President Barack Obama called on the Business Roundtable to support his financial regulatory reform efforts, warning that without such overhaul, another financial crisis is inevitable.
“If we do not pass financial reform, we can expect more crises in the future,” Mr. Obama said in remarks prepared for delivery to round-table members. “But if we design the new rules carelessly, they could choke off the supply of capital to businesses.”
“Outdated financial regulations” is a key factor in “preventing our economy from reaching its full potential,” he said, noting “my goal is not to punish Wall Street. I believe that most folks in the financial sector are looking to make money in an honest, transparent way.
“But if there aren't rules in place to guard against the recklessness of a few, and (if) they are allowed to …take on excessive risk, it starts a race to the bottom that results in all of us losing.
“We cannot allow another AIG or another Lehman (Brothers) to happen again,” Mr. Obama added. “We can't allow financial institutions… to make gambles that threaten the whole economy. We must ensure consolidated supervision of all institutions that could pose a risk to the system. We must close loopholes that allow financial firms to evade oversight and circumvent rules of the road.”
The president asked round-table members — CEOS in corporate America — “to support these efforts. The lobbyists up on the Hill right now are trying to kill reform by claiming that it would undermine businesses outside the financial sector. That couldn't be further from the truth. This is about putting in place rules that encourage drive and innovation instead of shortcuts and abuse.“
On executive compensation, Mr. Obama said he doesn't “begrudge reasonable rewards for a job well done. What has outraged people are the outsized bonuses at firms that so recently required massive public assistance. Once that money is fully repaid, I don't believe it's appropriate for the government to be in the business of setting compensation levels. What I do believe is that shareholders should have a say in the compensation packages given to top executives, and that those packages should be based on long-term performance instead of short-term profits. That's particularly important in the financial industry, where reckless risks in pursuit of short-term gains helped create a crisis that engulfed the world economy.
“Contrary to the claims of some of my critics, I am an ardent believer in the free market,” Mr. Obama said. ”I believe businesses like yours are the engines of economic growth in this country … I want everyone in this room to succeed. I want your shareholders to do well … because I firmly believe that America's success in large part depends on your success.”
John J. Castellani, president, Business Roundtable, said in a statement following the speech, “The president has taken decisive action to stabilize the financial markets and inject targeted stimulus into the economy. We're also pleased that he recognizes the critical role the private sector will need to play in continued economic growth … We are working together toward the same goals … to continue economic stabilization … and we concur on many of the steps that will get us there.”
Mr. Obama's financial regulatory reform proposal, detailed by the Department of the Treasury, includes creation of a Financial Services Oversight Council of financial regulators to identify emerging systemic risks; new authority for the Federal Reserve to supervise all firms, not just those that own banks, that could pose a threat to financial stability; and registration of hedge funds and other private pools of capital with the SEC.