Obama On Regulation

At a press conference earlier today, President Barack Obama spoke on the A.I.G. bonus situation, and on regulation more generally. You can read about it in this Transcript of the President's remarks, link courtesy of The New York Times, thru this post in The Caucus, the NYT Politics & Government Blog, "Obama Criticizes A.I.G. Bonuses, Calls for Greater Regulation." Here are highlights of the President's remarks pertaining to regulation generally:

"Now, keep in mind -- I think it's very important to remind ourselves that
there are a whole bunch of folks now who are feigning outrage about these
bonuses that a year ago, or two years ago, or three years ago, said, well, we
should never meddle in these compensation plans; these are the best and the
brightest; they know what they're doing; that's part of the market -- and now,
suddenly they're outraged.

The point that I've been trying to make consistently has been that we
believe in the free market, we believe in capitalism, we believe in people
getting rich, but we believe in people getting rich based on performance and
what they add in terms of value and the products and services that they create.
And it's appropriate for us to have some regulatory mechanisms in place to
ensure that we never have a situation where the government has to step in, or
you've got taxpayers who are having to foot the bill for other people's
mistakes.

That requires some regulatory framework. And my hope is that one of the
lessons we learn here is, is that putting smart regulations in place --
oversight, transparency, accountability -- those things are not anti-market,
they're pro-market. When, last year, Barney Frank and I worked to allow
shareholders to at least cast a non-binding vote on compensation packages, there
were some people who attacked us saying government has no business doing that.
Well, look, all we're trying to say is you've got to be accountable to somebody.
And it's that measure of accountability that I think is part of what has made
America strong, and we have to get back to those kinds of values.....

I want to repeat something that I said before the joint session: My
interest is not protecting banks. My interest is protecting the American people;
the people's 401(k)s; ordinary folks who have a credit line with a bank for
their small business; people whose pension funds are invested in some of these
financial institutions. The prospect of all of that unraveling would have been
unacceptable -- an unacceptable risk.

Now, what we're trying to do is get ourselves in a position where we make
sure that going forward we're not held hostage to all these bad decisions that
were made by these huge institutions in the past, and that we create a system
where they can't make all these bad bets, they can't issue these insurance
policies one on top of the other without having the assets to back them
up.

That's the kind of regulatory reform that we need. That's what these folks
are going to be talking to the folks on the Hill about. And I am confident that
we can strike the right balance that allows our financial system to stabilize,
allows people to innovate in the financial markets, but don't allow them to put
everybody else's savings, everybody else's well-being, other people's jobs,
other people's homes at risk. And that's the task that lies before us and I'm
confident with can get it done."

In related news, Congressional hearings on regulatory reform are continuing apace, with a full committee hearing of the House Financial Services (HFS) Committee taking place yesterday on Perspectives on Regulation of Systemic Risk in the Financial Services Industry, a hearing by HFS today on American International Group’s Impact on the Global Economy: Before, During, and After Federal Intervention, and a hearing today in the Senate Banking Committee (SBC) on Lessons Learned in Risk Management Oversight at Federal Financial Regulators. Coming up: HFS has numerous hearings scheduled, including a hearing slated for March 20 on Federal and State Enforcement of Financial Consumer and Investor Protection Laws, and another hearing scheduled for March 26 on Addressing the Need for Comprehensive Regulatory Reform, at which U.S. Treasury Secretary Tim Geithner is scheduled to speak. See lists of additional HFS and SBC hearings.

Additionally, SEC Commissioner Elisse Walter suggested five 'Principles to Help Guide Financial Regulation Reform" in a speech she gave earlier this month to the Institute for International Bankers. The principles enumerated by Walter are:

• Principle 1: The objectives of managing systemic risk and protecting investors should both be maintained and pursued in a balanced manner.
• Principle 2: The current regulatory framework should be restructured to eliminate gaps and overlaps and to increase market transparency, so that important products and market actors are not beyond the oversight of regulators.
• Principle 3: Consumers should receive the same level of protection when they purchase comparable products and services, regardless of the financial professional involved.
• Principle 4: Important gatekeepers should be regulated to minimize conflicts of interests, increase transparency, and foster competition.
• Principle 5: No matter what new shape is constructed for financial regulation, it must incorporate strong enforcement powers for regulators to pursue wrongdoing and deter future misconduct, but those powers must be in addition to—not in lieu of—regulatory authority.

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