English subtitles for clip: File:Barack Obama Speech "Volcker Rule" 2010-01-21.ogv

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The President:
Good morning, everybody. I just had a very

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productive meeting with two members of my
Economic Recovery Advisory Board: Paul Volcker,

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who's the former chair of the Federal Reserve
Board; and Bill Donaldson, previously the

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head of the SEC. And I deeply appreciate the
counsel of these two leaders and the board

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that they've offered as we have dealt with
a broad array of very difficult economic challenges.

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Over the past two years, more than seven million
Americans have lost their jobs in the deepest

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recession our country has known in generations.
Rarely does a day go by that I don't hear

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from folks who are hurting. And every day,
we are working to put our economy back on

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track and put America back to work. But even
as we dig our way out of this deep hole, it's

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important that we not lose sight of what led
us into this mess in the first place. This

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economic crisis began as a financial crisis,
when banks and financial institutions took

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huge, reckless risks in pursuit of quick profits
and massive bonuses. When the dust settled,

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and this binge of irresponsibility was over,
several of the world's oldest and largest

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financial institutions had collapsed, or were
on the verge of doing so. Markets plummeted,

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credit dried up, and jobs were vanishing by
the hundreds of thousands each month. We were

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on the precipice of a second Great Depression.
To avoid this calamity, the American people

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-- who were already struggling in their own
right -- were forced to rescue financial firms

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facing crises largely of their own creation.
And that rescue, undertaken by the previous

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administration, was deeply offensive but it
was a necessary thing to do, and it succeeded

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in stabilizing the financial system and helping
to avert that depression. Since that time,

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over the past year, my administration has
recovered most of what the federal government

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provided to banks. And last week, I proposed
a fee to be paid by the largest financial

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firms in order to recover every last dime.
But that's not all we have to do. We have

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to enact common-sense reforms that will protect
American taxpayers -– and the American economy

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-– from future crises as well. For while
the financial system is far stronger today

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than it was one year ago, it's still operating
under the same rules that led to its near

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collapse. These are rules that allowed firms
to act contrary to the interests of customers;

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to conceal their exposure to debt through
complex financial dealings; to benefit from

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taxpayer-insured deposits while making speculative
investments; and to take on risks so vast

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that they posed threats to the entire system.
That's why we are seeking reforms to protect

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consumers; we intend to close loopholes that
allowed big financial firms to trade risky

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financial products like credit defaults swaps
and other derivatives without oversight; to

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identify system-wide risks that could cause
a meltdown; to strengthen capital and liquidity

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requirements to make the system more stable;
and to ensure that the failure of any large

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firm does not take the entire economy down
with it. Never again will the American taxpayer

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be held hostage by a bank that is "too big
to fail." Now, limits on the risks major financial

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firms can take are central to the reforms
that I've proposed. They are central to the

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legislation that has passed the House under
the leadership of Chairman Barney Frank, and

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that we're working to pass in the Senate under
the leadership of Chairman Chris Dodd. As

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part of these efforts, today I'm proposing
two additional reforms that I believe will

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strengthen the financial system while preventing
future crises. First, we should no longer

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allow banks to stray too far from their central
mission of serving their customers. In recent

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years, too many financial firms have put taxpayer
money at risk by operating hedge funds and

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private equity funds and making riskier investments
to reap a quick reward. And these firms have

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taken these risks while benefiting from special
financial privileges that are reserved only

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for banks. Our government provides deposit
insurance and other safeguards and guarantees

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to firms that operate banks. We do so because
a stable and reliable banking system promotes

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sustained growth, and because we learned how
dangerous the failure of that system can be

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during the Great Depression. But these privileges
were not created to bestow banks operating

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hedge funds or private equity funds with an
unfair advantage. When banks benefit from

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the safety net that taxpayers provide -- 
which includes lower-cost capital -- it is

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not appropriate for them to turn around and
use that cheap money to trade for profit.

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And that is especially true when this kind
of trading often puts banks in direct conflict

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with their customers' interests. The fact
is, these kinds of trading operations can

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create enormous and costly risks, endangering
the entire bank if things go wrong. We simply

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cannot accept a system in which hedge funds
or private equity firms inside banks can place

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huge, risky bets that are subsidized by taxpayers
and that could pose a conflict of interest.

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And we cannot accept a system in which shareholders
make money on these operations if the bank

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wins but taxpayers foot the bill if the bank
loses. It's for these reasons that I'm proposing

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a simple and common-sense reform, which we're
calling the "Volcker Rule" -- after this tall

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guy behind me. Banks will no longer be allowed
to own, invest, or sponsor hedge funds, private

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equity funds, or proprietary trading operations
for their own profit, unrelated to serving

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their customers. If financial firms want to
trade for profit, that's something they're

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free to do. Indeed, doing so -- responsibly
 -- is a good thing for the markets and the

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economy. But these firms should not be allowed
to run these hedge funds and private equities

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funds while running a bank backed by the American
people. In addition, as part of our efforts

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to protect against future crises, I'm also
proposing that we prevent the further consolidation

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of our financial system. There has long been
a deposit cap in place to guard against too

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much risk being concentrated in a single bank.
The same principle should apply to wider forms

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of funding employed by large financial institutions
in today's economy. The American people will

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not be served by a financial system that comprises
just a few massive firms. That's not good

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for consumers; it's not good for the economy.
And through this policy, that is an outcome

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we will avoid. My message to members of Congress
of both parties is that we have to get this

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done. And my message to leaders of the financial
industry is to work with us, and not against

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us, on needed reforms. I welcome constructive
input from folks in the financial sector.

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But what we've seen so far, in recent weeks,
is an army of industry lobbyists from Wall

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Street descending on Capitol Hill to try and
block basic and common-sense rules of the

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road that would protect our economy and the
American people. So if these folks want a

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fight, it's a fight I'm ready to have. And
my resolve is only strengthened when I see

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a return to old practices at some of the very
firms fighting reform; and when I see soaring

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profits and obscene bonuses at some of the
very firms claiming that they can't lend more

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to small business, they can't keep credit
card rates low, they can't pay a fee to refund

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taxpayers for the bailout without passing
on the cost to shareholders or customers

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-- that's the claims they're making. It's
exactly this kind of irresponsibility that

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makes clear reform is necessary. We've come
through a terrible crisis. The American people

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have paid a very high price. We simply cannot
return to business as usual. That's why we're

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going to ensure that Wall Street pays back
the American people for the bailout. That's

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why we're going to rein in the excess and
abuse that nearly brought down our financial

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system. That's why we're going to pass these
reforms into law. Thank you very much, everybody.