From NBC's Athena Jones
During the fall presidential campaign, when struggling banks led to a credit crisis that roiled the markets and helped worsen an economic downturn, President Obama began beating the drum for updating America's financial regulatory system.
Since then, he has called for a new regulatory framework that's part of a complex, multi-pronged solution to getting the economy back on track and to avoid financial sector meltdowns.
Today, the president met with Treasury Secretary Geithner, chief White House economic adviser Larry Summers, and the chairmen and ranking members of the Senate Banking Committee and the House Financial Services Committee to begin work on a new set of regulations to monitor a modern banking system.
"This financial crisis was not inevitable," Obama told reporters gathered in the Diplomatic Reception Room. "It 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."
The president repeated a frequent argument from the campaign trail: that 21st-century markets could not be properly regulated with 20th-century regulations.
"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," he said. "But let me be clear: The choice we face is not between some oppressive government-run economy or a chaotic and unforgiving capitalism. Rather, strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors and ultimately to keep those financial institutions strong."
Obama has asked his economic team to develop recommendations for regulatory reform and to work with members of Congress from both parties so they can begin crafting legislation in the coming weeks and months.
He said the new regulations would aim to restore accountability and transparency and laid out several points to keep in mind in the upcoming discussion -- including the need to oversee financial institutions that pose serious risks; to streamline the regulatory structure and make sure it covers the necessary institutions and markets; to demand strict accountability starting with executives; and to have strong and uniform supervision of financial products marketed to investors and consumers.
Obama also stressed the need to challenge other countries to set high regulatory standards to prevent global crises in the future.
Alabama Republican Sen. Richard Shelby, who is ranking member of the Banking, Housing and Urban Affairs Committee, told reporters after the meeting it was important to restore Americans' confidence in the banking system and that the solution must be comprehensive and bipartisan.
"The whole banking system is built on trust. There's been a huge erosion, as everyone knows, in trust in the financial system and this would be would be a comprehensive move to bring good regulation to the banking system," Shelby said. "Heck, let's be honest: A lot of our regulators obviously didn't know what was going on with some of our big banks, otherwise all these debacles that have come about wouldn't have occurred. We've got to have comprehensive regulation where the taxpayer's at risk."
His fellow Alabama Republican, Rep. Spencer Bachus, who is the ranking member on the House Committee on Financial Services, spoke about the need to avoid having to spend taxpayer dollars on bailouts and interventions in the future.
Sen. Chris Dodd, chairman of the Senate committee on Banking, Housing, and Urban Affairs, said the group agreed with the fundamental principles the president had laid out; that they would be starting out working "off the same page"; and that he would hold as many as two hearings a week on the subject.
Rep. Barney Frank, the chairman of the House Financial Services Committee, said hearings on regulation would begin next week and argued that the "right kind of regulation is very pro-market."
He acknowledged the issue of moral hazard, but said that "we are forced by the need to right this economy and to some extent alleviate the consequences of poor judgments so that they don't affect the whole economy. Frank also argued that new regulations would help prevent that kind of behavior in the future.