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On One-Year Anniversary of Lehman Collapse, President Obama Urges Financial Overhaul

Posted on 14 Sep 2009

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U.S. President Barack Obama in a speech in New York at Federal Hall on Wall Street is calling on Congress to approve an overhaul of the US regulatory regime. The speech marks the one year since the collapse of Lehman Brothers bank.

The President is focusing on "the need to take the next series of steps" in regulatory reform, White House spokesman Robert Gibbs said.

'Money talks'

The White House would give the central bank, the Federal Reserve, new powers over huge financial firms and the ability to seize banks whose collapse could threaten the economy.

Those and other rules that have been proposed have been tied up in Congress, which has been bogged down with Obama's divisive healthcare reform proposals.

Obama also wants a new watchdog, the Consumer Financial Protection Agency, for products like mortgages, car loans and credit cards and the Federal Trade Commission will gain new powers to protect consumers.

That, and more powers for the Securities and Exchange Commission, has also faced opposition from the banking industry.

"I'm very pessimistic that we will do enough," said Nobel award-winning economist Joseph Stiglitz.

"If you listen to the discussion, you see the push-back from the financial sector," he added. "In American democracy, money talks. We have five lobbyists for every Congressman in the financial industry."

Verge of collapse

The White House has said its massive $787bn stimulus package, known as the American Recovery and Reinvestment Act, passed earlier this year, has created up to 1.1m jobs and boosted economic activity.

"When I walked in, the banking system, the financial system was under the verge of collapse," President Obama said on Sunday in an interview on the 60 Minutes television show.

"The reason we did so was that every credible Democratic and Republican economist at the time when we came in said if we don't have a stimulus of some sort, then this is potentially going to get a lot worse," he said.

The White House has said it boosted US GDP by 2-3% between April and June.

Positive signs

Recent data has suggested that the US is starting to recover, just as other countries such as Japan and Germany have left recession.

Many economists believe that the US will return to positive economic growth in the June-September quarter.

"When the president was elected and in transition, the issue... was whether recession would become depression," said Lawrence Summers, head of the Obama administration's National Economic Council.

"Today, the question is when the recession phase will end. That is not, in our judgement, an accident."

"We are making a clear transition from rescue as the priority of public policy to sustained recovery," he added.

The collapse of US investment bank Lehman Brothers, soon after troubled rival Bear Sterns was sold with Federal Reserve intervention, marked the start of a near-total collapse of the financial system that required unprecedented global intervention to keep it solvent.