President Barack Obama went to Wall Street to tell the nation's bankers that they "owe a debt to the American people" and must stop getting in the way of reforms needed to prevent a repeat of the credit crisis.
Exactly after a year after the collapse of Lehman Brothers sparked a full-blown financial panic, the President warned that a "return to normalcy cannot lead to complacency", and he demanded that banks curb excessive bonuses and submit to a raft of new regulations.
He attacked the purveyors of "revisionist histories, or selective memory, who don't seem to recall what we went through last year" and added: "To them I'd say only this: do you believe that the absence of sound regulation one year ago was good for the financial system? Do you believe the resulting decline in markets and wealth and employment was good for the economy?"
The President adopted a lecturing tone in front of representatives of the finance industry at the Federal Hall building, a stone's throw from the New York Stock Exchange. And well he might.
One year on, the government still owns several giant financial institutions (including the insurer AIG and mortgage finance houses Fannie Mae and Freddie Mac) and holds powerful stakes in many of the biggest US banks. The financial system was brought to the brink of collapse after years of profligate lending ended suddenly in a failure of confidence and then panic, only to be rescued by trillions of dollars in taxpayer bailouts.
But the President's appearance in the heart of the US financial capital was not just meant to vent some of the public fury against Wall Street, which has been lobbying against greater regulation with increasing force this year. Amidst the bruising battle over healthcare reform, which has whittled away his approval rating, Mr Obama is attempting to shift the focus to his achievements in steering the financial system away from the brink.
"The fact is, many of the firms that are now returning to prosperity owe a debt to the American people," he said. "Though they were not the cause of the crisis, American taxpayers through their government took extraordinary action to stabilise the financial industry. It is neither right nor responsible after you've recovered with the help of your government to shirk your obligation to the goal of wider recovery."
On the floor of the Stock Exchange, traders audibly groaned at parts of the speech, but there was also applause at the end as he promised reforms that "reflect the painful but important lessons we've learned", and that Washington, too, will change the way it does business, by making sure that it doesn't create new spending programmes without working out how to pay for them.
"Restoring a willingness to take responsibility – even when it is hard – is at the heart of what we must do ... and you do not have to wait for a new law to do that. You don't have to wait to use plain language in your dealings with consumers. You don't have to wait to put the 2009 bonuses of your senior executives up for a shareholder vote."
The administration has proposed a blizzard of new laws and rules to curb some of the excesses that led to the credit crisis, and a sweeping overhaul of the way banks are regulated. The President said that there should be no more banks like Lehman Brothers that are "too big to fail". When banks do become big, they will have to become much more conservative, and, should they get into trouble, there will be a new Wall Street-funded scheme for winding them down in an orderly way.
"With so much at stake, we should not be forced to choose between allowing a company to fall into a rapid and chaotic dissolution that threatens the economy and innocent people, or forcing taxpayers to foot the bill," Mr Obama said.
This was the choice facing the Treasury and the US Federal Reserve a year ago when a run on Lehman Brothers drained it of the resources to survive. Although previously major financial institutions had been saved, the Bush administration said there would be no public money this time. It was an attempt to remind Wall Street investors that they must live with the consequences of banks' actions – except that the resulting panic forced a change of course, and other tottering institutions were pumped full of taxpayer money.
The President said yesterday that some of that cash has now begun flowing back to the Treasury, although he warned taxpayers not to expect to get all their money back.
At a glance: The proposals
*A Wall Street-funded system for winding down big firms that get into trouble.
*Greater powers for shareholders to limit executive bonuses.
*New panel of regulators to monitor the financial system as a whole.
*International co-operation to prevent a "race to the bottom" in regulation.
*A new consumer watchdog to ensure mortgages and investments are fair and safe.
*Requirement that banks must hold more capital aside to protect against losses.
*Banks must use central exchanges for risky derivatives trading.
*No more financial firms, such as hedge funds, operating without regulatory scrutiny.Reuse content