[Weekly Compilation of Presidential Documents Volume 44, Number 41 (Monday, October 20, 2008)]
[Pages 1353-1357]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
Remarks to the United States Chamber of Commerce

October 17, 2008

    Good morning. I am pleased to be back to the U.S. Chamber. I want to 
thank the members of this fine organization for your efforts to support 
the spirit of free enterprise and to advance the interests of 
businesses, large and small, across our great country. I'm grateful for 
the opportunity to talk to you about a subject that's on all our minds. 
And that's the economy.
    Bruce, I want to thank you for your leadership and your friendship. 
I want to appreciate the other members of the U.S. Chamber leadership 
group that is with us. I welcome the entrepreneurs that are with us; 
fellow citizens.
     Our Nation is dealing with a serious financial crisis. Over the 
past month, Americans have witnessed fast-moving events involving 
complicated financial issues. I know many of our citizens are concerned 
about their finances. They're worried about the extent of government 
intervention into the marketplace. In my conversations with business 
owners and workers and families across our country, I've heard the same 
message. The American people want a clear explanation of what this 
crisis means for them, what the Government is doing to fix it, and how 
this will affect the future of the free market that makes our economy so 
dynamic and prosperous. And that's what I've come to talk about.
     To understand how this crisis unfolded, you have to look back more 
than a decade. For many years, the combination of low interest rates and 
the inflow of capital from around the world produced a period of easy 
credit here in the United States. This trend was especially apparent in 
the booming housing market, where many lenders issued mortgages to 
borrowers who could not otherwise afford homes. Many of those loans were 
then packaged into complex financial assets, which were sold to banks 
and investors all across the world.

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     These developments came together to set off a chain reaction when 
the housing market began to decline. With the supply of homes exceeding 
the demand from potential buyers, home values dropped. In addition, many 
homeowners with adjustable-rate mortgages saw their interest rates 
suddenly reset to higher levels. Both these factors caused a number of 
borrowers to default on their mortgages. In turn, many institutions 
holding assets related to those mortgages suffered serious losses, which 
caused some of them to run short of capital. This led to high-profile 
bank failures, restrictions in lending, and widespread anxiety, all of 
which contributed to sharp swings in the stock market.
     These developments were most visible on Wall Street, but their 
impact has reached far beyond. The drops in the stock market have eroded 
the value of Americans' retirement accounts and 401(k)s. The tightening 
of credit has made it more expensive for many families to borrow money 
for cars and homes and college tuition. Many healthy businesses have 
found it harder to get loans to expand their operations and to create 
jobs for our workers.
     The Federal Government has responded to this crisis with systematic 
and aggressive measures to protect the financial security of the 
American people. People look at this crisis and say, ``Oh, it's only 
Wall Street.'' I don't think so. As a matter of fact, I know that if we 
had not acted, it could affect the American people directly. The actions 
will take more time to have their full impact. It took a while for the 
credit system to freeze up; it's going to take a while for the credit 
system to thaw. These are decisive measures aimed at the heart of our 
financial challenges. And they're big enough and bold enough to work. 
And the American people can be confident that they will.
     Let me explain this approach piece by piece.
     First, the Government has focused on preserving the stability of 
the overall financial system. For example, out of concern that the 
failure of Bear Stearns, Fannie Mae, Freddie Mac, and AIG could collapse 
our financial system, the Government moved to protect the American 
people. We prevented a disorderly failure of these large, interconnected 
firms, and we did so in a way that protects taxpayers and does not 
shield executives from the consequences of their irresponsible 
decisions.
     Second, the Government has taken unprecedented action to boost 
liquidity, the grease that keeps the gears of our financial system 
turning. The Federal Reserve has used a variety of tools to inject 
hundreds of billions of dollars in new liquidity into the financial 
system. The Federal Deposit Insurance Corporation has temporarily 
guaranteed most new debt issued by insured banks, which will make it 
easier for banks to borrow needed money from each other. The Federal 
Reserve has announced a new program to provide support for commercial 
paper, which is a key source of short-term financing for American 
businesses and financial institutions.
    Third, the Government has provided substantial new protections for 
responsible consumers, businesses, and investors. The Federal Government 
has temporarily expanded the amount of money insured in bank and credit 
union savings accounts, checking accounts, and certificates of deposit 
from $100,000 to $250,000. The FDIC has created a new short-term program 
to grant unlimited insurance for non-interest-bearing transaction 
accounts used by many small businesses. The Treasury has offered 
temporary Government insurance for money market mutual funds. The 
Securities and Exchange Commission is vigorously investigating fraud, 
manipulation, and abuse in the markets. These steps being taken by all 
these Federal agencies--providing greater peace of mind for the American 
people and greater stability for our financial system.
    Fourth, the United States is cooperating closely with our partners 
overseas, who are also feeling the effects of this global crisis. Last 
week, the Federal Reserve and other central banks around the world 
enacted a joint cut in interest rates, which will help ease the pressure 
on credit markets around the world.
    Last weekend, I met with finance ministers from the G-7 and G-20, 
groups representing some of the world's largest and fastest growing 
economies. On Wednesday, leaders of the G-8 issued a statement 
underscoring our commitment to work together to

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resolve the crisis. The statement calls for a leaders meeting with a 
broader group of countries, developed and developing, to work together 
to improve the regulatory and institutional structures of our nations' 
financial systems.
    Earlier this week, leaders in Europe announced steps to purchase 
equity in major banks and provide temporary Government guarantees for 
bank loans. Tomorrow at Camp David, I'll continue our close 
consultations by meeting with President Sarkozy of France and President 
Barroso of the European Commission.
    Our European partners are taking bold steps. They show the world 
that we're determined to overcome this challenge together, and they have 
the full support of the United States.
    Finally, the Government has undertaken an historic effort to address 
the underlying problem behind the freeze in the credit markets. Earlier 
this month, Congress passed bipartisan legislation authorizing the 
Treasury Department to use up to $700 billion to help banks rebuild 
capital. This week, I announced that the Treasury will use a portion of 
that money to inject capital directly into banks by purchasing equity 
shares. Large banks, as well as smaller banks, community banks, and 
regional banks will all be able to participate, at their choice. The new 
capital will help banks fill the gaps created by losses during the 
financial crisis, so they can make loans to businesses and consumers.
    In addition, the Treasury will use part of the $700 billion to 
purchase some of the troubled assets that are weighing down banks' 
balance sheets and clogging the financial system. This extraordinary 
effort is consistent with the G-7 action plan. It is designed with one 
overriding purpose: to help banks get money flowing, so small businesses 
can thrive and hire, so big businesses won't shut down operations. To 
help the American people is the goal of this plan.
    The actions I just outlined represent an extraordinary response to 
an extraordinary crisis. Some of the steps may sound like technical 
matters, but they will contribute real benefits to the American people. 
As they take effect, they'll help restore stability and confidence in 
the financial markets. They'll make it easier for Americans to borrow 
money for their cars and for colleges and basic necessities. They will 
speed the day when communities across our Nation return to the path of 
prosperity, job creation, and long-term economic growth.
    I know many Americans have reservations about the Government's 
approach, especially about allowing the Government to hold shares in 
private banks. As a strong believer in free markets, I would oppose such 
measures under ordinary circumstances. But these are not ordinary 
circumstances. We took this measure as a last resort. Had the Government 
not acted, the hole in our financial system would have grown larger. 
Families and firms would have had an even tougher time getting loans, 
and, ultimately, the Government would have been forced to respond with 
even more drastic and costly measures later on.
    Some have viewed this temporary measure as a step toward 
nationalizing banks. This is simply not the case. This program is 
designed with strong protections to ensure the Government's involvement 
in individual banks is limited in size, limited in scope, and limited in 
duration.
    The Government's involvement is limited in size. The Government will 
only buy a small percentage of shares in banks that choose to 
participate, so that private investors retain majority ownership.
    The Government's involvement is limited in scope. The Government 
will not exercise control over any private firm. Federal officers will 
not have a seat around your local bank's boardroom table. The shares 
owned by the Government will have voting rights that can be used only to 
protect the taxpayers' investment, not to direct the firm's operations.
    The Government's involvement is limited in duration. It includes 
provisions to encourage banks to buy their shares back from the 
Government when markets stabilize, and they can raise money from private 
investors. This will ensure that banks have an incentive to find private 
capital to replace the taxpayers' investment, and to do so quickly.
    For those worried about the long-term consequences of the actions, 
our history offers some comfort. On several occasions over the past 
century, the Government has taken

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partial ownership of private companies in the banking industry during 
times of great financial challenge, most recently during the savings and 
loans failures of the 1980s and 1990s. In every case, the Government 
relinquished its ownership stakes after the crisis ended, and we will do 
so again. The Government intervention is not a Government takeover. Its 
purpose is not to weaken the free market; it is to preserve the free 
market.
    I know many are worried about the price tag of this rescue package. 
Every dollar spent will be subject to strong oversight by a bipartisan 
board. We will ensure that failed executives do not receive a windfall 
from hard-earned taxpayer dollars.
    Ultimately, we believe the final cost will be significantly less 
than the initial investment. This is true for two reasons. First, many 
of the troubled assets that the Government buys will increase in value 
as the market recovers. That means that the Government eventually will 
be able to resell them for a higher price. Second, the Government will 
receive quarterly dividends from the equity shares it purchases in 
financial institutions. If banks do not repurchase these shares within 5 
years, the dividends they owe the Government will increase 
substantially. This provides a clear incentive for banks to buy back 
their shares, thus returning the money to the taxpayers as soon as 
possible.
    As we work to resolve the current crisis, we must also work to 
ensure that this situation never happens again. Above all, this requires 
updating the way we regulate America's financial system. Our 21st 
century global economy continues to be regulated by laws written in the 
20th century. Secretary Paulson has proposed a detailed blueprint for 
modernizing these regulations; others have put forward good suggestions. 
Enacting these ideas into law must be a top priority for the next 
President and the next Congress.
    Just as importantly, we must guard against unintended consequences. 
We must ensure that new regulations aimed at Wall Street do not end up 
hurting responsible business owners, limiting the ability of American 
firms to raise capital, or putting American workers at a competitive 
disadvantage. We must ensure that this crisis does not become an excuse 
to raise taxes on hard-working Americans, which would only make the 
problem worse. We must ensure that our efforts to prevent a recurrence 
of this global crisis do not lead us to give in to false temptations of 
economic isolationism. The best way to demonstrate America's commitment 
to open markets is for Congress to approve the Colombia, Panama, and 
South Korea free trade agreements this year.
    We must also ensure that Government officials do not abuse our 
temporary position as shareholders in banks. We must not blur the line 
between the Government and the private sector. We must not supplant the 
profit motive with political motives.
    We must also never lose sight of the enormous benefits delivered by 
the free enterprise system. Despite corrections in the marketplace and 
instances of abuse, democratic capitalism remains the greatest system 
ever devised. It allows individuals to rise as high in their societies 
as their talents and ambition will take them. It rewards hard work, 
intelligent risk-taking, and the entrepreneurial spirit. Around the 
world, free market policies have lifted millions of people out of 
poverty and given them the opportunity to build a more hopeful life. And 
here at home, it has given our large and dynamic economy the flexibility 
and resilience to absorb shocks, adjust, and bounce back stronger.
    In the long run, the American people have--can have confidence that 
this economy will recover. America is the best place in the world to 
start and run a business. America is the most attractive destination for 
investors around the globe. America is the home of the most talented and 
enterprising and creative workers in the world. We're a country where 
all people have the freedom to realize their potential and chase their 
dreams. This promise has defined our Nation since its founding; this 
promise will guide us through the challenges we face today; and this 
promise will continue to define our Nation for generations to come.
    Thank you for listening. God bless you.

Note: The President spoke at 8:40 a.m. at the U.S. Chamber of Commerce. 
In his remarks, he referred to R. Bruce Josten, executive vice

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president, government affairs, U.S. Chamber of Commerce. The Office of 
the Press Secretary also released a Spanish language transcript of these 
remarks.