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To prevent fraud in the future, I've proposed tough new penalties on fraudulent lenders and a home-score system that will allow consumers to find out more about mortgage offers and whether they'll be able to make payments. To help low- and middle-income families, I proposed a 10 percent mortgage interest tax credit that will allow homeowners who don't itemize their taxes to access incentives for homeownership. And to expand homeownership, we must do more to help communities turn abandoned properties into affordable housing. The government can't do this alone, nor should it. As I said last September, lenders must get ahead of the curve rather than just react to the crisis. They should actively look at all borrowers, offer workouts and reduce the principal on mortgages in trouble. Not only can this prevent the larger losses associated with foreclosure and resale, but it can reduce the extent of government intervention and taxpayer exposure. But beyond dealing with the immediate housing crisis, it is time for the federal government to revamp the regulatory framework dealing with our financial markets.

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Our capital markets have helped us build the strongest economy in the world. They are the source of competitive advantage for our country.

But they cannot succeed without the public's trust. The details of regulatory reform should be developed through sound analysis and public debate. And so I won't try to cross every "t" and dot every "i" in this speech. But there are several core principles for reform that I intend to pursue as president. First, if you can borrow from the government, you should be subject to government oversight and supervision.

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Secretary Paulson admitted this in his remarks yesterday. The Federal Reserve should have basic supervisory authority over any institution to which it may make credit available as a lender of last resort. When the Fed steps in, it is providing lenders an insurance policy underwritten by the American taxpayer. In return, taxpayers have every right to expect that these institutions are not taking excessive risks. Now, the nature of regulation should depend on the degree and extent of the Fed's exposure. But, at the very least, these new regulations should include liquidity and capital requirements. Second, there needs to be general reform of the requirements to which all regulated financial institutions are subjected. Capital requirements should be strengthened, particularly for complex financial instruments like some of the mortgage securities that led to our current crisis. We must develop and rigorously manage liquidity risks. We must investigate ratings agencies and potential conflicts of interest with the people that they are rating. And transparency requirements must demand full disclosure by financial institutions to shareholders and counter parties. As we reform our regulatory system at home, we should work with international arrangements, like the Basel Committee on Banking Supervision, the International Accounting Standards Board, and the Financial Stability Forum, to address the same problems abroad.

The goal should be to ensure that financial institutions around the world are subject to similar rules of the road, both to make the system more stable and to keep our financial institutions competitive. Third, we need to streamline a framework of overlapping and competing regulatory agencies. Reshuffling bureaucracies should not be an end in itself. But the large, complex institutions that dominate the financial landscape don't fit into categories created decades ago. Different institutions compete in multiple markets. Our regulatory system should not pretend otherwise. A streamlined system will provide better oversight and be less costly for regulated institutions. Fourth, we need to regulate institutions for what they do, not what they are. Over the last few years, commercial banks and thrift institutions were subject to guidelines on subprime mortgages that did not apply to mortgage brokers and companies. Now, it makes no sense for the Fed to tighten mortgage guidelines for banks when two-thirds of subprime mortgages don't originate from banks. This regulatory framework...

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This regulatory framework has failed to protect homeowners and it is now clear that it made no sense for our financial system. When it comes to protecting the American people, it should make no difference what kind of institution they are dealing with. Fifth, we must remain vigilant and crack down on trading activity that crosses the line to market manipulation. On recent days, reports have circulated that some traders may have intentionally spread rumors that Bear Stearns (NYSE:BSC) was in financial distress while making market bets against the country. The SEC should investigate and punish this kind of market manipulation and report its conclusions to Congress. Sixth, we need a process that identifies systemic risks to the financial system.

Too often we deal with threats to the financial system that weren't anticipated by regulators. That's why we should create a financial market oversight commission, which would meet regularly and provide advice to the president, Congress and regulators on the state of our financial markets and the risks that face them. These experts' views could help anticipate risks before they erupt into a crisis.

These six principles should guide the legal reforms needed to establish a 21st-century regulatory system, but the changes we need goes beyond the laws and regulation. We need a shift in the cultures of our financial institutions and our regulatory agencies. Financial institutions have to do a better job at managing risk. There is something wrong when board of directors or senior managers don't understand the implications of the risks assumed by their own institutions. It's time to realign incentives and the compensation packages so that both high-level executives and employees better serve the interests of shareholders. And it's time to confront the risks that come with excessive complexity. Even the best government regulation cannot fully substitute for internal risk management. For supervisory agencies, oversight has to keep pace with innovation. As the subprime crisis unfolded, tough questions about new and complex financial instruments were not asked. As a result, the public interest was not protected. We do American business and the American people no favors when we turn a blind eye to excessive leverage and dangerous risks. And finally, the American people must be able to trust that their government is looking out for all of us, not just those who donate to political campaigns. I...

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I fought in the Senate for the most extensive ethics reforms since Watergate, and we got those passed.

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I've refused contributions from federal lobbyists and PACs. I have laid out far-reaching plans that I intend to sign into law as president to bring transparency to government and to end the revolving door between industries and the federal agencies that oversee them.

Once...

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Once we deal with the immediate crisis in housing and strengthen the regulatory system governing our financial markets, we have to make government responsive once again to all of the American people. And our final task, in fact, is to make sure that opportunity is available to all Americans. You know, the bedrock of our economic success is the American dream. It's a dream shared in big cities and small towns, across races, regions and religions, that, if you work hard, you can support a family; that if you get sick, there will be health care that you can afford; that you can retire...

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... that you can retire with the dignity and security and respect that you've earned; and that your children can get a good education and young people can go to college, even if they don't come from a wealthy family. That's our common hope.

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That's our common hope across this country. That's the essence of the American dream. But today, for far too many Americans, this dream is slipping away. Wall Street has been recently gripped by gloom over our economic situation. But for many Americans, the economy has effectively been in recession for the past seven years. We have just come through...

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We have just come through the first sustained period of economic growth since World War II that was not accompanied by a growth in incomes for typical families. Americans are working harder for less.

Costs are rising, and it's not clear that we'll leave a legacy of opportunity to our children and our grandchildren. And that's why throughout this campaign I've put forward a series of proposals that will foster economic growth from the bottom up and not just from the top down. And that's why the last time I spoke on the economy here in New York, I talked about the need to put the policies of George W. Bush behind us, policies that have essentially said...

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... policies that have essentially said to the American people, "You are on your own."

We need policies that once again recognize that we are in this together. And we need the most powerful, the wealthiest among us -- those who are in attendance here today, we need you to get behind that agenda.

It's an agenda that starts with providing a stimulus that will reach the most vulnerable Americans, including immediate relief to areas hardest hit by the housing crisis and a significant extension of unemployment insurance for those who are out of work.

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If we can extend a hand to banks on Wall Street when they get into trouble, we can extend a hand to Americans who are struggling, often through no fault of their own.

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Beyond these short-term measure, as president, I will be committed to putting the American dream on a firmer footing. To reward work and make retirement secure, we'll provide an income tax (sic) of up to $1,000 for a working family and eliminate income taxes altogether for any retiree bringing in less than $50,000 per year.

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To make health care affordable for all Americans, we'll cut costs and provide coverage to all who need it. To put Americans to work, we'll create millions of new green jobs and invest in rebuilding our nation's infrastructure.

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To extend opportunity, we'll invest in our schools and our teachers and make college affordable for every American. And to ensure...

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And to ensure that America stays on the cutting edge, we'll expand broadband access, expand funding for basic scientific research, and pass comprehensive immigration reform so that we continue to attract the best and the brightest to our shores.

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I know that making these changes won't be easy. I will not pretend that this will come without costs, although I have presented ways we can achieve these changes in a fiscally responsible way. I believe in PAYGO. If I start a new program I will pay for it. If I intend to cut taxes for the middle class, then we're going to close some of the tax loopholes for corporations and the wealthy that are not working for shared prosperity.

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So we're going to have fiscal discipline. I know that we'll have to overcome our doubts and divisions and the determined opposition of powerful special interests before we can truly advance opportunity and prosperity for all Americans. But I would not be running for president if I did not think that this was a defining moment in our history.

If we fail to overcome our divisions and continue to let special interests set the agenda, then America will fall behind, short-term gains will continue to yield long-term costs, opportunity will slip away on Main Street, and prosperity will suffer here on Wall Street.

But if we unite this country around a common purpose, if we act on the responsibilities that we have to each other and to our country, then we can launch a new era of opportunity and prosperity.

I know we can do this because Americans have done this before. Time and again we've recognized that common stake that we have in each other's success. It's how people as different as Hamilton and Jefferson came together to launch the world's greatest experiment in democracy. That's why our economy hasn't just been the world's greatest wealth creator, it's bound America together, it's created jobs and it's made the dream of opportunity a reality for generations.

Now it falls to us. We have as our inheritance the greatest economy the world has ever known. We have the responsibility to continue the work that began on that spring day over two centuries ago right here in Manhattan, to renew our common purpose for a new century and to write the next chapter in the story of America's success.

We can do this, and we can begin this work today.

Thank you very much.

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