White House Economic Advisor Larry Summers on the Financial To Do List
Friday, September 11, 2009SUSIE GHARIB: Investors are waiting eagerly to hear from President Obama on Monday. He'll be on Wall Street delivering a major address about the financial crisis on the anniversary of the collapse of Lehman Brothers. It's the event that many believe triggered the greatest economic crisis since the great depression. Tonight, the president's top economic advisor, Larry Summers, updates us on where things stand with the economy and the nation's financial system. Washington bureau chief Darren Gersh met with Summers and asked him how we're doing one year after Lehman.
LAWRENCE SUMMERS, DIRECTOR, NATIONAL ECONOMIC COUNCIL: After Lehman, the economic discussion was whether the recession would turn into depression. Today the economic discussion is when the recession is going to end and most experts are looking for significant economic growth in the third and fourth quarters of the year. So I think we've come a long way. At the same time, with unemployment well above 9 percent, likely to remain unacceptably high for a few years, no one can be satisfied with where we are. We've got a great deal of work to do, making sure through stronger financial regulation that this can't happen again, making sure that this expansion is as robust and as firmly grounded as it possibly can.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: I want to ask you, one year after Lehman, it looks like a lot of the banks have gotten even bigger. So I'm wondering, are we more at risk from banks that are too big to fail now than we were even a year ago?
SUMMERS: We've got a lot to do in terms of financial regulation. We just can't have institutions that are large enough or connected enough that their failure has catastrophic consequences and there not be a point of accountability for their overall regulation. We've got to have frameworks that enable the management to failure for large financial institutions, just like we do for small banks. We've got to have ways of protecting consumers that are more satisfactory than the ones we've had in the past. And, clearly, we need to eliminate what was just a pervasive problem, even a year and a half ago -- institutions moving from regulator to regulator in an effort to reduce capital requirements, to reduce other kinds of standards. Right now, there's still very substantial risk aversion, very substantial inhibition about excessive lending, but that makes this the time to put in place the right kind of regulatory framework so we don't get the kind of bubbles that we've had in the past.
GERSH: You talked about a framework to deal with a future Lehman Brothers, a resolution authority that would help unwind these big companies. One of the concerns I've heard from some critics is that this could be seen as a permanent TARP, a way to use public dollars without Congress voting on it in a crisis. Is that a concern? Is that a fair criticism?
SUMMERS: Well, I think it's an important design issue, but the crucial feature would be to permit the management of unwinding in such a way that you didn't need to bail out all of the creditors, but instead would make it possible for certain classes of creditors to accept responsibility without being bailed out and without causing the kind of systemic risk that you saw develop after Lehman.
GERSH: Unemployment -- you have called the unemployment rate unacceptably high. Does that means that the administration -- we can expect the administration to have new initiatives on job creation in the coming months or the coming budget?
SUMMERS: The administration's overall economic program, the recovery act, has operated and functioned more rapidly, I think, than any economic expansion program in memory. But as yet, well under half of the funds under it have been disbursed and they're going to be disbursed going forward and disbursed-- disbursed at a growing rate. So there's a great deal more that we're going to do through the recovery act, through our approaches to the housing market, which are gaining --
GERSH: Even with that--
SUMMERS: So there's a great deal that's in training and a great deal more I'm sure will come forward as the president talks about subjects like innovation, subjects like the future of the manufacturing sector that will point to undergirding this economy with a strong foundation.
GERSH: OK let me ask you this, some of the people in the markets that I've talked to say that the next bubble they're worried about is Treasury debt. There's so much out there and they think that interest rates could go higher and that this could be a bubble in Treasury debt. Is that a fair concern here one year after Lehman Brothers?
SUMMERS: I think it's very important that we manage the nation's finances as carefully and as prudently as we can. That's why, action going forward to assure that as the economy recovers, the Federal deficit comes down on a substantial scale, that we do things like the president's trying very hard to do with his health care legislation, that constrained the growth of major parts of Federal cost, of which health care is probably the most important. Those are very important things to do if we're going to have a reasonable and sound Treasury market going forward.
GERSH: Larry Summers, director of the National Economic Council, thank you for your time.
SUMMERS: Thank you.
