Mar
27
Written by:
admin
3/27/2008 9:55 AM
Senator Obama's remarks follow as prepared for delivery.
Renewing the American Economy
Senator Barack Obama
Cooper Union
March 27, 2008
I want to thank Mayor Bloomberg for his extraordinary leadership. At a
time when Washington is divided in old ideological battles, he shows us
what can be achieved when we bring people together to seek pragmatic
solutions. Not only has he been a remarkable leader for New York -he has
established himself as a major voice in our national debate on issues
like renewing our economy, educating our children, and seeking energy
independence. Mr. Mayor, I share your determination to bring this
country together to finally make progress for the American people.
In a city of landmarks, we meet at Cooper Union, just uptown from
Federal Hall, where George Washington took the oath of office as the
first President of the United States. With all the history that has
passed through the narrow canyons of lower Manhattan, it is worth taking
a moment to reflect on the role that the market has played in the
development of the American story.
The great task before our Founders that day was putting into practice
the ideal that government could simultaneously serve liberty and advance
the common good. For Alexander Hamilton, the young Secretary of the
Treasury, that task was bound to the vigor of the American economy.
Hamilton had a strong belief in the power of the market. But he balanced
that belief with the conviction that human enterprise "may be
beneficially stimulated by prudent aids and encouragements on the part
of the government." Government, he believed, had an important role to
play in advancing our common prosperity. So he nationalized the state
Revolutionary War debts, weaving together the economies of the states
and creating an American system of credit and capital markets. And he
encouraged manufacturing and infrastructure, so products could be moved
to market.
Hamilton met fierce opposition from Thomas Jefferson, who worried that
this brand of capitalism would favor the interests of the few over the
many. Jefferson preferred an agrarian economy because he believed that
it would give individual landowners freedom, and that this freedom would
nurture our democratic institutions. But despite their differences,
there was one thing that Jefferson and Hamilton agreed on - that
economic growth depended upon the talent and ingenuity of the American
people; that in order to harness that talent, opportunity had to remain
open to all; and that through education in particular, every American
could climb the ladder of social and economic mobility, and achieve the
American Dream.
In the more than two centuries since then, we have struggled to balance
the same forces that confronted Hamilton and Jefferson - self-interest
and community; markets and democracy; the concentration of wealth and
power, and the necessity of transparency and opportunity for each and
every citizen. Throughout this saga, Americans have pursued their dreams
within a free market that has been the engine of America's progress.
It's a market that has created a prosperity that is the envy of the
world, and opportunity for generations of Americans. A market that has
provided great rewards to the innovators and risk-takers who have made
America a beacon for science, and technology, and discovery.
But the American experiment has worked in large part because we have
guided the market's invisible hand with a higher principle. Our free
market was never meant to be a free license to take whatever you can
get, however you can get it. That is why we have put in place rules of
the road to make competition fair, and open, and honest. We have done
this not to stifle - but rather to advance prosperity and liberty. As I
said at NASDAQ last September: the core of our economic success is the
fundamental truth that each American does better when all Americans do
better; that the well being of American business, its capital markets,
and the American people are aligned.
I think all of us here today would acknowledge that we've lost that
sense of shared prosperity.
This loss has not happened by accident. It's because of decisions made
in boardrooms, on trading floors and in Washington. Under Republican and
Democratic Administrations, we failed to guard against practices that
all too often rewarded financial manipulation instead of productivity
and sound business practices. We let the special interests put their
thumbs on the economic scales. The result has been a distorted market
that creates bubbles instead of steady, sustainable growth; a market
that favors Wall Street over Main Street, but ends up hurting both.
Nor is this trend new. The concentrations of economic power - and the
failures of our political system to protect the American economy from
its worst excesses - have been a staple of our past, most famously in
the 1920s, when with success we ended up plunging the country into the
Great Depression. That is when government stepped in to create a series
of regulatory structures - from the FDIC to the Glass-Steagall Act - to
serve as a corrective to protect the American people and American
business.
Ironically, it was in reaction to the high taxes and some of the
outmoded structures of the New Deal that both individuals and
institutions began pushing for changes to this regulatory structure. But
instead of sensible reform that rewarded success and freed the creative
forces of the market, too often we've excused and even embraced an ethic
of greed, corner cutting and inside dealing that has always threatened
the long-term stability of our economic system. Too often, we've lost
that common stake in each other's prosperity.
Let me be clear: the American economy does not stand still, and neither
should the rules that govern it. The evolution of industries often
warrants regulatory reform - to foster competition, lower prices, or
replace outdated oversight structures. Old institutions cannot
adequately oversee new practices. Old rules may not fit the roads where
our economy is leading. There were good arguments for changing the rules
of the road in the 1990s. Our economy was undergoing a fundamental
shift, carried along by the swift currents of technological change and
globalization. For the sake of our common prosperity, we needed to adapt
to keep markets competitive and fair.
Unfortunately, instead of establishing a 21st century regulatory
framework, we simply dismantled the old one - aided by a legal but
corrupt bargain in which campaign money all too often shaped policy and
watered down oversight. In doing so, we encouraged a winner take all,
anything goes environment that helped foster devastating dislocations in
our economy.
Deregulation of the telecommunications sector, for example, fostered
competition but also contributed to massive over-investment. Partial
deregulation of the electricity sector enabled market manipulation.
Companies like Enron and WorldCom took advantage of the new regulatory
environment to push the envelope, pump up earnings, disguise losses and
otherwise engage in accounting fraud to make their profits look better -
a practice that led investors to question the balance sheet of all
companies, and severely damaged public trust in capital markets. This
was not the invisible hand at work. Instead, it was the hand of industry
lobbyists tilting the playing field in Washington, an accounting
industry that had developed powerful conflicts of interest, and a
financial sector that fueled over-investment.
A decade later, we have deregulated the financial services sector, and
we face another crisis. A regulatory structure set up for banks in the
1930s needed to change because the nature of business has changed. But
by the time the Glass-Steagall Act was repealed in 1999, the $300
million lobbying effort that drove deregulation was more about
facilitating mergers than creating an efficient regulatory framework.
Since then, we have overseen 21st century innovation - including the
aggressive introduction of new and complex financial instruments like
hedge funds and non-bank financial companies - with outdated 20th
century regulatory tools. New conflicts of interest recalled the worst
excesses of the past - like the outrageous news that we learned just
yesterday of KPMG allowing a lender to report profits instead of losses,
so that both parties could make a quick buck. Not surprisingly, the
regulatory environment failed to keep pace. When subprime mortgage
lending took a reckless and unsustainable turn, a patchwork of
regulators were unable or unwilling to protect the American people.
The policies of the Bush Administration threw the economy further out of
balance. Tax cuts without end for the wealthiest Americans. A trillion
dollar war in Iraq that didn't need to be fought, paid for with deficit
spending and borrowing from foreign creditors like China. A complete
disdain for pay-as-you-go budgeting - coupled with a generally scornful
attitude towards oversight and enforcement - allowed far too many to put
short-term gain ahead of long term consequences. The American economy
was bound to suffer a painful correction, and policymakers found
themselves with fewer resources to deal with the consequences.
Today, those consequences are clear. I see them in every corner of our
great country, as families face foreclosure and rising costs. I seem
them in towns across America, where a credit crisis threatens the
ability of students to get loans, and states can't finance
infrastructure projects. I see them here in Manhattan, where one of our
biggest investment banks had to be bailed out, and the Fed opened its
discount window to a host of new institutions with unprecedented
implications we have yet to appreciate. When all is said and done,
losses will be in the many hundreds of billions. What was bad for Main
Street was bad for Wall Street. Pain trickled up.
That is why the principle that I spoke about at NASDAQ is even more
urgently true today: in our 21st century economy, there is no dividing
line between Main Street and Wall Street. The decisions made in New
York's high-rises have consequences for Americans across the country.
And whether those Americans can make their house payments; whether they
keep their jobs; or spend confidently without falling into debt - that
has consequences for the entire market. The future cannot be shaped by
the best-connected lobbyists with the best record of raising money for
campaigns. This thinking is wrong for the financial sector and it's
wrong for our country.
I do not believe that government should stand in the way of innovation,
or turn back the clock to an older era of regulation. But I do believe
that government has a role to play in advancing our common prosperity:
by providing stable macroeconomic and financial conditions for sustained
growth; by demanding transparency; and by ensuring fair competition in
the marketplace.
Our history should give us confidence that we don't have to choose
between an oppressive government-run economy and a chaotic and
unforgiving capitalism. It tells us we can emerge from great economic
upheavals stronger, not weaker. But we can do so only if we restore
confidence in our markets. Only if we rebuild trust between investors
and lenders. And only if we renew that common interest between Wall
Street and Main Street that is the key to our success.
Now, as most experts agree, our economy is in a recession. To renew our
economy - and to ensure that we are not doomed to repeat a cycle of
bubble and bust again and again - we need to address not only the
immediate crisis in the housing market; we also need to create a 21st
century regulatory framework, and pursue a bold opportunity agenda for
the American people.
Most urgently, we must confront the housing crisis.
After months of inaction, the President spoke here in New York and
warned against doing too much. His main proposal - extending tax cuts
for the wealthiest Americans - is completely divorced from the reality
that people are facing around the country. John McCain recently
announced his own plan, and it amounts to little more than watching this
crisis happen. While this is consistent with Senator McCain's
determination to run for George Bush's third term, it won't help
families who are suffering, and it won't help lift our economy out of
recession.
Over two million households are at risk of foreclosure and millions more
have seen their home values plunge. Many Americans are walking away from
their homes, which hurts property values for entire neighborhoods and
aggravates the credit crisis. To stabilize the housing market and help
bring the foreclosure crisis to an end, I have sponsored Senator Chris
Dodd's legislation creating a new FHA Housing Security Program, which
will provide meaningful incentives for lenders to buy or refinance
existing mortgages. This will allow Americans facing foreclosure to keep
their homes at rates they can afford.
Senator McCain argues that government should do nothing to protect
borrowers and lenders who've made bad decisions, or taken on excessive
risk. On this point, I agree. But the Dodd-Frank package is not a
bailout for lenders or investors who gambled recklessly, as they will
take losses. It is not a windfall for borrowers, as they will have to
share any capital gain. Instead, it offers a responsible and fair way to
help bring an end to the foreclosure crisis. It asks both sides to
sacrifice, while preventing a long-term collapse that could have
enormous ramifications for the most responsible lenders and borrowers,
as well as the American people as a whole. That is what Senator McCain
ignores.
For homeowners who were victims of fraud, I've also proposed a $10
billion Foreclosure Prevention Fund that would help them sell a home
that is beyond their means, or modify their loan to avoid foreclosure or
bankruptcy. It's also time to amend our bankruptcy laws, so families
aren't forced to stick to the terms of a home loan that was predatory or
unfair.
To prevent fraud in the future, I've proposed tough new penalties on
fraudulent lenders, and a Home Score system that will allow consumers to
find out more about mortgage offers and whether they'll be able to make
payments. To help low- and middle-income families, I've proposed a 10
percent mortgage interest tax credit that will allow homeowners who
don't itemize their taxes to access incentives for home ownership. And
to expand home ownership, we must do more to help communities turn
abandoned properties into affordable housing.
The government can't do this alone, nor should it. As I said last
September, lenders must get ahead of the curve rather than just reacting
to crisis. They should actively look at all borrowers, offer workouts,
and reduce the principal on mortgages in trouble. Not only can this
prevent the larger losses associated with foreclosure and resale, but it
can reduce the extent of government intervention and taxpayer exposure.
Beyond dealing with the immediate housing crisis, it is time for the
federal government to revamp the regulatory framework dealing with our
financial markets.
Our capital markets have helped us build the strongest economy in the
world. They are a source of competitive advantage for our country. But
they cannot succeed without the public's trust. The details of
regulatory reform should be developed through sound analysis and public
debate. But there are several core principles for reform that I will
pursue as President.
First, if you can borrow from the government, you should be subject to
government oversight and supervision. Secretary Paulson admitted this in
his remarks yesterday. The Federal Reserve should have basic supervisory
authority over any institution to which it may make credit available as
a lender of last resort. When the Fed steps in, it is providing lenders
an insurance policy underwritten by the American taxpayer. In return,
taxpayers have every right to expect that these institutions are not
taking excessive risks. The nature of regulation should depend on the
degree and extent of the Fed's exposure. But at the very least, these
new regulations should include liquidity and capital requirements.
Second, there needs to be general reform of the requirements to which
all regulated financial institutions are subjected. Capital requirements
should be strengthened, particularly for complex financial instruments
like some of the mortgage securities that led to our current crisis. We
must develop and rigorously manage liquidity risk. We must investigate
rating agencies and potential conflicts of interest with the people they
are rating. And transparency requirements must demand full disclosure by
financial institutions to shareholders and counterparties.
As we reform our regulatory system at home, we must work with
international arrangements like the Basel Committee on Banking
Supervision, the International Accounting Standards Board, and the
Financial Stability Forum to address the same problems abroad. The goal
must be ensuring that financial institutions around the world are
subject to similar rules of the road - both to make the system stable,
and to keep our financial institutions competitive.
Third, we need to streamline a framework of overlapping and competing
regulatory agencies. Reshuffling bureaucracies should not be an end in
itself. But the large, complex institutions that dominate the financial
landscape do not fit into categories created decades ago. Different
institutions compete in multiple markets - our regulatory system should
not pretend otherwise. A streamlined system will provide better
oversight, and be less costly for regulated institutions.
Fourth, we need to regulate institutions for what they do, not what they
are. Over the last few years, commercial banks and thrift institutions
were subject to guidelines on subprime mortgages that did not apply to
mortgage brokers and companies. It makes no sense for the Fed to tighten
mortgage guidelines for banks when two-thirds of subprime mortgages
don't originate from banks. This regulatory framework has failed to
protect homeowners, and it is now clear that it made no sense for our
financial system. When it comes to protecting the American people, it
should make no difference what kind of institution they are dealing
with.
Fifth, we must remain vigilant and crack down on trading activity that
crosses the line to market manipulation. Reports have circulated in
recent days that some traders may have intentionally spread rumors that
Bear Stearns was in financial distress while making market bets against
the company. The SEC should investigate and punish this kind of market
manipulation, and report its conclusions to Congress.
Sixth, we need a process that identifies systemic risks to the financial
system. Too often, we deal with threats to the financial system that
weren't anticipated by regulators. That's why we should create a
financial market oversight commission, which would meet regularly and
provide advice to the President, Congress, and regulators on the state
of our financial markets and the risks that face them. These expert
views could help anticipate risks before they erupt into a crisis.
These six principles should guide the legal reforms needed to establish
a 21st century regulatory system. But the change we need goes beyond
laws and regulation - we need a shift in the cultures of our financial
institutions and our regulatory agencies.
Financial institutions must do a better job at managing risks. There is
something wrong when boards of directors or senior managers don't
understand the implications of the risks assumed by their own
institutions. It's time to realign incentives and compensation packages,
so that both high level executives and employees better serve the
interests of shareholders. And it's time to confront the risks that come
with excessive complexity. Even the best government regulation cannot
fully substitute for internal risk management.
For supervisory agencies, oversight must keep pace with innovation. As
the subprime crisis unfolded, tough questions about new and complex
financial instruments were not asked. As a result, the public interest
was not protected. We do American business - and the American people -
no favors when we turn a blind eye to excessive leverage and dangerous
risks.
Finally, the American people must be able to trust that their government
is looking out for all of us - not just those who donate to political
campaigns. I fought in the Senate for the most extensive ethics reform
since Watergate. I have refused contributions from federal lobbyists and
PACs. And I have laid out far-reaching plans that I intend to sign into
law as President to bring transparency to government, and to end the
revolving door between industries and the federal agencies that oversee
them.
Once we deal with the immediate crisis in housing and strengthen the
regulatory system governing our financial markets, our final task is to
restore a sense of opportunity for all Americans.
The bedrock of our economic success is the American Dream. It's a dream
shared in big cities and small towns; across races, regions and
religions - that if you work hard, you can support a family; that if you
get sick, there will be health care you can afford; that you can retire
with the dignity and security and respect that you have earned; that
your kids can get a good education, and young people can go to college
even if they're not rich. That is our common hope across this country.
That is the American Dream.
But today, for far too many Americans, this dream is slipping away. Wall
Street has been gripped by increasing gloom over the last nine months.
But for many American families, the economy has effectively been in
recession for the past seven years. We have just come through the first
sustained period of economic growth since World War II that was not
accompanied by a growth in incomes for typical families. Americans are
working harder for less. Costs are rising, and it's not clear that we'll
leave a legacy of opportunity to our children and grandchildren.
That's why, throughout this campaign, I've put forward a series of
proposals that will foster economic growth from the bottom up, and not
just from the top down. That's why the last time I spoke on the economy
here in New York, I talked about the need to put the policies of George
W. Bush behind us - policies that have essentially said to the American
people: "you are on your own"; because we need to pursue policies that
once again recognize that we are in this together.
This starts with providing a stimulus that will reach the most
vulnerable Americans, including immediate relief to areas hardest hit by
the housing crisis, and a significant extension of unemployment
insurance for those who are out of work. If we can extend a hand to
banks on Wall Street, we can extend a hand to Americans who are
struggling.
Beyond these short term measures, as President I will be committed to
putting the American Dream on a firmer footing. To reward work and make
retirement secure, we'll provide an income tax cut of up to $1000 for a
working family, and eliminate income taxes altogether for any retiree
making less than $50,000 per year. To make health care affordable for
all Americans, we'll cut costs and provide coverage to all who need it.
To put more Americans to work, we'll create millions of new Green Jobs
and invest in rebuilding our nation's infrastructure. To extend
opportunity, we'll invest in our schools and our teachers, and make
college affordable for every American. And to ensure that America stays
on the cutting edge, we'll expand broadband access, expand funding for
basic scientific research, and pass comprehensive immigration reform so
that we continue to attract the best and the brightest to our shores.
I know that making these changes won't be easy. I will not pretend that
this will come without cost, though I have presented ways we can achieve
these changes in a fiscally responsible way. I know that we'll have to
overcome our doubts and divisions and the determined opposition of
powerful special interests before we can truly advance opportunity and
prosperity for all Americans.
But I would not be running for President if I didn't think that this was
a defining moment in our history. If we fail to overcome our divisions
and continue to let special interest set the agenda, then America will
fall behind. Short-term gains will continue to yield long-term costs.
Opportunity will slip away on Main Street and prosperity will suffer
here on Wall Street. But if we unite this country around a common
purpose, if we act on the responsibilities that we have to each other
and to our country, then we can launch a new era of opportunity and
prosperity.
I know we can do this because Americans have done this before. Time and
again, we've recognized that common stake that we have in each other's
success. That's how people as different as Hamilton and Jefferson came
together to launch the world's greatest experiment in democracy. That's
why our economy hasn't just been the world's greatest wealth creator -
it's bound America together, it's created jobs, and it's made the dream
of opportunity a reality for generations of Americans.
Now it falls to us. We have as our inheritance the greatest economy the
world has ever known. We have the responsibility to continue the work
that began on that spring day over two centuries ago right here in
Manhattan - to renew our common purpose for a new century, and to write
the next chapter in the story of America's success. We can do this. And
we can begin this work today.
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