against risky behavior

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NEW YORK - Lecturing Wall Street on its own turf, President Obama warned financial leaders yesterday not to use the recovering economy to race back into "reckless behavior" that could cause a new meltdown. He declared that a bailout-weary public would not break their fall again.

Obama insisted that there is an urgent need for tighter financial regulation, and he cautioned his audience not to try to block it. He spoke on the first anniversary of the collapse of the Lehman Bros. investment bank, the largest bankruptcy in U.S. history. The anniversary was a stark reminder of a financial crisis that has spread into a deep recession despite huge federal bailouts of major companies.

"It is neither right nor responsible, after you've recovered with the help of your government, to shirk your obligation to the goal of wider recovery, a more stable system, and a more broadly shared prosperity," Obama said.

The president's speech reflected public sentiment that taxpayers were immeasurably harmed by last year's financial collapse - and that, barring change, it could happen again. As investment giants return to profitability, millions of Americans are still coping with unemployment, home foreclosures and retirement portfolios that got washed away in the storm.

For symbolic emphasis, Obama spoke from venerable Federal Hall on Wall Street.

"Unfortunately, there are some in the financial industry who are misreading this moment," Obama told a quiet audience of leaders from the investment sector.

"So I want them to hear my words," Obama said. "We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis. . . . Those on Wall Street cannot resume taking risks without regard for consequences."

Obama's reach goes only so far; his bid for huge regulatory change is up to Congress.

The president's plan has yet to gain serious traction on Capitol Hill, as Democratic leaders have been consumed by the health-care debate and staff members are still wrestling with the complexities. The plan is being fought by a determined financial-services lobby with a major assist from big-business groups. Infighting among regulators who oversee the various portions of the sprawling financial architecture has further slowed the process.

But the sluggish pace is expected to pick up in coming weeks. Democrats aim to stick to their promise of completing the bill by year's end, a timeline Obama badly wants to keep, but they face long odds.

Republican Sen. Judd Gregg of New Hampshire, who once considered being Obama's commerce secretary, was among GOP lawmakers who responded to the president's message with caution.

He said, "We must be wary of the reality that - in an attempt to address yesterday's failures - Congress will put in place regulatory schemes which will fundamentally undermine risk taking."

Anticipating such criticism, Obama shot back against those pushing for less regulation.

"Do you really believe that the absence of sound regulation one year ago was good for the financial system?" he said. "Do you believe the resulting decline in markets and wealth and unemployment, the wrenching hardship that families are going through all across the country, was somehow good for our economy?"

Much of Obama's speech was a recap of his proposals, first outlined in June.

He has sought tougher capital requirements for banks, arguing that banks' buying of exotic financial products without keeping enough cash in reserve was a key cause of the crisis. He wants more openness for the markets in which banks trade the most complex products.

Obama's plan also would give the Federal Reserve new oversight powers and impose conditions designed to discourage companies from getting too big. And he proposes a consumer-protection agency to make rules for financial products, so people know what they are buying.

The House Financial Services Committee, led by Rep. Barney Frank (D., Mass.), who supports much of Obama's plan, is expected in October to take up the first piece of the legislation, which would establish an agency focused on consumer protections. The panel has already passed legislation intended to curb excessive compensation at financial institutions.

Obama's plan could face significant revisions in the Senate, where Democrats have joined Republicans in questioning whether more power should be given to the Federal Reserve.

Industry is working particularly hard to kill or at least weaken the consumer protection agency, which it says would lead to increased costs for consumers, and various corporate interests are fighting the new rules for complex financial transactions, arguing they could stifle legitimate commerce.