In his state-of-the-troubled-economy speech to a joint session of Congress on February 24, President Barack Obama pledged that to "ensure that a crisis of this magnitude never happens again," he would "ask Congress to move quickly on legislation that will finally reform our outdated regulatory system." It is time, the President said, "to put in place tough, new common-sense rules of the road so that our financial market rewards drive and innovation, and punishes short-cuts and abuse." In the speech, he said the country had lived through an era "when a surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market."
On February 25, Obama held a "Regulatory Reform Meeting" in the White House between members of his economic team, including Treasury Secretary Timothy Geithner and economic advisor Larry Summers, and some members of Congress to begin putting some flesh on those promises.
In comments after the meeting, Obama said the current crisis "happened when Wall Street wrongly presumed markets would continuously rise, and traded in complex financial products without fully evaluating their risks. Here in Washington, our regulations lagged behind changes in our markets, and too often, regulators failed to use the authority that they had to protect consumers, markets and the economy. We now know from painful experience that we can no longer sustain 21st century markets with 20th century regulations, and that while free markets are the key to our progress, they do not give us free license to take whatever we can get, however we can get it."
Obama said he saw a growing consensus, even among the competing parties, on what the shape of reform should be that he hoped would be translated into legislation "in the coming weeks and months."
He then listed seven "core principles" that should shape any reform legislation:
"First, financial institutions that pose serious risks, systemic risks, to our market should be subject to serious oversight by the government.
"Second, our regulatory system--and each of our major markets--must be strong enough to withstand both system-wide stress and the failure of one or more large institutions. And that means modernizing and streamlining our regulatory structure, and monitoring both the scale and scope of risks that institutions can take.
"Third, to rebuild trust in our markets, we must redouble our efforts to promote openness, transparency and plain language throughout our financial system.
"Fourth, we need strong and uniform supervision of financial products marketed to investors and consumers. And we should base this oversight not on abstract models created by the institutions themselves, but on actual data on how actual people make financial decisions.
"Fifth, we must demand strict accountability, starting at the top. Executives who violate the public trust must be held responsible.
"Sixth, we must make sure our system of regulations covers appropriate institutions and markets, and is comprehensive and free of gaps, and prevents those being regulated from cherry-picking among competing regulators.
"Finally, we must recognize that the challenges we face are not just American challenges, they are global challenges. So as we work to set high regulatory standards here in the United States, we have to challenge other countries around the world to do the same.".
In his speech to Congress on February 24, Obama also promised that in his Administration, "to save our children from a future of debt, we will also end the tax breaks for the wealthiest 2% of Americans. But let me perfectly clear, because I know you'll hear the same old claims that rolling back these tax breaks means a massive tax increase on the American people: if your family earns less than $250,000 a year, you will not see your taxes increased a single dime."