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36783 - Obama to urge financial overhaul   14/09/2009 - 14:12:36

US President Barack Obama
Mr Obama has spent billions of dollars to stimulate economic growth

US President Barack Obama is poised to call on Congress to approve an overhaul of the US regulatory regime.

In a speech to mark one year since the collapse of Lehman Brothers bank, he will also mount a vigorous defence of his administration's economic policies.

The US president will focus on "the need to take the next series of steps" in regulatory reform, White House spokesman Robert Gibbs said.

Mr Obama's team have argued that they staved off a second Great Depression.

Mr Obama will give his speech at 1210 local time (1610 GMT) in New York, at Federal Hall on Wall Street, where George Washington was inaugurated as the first US president.

'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.

Matthew Price
By Matthew Price, BBC News, New York

President Obama will speak later to a Wall Street that is growing in confidence. Confidence both in its financial position, and in its ability to oppose legislative changes that it feels are not in its interests.

In his address, the President will call for the kind of systemic reform that many believe is needed if the mistakes that led to the credit crisis are to be avoided in the future.

Turning words into action however is proving difficult for this president on many fronts, including this one.

And many analysts fear that by failing to act when the financial sector was at its weakest, and political will at its greatest, a golden opportunity was missed to bring in meaningful reform.

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

Mr 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, speaking to BBC business editor Robert Peston on Newsnight.

"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 (£472bn) 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.

The BBC reports on the first anniversary of the credit crunch across radio, TV, and online.
See and hear the sights and sounds of the day of the crash in our audio slideshow
Our crisis timeline shows the key events as the global recession unfolded
And follow the money: Track the $11tn of bailout spending and see what it means for the taxpayers who funded it

"When I walked in, the banking system, the financial system was under the verge of collapse," Mr 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.

Mixed verdict

Mr Obama's speech comes as a BBC World Service poll showed that 67% of people in 20 countries wanted more regulation and running of national economies.

US citizens were evenly split between those who were happy and unhappy with their government's response, the survey showed.

Brazilian President Luiz Inacio Lula da Silva blamed "rich countries" and international bodies such as the International Monetary Fund and the World Bank for the crisis because of a lack of regulation in an interview with the BBC.

Mr Lula is popular in Brazil, with 59% saying they were happy with Brazil's handling of the crisis in the World Service poll.

Brazil recently became the latest country to emerge from a relatively shallow recession.

Overall, the survey suggested that people in developed countries were less satisfied with all of these groups than those in developing countries.

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.


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