Obama: Banks Will Act Recklessly Without Reform
"In some ways, it could be worse because now they know that the federal government may think that they're too big to fail," he said, a reference to previous bank bailouts.
The president said he still believes that the government was right "to step in to make sure that the financial system did not collapse," despite the fact that it was unpopular. But he criticized Wall Street for taking "extraordinary risks with other people's money."
"They were peddling loans that they knew could never be paid back," the president said. "They were flipping those loans and leveraging those loans and higher and higher mountains of debt were being built on loans that were fundamentally unsound. And all of us now are paying the price."
He said that it is a good thing that some banks have become profitable again.
"Because if they're profitable, that means that they have reserves in place and they can lend," he said. "And this is America, so if you're profitable in the free market system, then you benefit."
The president added, however, that there has not been "the kind of change in behavior and practices on Wall Street that would ensure that we don't find ourselves in a fix again, where we've got to bail out these folks while they're taking huge risks and taking huge bonuses."
"With respect to compensation, I'd like to think that people would feel a little remorse and feel embarrassed and would not get million-dollar or multimillion-dollar bonuses," he said.
"But if shame does not work, then I think one proposal that I put forward is to make sure that at least shareholders of these companies know what their executives are being compensated," added Mr. Obama. "And that may force some reductions."
He then addressed whether he would support a fee on risky activities that go beyond traditional lending, an idea, he said, that "is going to be working its way through the process."
The president said there may need to be a mechanism put in place "for some of these other far-out transactions" similar to the Federal Deposit Insurance Corporation, or FDIC, which insures bank deposits. The FDIC is paid for through bank fees.
He stated that a mechanism would mandate that if someone wants to engage in a risky transaction, "then you've got to put something into the kitty to make sure that if you screw up, it's not taxpayer dollars that have to pay for it, but it's dollars coming out of your profits."
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