Obama had anticipated such a reaction.
“That makes for a good soundbite, but it’s not factually accurate. It is not true,” the president said to applause. “In fact, the system as it stands–the system as it stands is what led to a series of massive, costly taxpayer bailouts. And it’s only with reform that we can avoid a similar outcome in the future. In other words, a vote for reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth. End of story.”
Recognizing that there will never be total agreement, Obama read a Time magazine report to the audience that he said illustrated his point that while the debate can be both contentious and heated, in the end the nation is made stronger:
“Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed…would rivet upon their institutions what they considered a monstrous system… such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level.”
The report appeared in Time Magazine in June 1933, he explained to the audience, which responded with laughter and applause. And the system that caused so much concern is the Federal Deposit Insurance Corporation, which secures Americans’ bank deposits.
Before Obama’s speech, Cecilia Rouse, a member of the White House Council of Economic Advisers, spoke with reporters about how the proposed reforms would help African Americans.
Blacks and other minority groups have unquestionably experienced some of the most egregious effects of a financial services industry gone wild. In 2005 and 2006, during the subprime lending boom, African American borrowers were more than three times likely to receive subprime mortgages and two times more likely to receive higher priced refinancing loans. More than 53% of subprime or higher priced loans went to blacks.
“It was a boon time for the housing market and big banks. Banks used mortgage loans with low teaser rates and terms that included no down payments to entice consumers into purchasing homes and unfortunately African Americans were targeted for these types of mortgage products,” said Rouse. (See White House fact sheet)
Black homeownership climbed from 41% in 1995 to more than 50% in 2004, but when the mortgage terms reset with higher monthly payments, the result was what Rouse described as an “unacceptably high” foreclosure rate and a big drop in black homeownership. Fifty-seven percent of the subprime loans made to blacks in 2006 are now at risk of foreclosure. Because of these and other risky behaviors by banks, more than 8 million jobs and trillions of dollars of household wealth have been lost.
“If we don’t change what led to the crisis we’re doomed to repeat it,” said Rouse.
The creation of a Consumer Financial Protection Agency (CFPA), which banks and Republicans oppose, would play a significant role in preventing blacks and other consumers from being duped by banks and other nontraditional forms of financial services, such as check cashers and payday lenders. The agency would ensure greater clarity and transparency in how big banks serve investors and other consumers.