The president recently gave an interesting address to Wall Street on the anniversary of the start of the financial crisis which began last year (and also got him elected). One year ago, the fall of Lehman Brothers left the nation scrambling to find ways to secure critical liquidity to a financial market that was on the brink of devastation.

In his speech, the president wasn't nice. He received applause from the audience only one time, so they don't like him as much as black people do. What's also clear is that he's not President Bush: Wall Street doesn't want Barack Obama to be president, but he is exactly what they need right now.Our banking system is ranked 108th in the world in terms of stability, behind Tanzania. What's even more frightening is that while being incredibly reckless, our banking system is the most powerful in the world, driving the strongest economy on earth. We can't afford to be silly or irresponsible.

The president focused his conversation around three key adjustments:

1) Keeping American taxpayers from paying the cost of excessive risk-taking. Alan Greenspan, the former Chairman of the Federal Reserve, set a very bad precedent in the 1990s. When large banks were on the verge of collapse, he would step in and save them from themselves. While this might seem like a good idea, it only led to additional risk taking by banks. The "heads I win/tails you lose" mentality became pervasive on Wall Street, because large banks knew that their problems would be solved by the American tax payer. Obama has made it clear that the American public is not going to be there to protect banks from their own silly decisions. He promised instead put together an agency that would systematically dismantle failing banks, rather than bail them out.

"We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses," said President Obama. "Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall."

2) Establishing additional protections for consumers. The president wishes to establish an agency to protect consumers and investors from the troubles of Wall Street. This is the weakest dimension of his proposal and will probably not be passed. The truth is that many believe the president's initiatives can be addressed in the pre-existing list of agencies, rather than going through the trouble of creating a new one. The American financial system is already bogged down with quite a few regulatory agencies and too much regulation can stifle economic growth. Bush understood the need for less regulation, but went overboard, similar to someone who pushes the gas of a car to 120 miles per hour. Additionally, without another financial crisis (which we don't want to see), it is difficult to believe that Congress will take the reforms seriously enough to pass legislation while the president is in office.



3) Stronger regulation of Wall Street and closing gaps in the current system. The president has called for a "system regulator," a party who can monitor the financial system and intervene before the problems of one firm infect the entire industry. This is a very good idea, since we all know that an ounce of prevention is worth a pound of cure. Wall Street's woes were not necessarily created by bad people; they were created by a bad system. A bad system is a situation where the incentives are structured in a way that leads to unproductive outcomes. That's why we're in the mess we're experiencing right now.

The president didn't get very much support on Wall Street, since the power brokers attending his speech aren't used to anyone telling them what to do. But they can't say a word at this point, since it was their irresponsible behavior which caused one of the greatest financial crises in American history. The president must move firmly on this issue and he is doing so according to script.


Dr. Boyce Watkins is a finance professor at Syracuse University and author of 'Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good.' To have Dr. Boyce's commentary delivered to your e-mail, please click here.