GWEN IFILL: Larry Summers, welcome. President Obama has said the best way to tackle this economy is that there are three stools to it. It looks like today there are four: housing, economic stimulus, banking, and the auto industry bailout. Which is the most important of those four?
LARRY SUMMERS, White House economic adviser: You know, a table doesn’t stand without all four of its legs, and that’s the way it is with supporting the economy.
Each of these pieces is going to be very important. The overall economic recovery act that the president signed into law yesterday, which is going to create 3 million jobs, that’s going to inject demand into the economy and people are going to be able to pay their bills. That’s in turn going to help the financial system, which will mean more credit, which will help the economy further.
Both of those things should come together to support housing. And if we can support housing and avoid foreclosures, that will reinforce all of that. And, obviously, it’s going to be much easier to help the automobile industry in a context of an economy that’s working.
You know, if you look at aggregate automobile sales, they haven’t been this low in decades, and that speaks to the importance of getting the economy going. At the same time, automobiles are a critical sector, a critical part of our manufacturing economy, and so supporting the automobiles industry will help the overall economy.
So, look, it’s not a simple thing. These problems weren’t made in a month or a year. They’re not going to get fixed in a month or a year, and there isn’t going to be any single silver bullet.
But I think what’s important about the president’s approach is that we are moving rapidly. He’s been president less than a month. We’ve seen the economic recovery act. We’ve seen the financial recovery plan. We’ve seen housing. We’re beginning a process of working on the automobile sector. He’s engaging with the global economy, as we look to the G-20 economy.
It’s a comprehensive approach. It’s going to be a bold approach, because, as the president has said, there’s more risk from doing too little than there is from doing too much. And it’s going to be an active approach where, as conditions warrant, as things change, we will adjust our strategy, but always be leaning forward, trying to push the economy forward, because, frankly, that’s what a situation as serious as this one demands.
GWEN IFILL: Let's take that table apart one stool at a -- one leg at a time. When we talk about housing, the big announcement today, we also heard the Commerce Department say there was a 17 percent drop in new home construction last month. What part of today's announcement or today's plan that was put on the table would address something like that?
LARRY SUMMERS: Well, the real problem in housing is not the lack of construction at this point. We actually have more houses than people want to buy. That's why the inventories are so big, and that's why the sales -- that's why the price is coming down.
What today's program addresses is all the supply that's coming on the market from foreclosures. What today's program addresses is the loss to communities that tears down everybody's property values from foreclosure.
What today's problem adapts is the homeowners for whom it isn't fair and it's hurting their ability to live their lives that they can't refinance because their house has gone down in value, by freeing up the terms on which people are able to refinance, by supporting the GSEs. It helps to bring down interest rates.
Our focus is on families in their houses, giving them better opportunities, enabling them to spend more. That, in turn, will support the economy and support the financial system.
GWEN IFILL: But as a matter of emphasis, you chose to make a greater investment in those people who are not able to pay their mortgages and maybe foreclosed and kicked out of their homes, than on people who are underwater, who perhaps wouldn't be able to refinance. Why did you decide to balance it out that way?
LARRY SUMMERS: Well, actually, one of the critical points in the program is extra incentives for servicers for early modifications, precisely so that we were in a position, when people were facing a tough burden, to be in a position to reduce their mortgage payment before they got into a nexus of difficulty. That was really a key part of our program.
But, Gwen, what's really crucial is that, if we prevent foreclosures, we prevent losses in the value of homes for everyone and, therefore, maintain the spending power of everyone.
And so the key part of this program is an effort to stop what is a vicious cycle that is incredibly destructive: falling prices, more foreclosures, more falling prices, more foreclosures. That's the spiral we have to stop if we're going to put a bottom under the housing market, if we're going to stabilize the housing market, and if we're going to lay a foundation for economic growth. And that's what this program does.
Automakers request more aid
GWEN IFILL: Let's talk about today's other big headline, which is the automakers asking for -- depending on how you count it -- anywhere from $14 billion to $22 billion in additional help. You're co-chairman of the president's auto task force, which I gather has replaced the idea of an auto czar. How are you responding to that? Does that seem like a reasonable request?
LARRY SUMMERS: Well, there's a group of officials in the Treasury Department, at the NEC, and a number of the different cabinet agencies who will be led at this point by Ron Bloom, who's had enormous experience with these things on both the labor and the management side in working with the steel industry.
And that group's going to be speaking with the stakeholders, evaluating these proposals, and the task force will be rolling up its sleeves and getting to work looking at all of this...
GWEN IFILL: But at first blush...
LARRY SUMMERS: ... in the weeks ahead.
GWEN IFILL: Pardon me, but at first blush, does it seem as if they have put enough on the table, they have proposed enough cuts? And should these automakers be considering bankruptcy? Is that a real option?
LARRY SUMMERS: I don't think there's any question, Gwen, but the auto industry, given what has happened, is going to require some quite fundamental restructuring. And there's going to be a need for all the major stakeholders to take a role in that fundamental restructuring.
But beyond that, I don't think it would be prudent or responsible to try to predict where this is going to go until the careful analysis has been done.
GWEN IFILL: So fundamental restructuring might include bankruptcy protection?
LARRY SUMMERS: Gwen, you can ask the question a lot of times, but I'm going to say that fundamental restructuring is very important, and we're going to await the analysis that needs to be done.
Stimulus is 'critical' to solution
GWEN IFILL: Let's move on to the stimulus package, which the president signed yesterday. Alan Greenspan, the former head of the Fed, was in New York last night and he said this: "We need to assure that the repair of our financial system precedes the onset of major fiscal stimulus or," he said, "the positive impact of a fiscal stimulus will peter out after its scheduled completion." Do you agree with him on that?
LARRY SUMMERS: Well, I agree with what I think is his major point, which is really the same point that the president has made repeatedly and that I made earlier, which is that you have to address each of these pieces if you're going to have the effect you want, that the whole is much greater than the sum of the parts, and that that's true with respect to expansion, fiscal expansion program, and with respect to what happens in the financial system.
And that's certainly right. And that's why we're working along the lines of the plan that Secretary Geithner laid out to provide liquidity, to jump-start credit markets, to get an honest handle on the situation of banks, and be prepared to infuse capital, to do all of those things. And, of course, doing those successfully will reinforce the impact of the fiscal stimulus.
I think the fiscal stimulus, though, is absolutely critical. We need some spending power in this economy. We need people in the stores. We need people in the showrooms. We need jobs for people who are now without work. The government fixing highways, building a green economy, expanding our efforts to hire teachers and reduce class size, all of those things create jobs very directly.
When they create jobs, they create spending power. And that helps the economy directly, as well. So there's a very direct connection between the health of the economy and the expansion contained in the president's program. It certainly will be reinforced as we're successful in addressing the financial issues.
GWEN IFILL: How long are you willing to wait to discover whether that 3 million to 4 million jobs promised in the stimulus package actually become real?
LARRY SUMMERS: Well, I want to be very clear, because this is something that the president and all of us have said many, many times, Gwen. The 3 million to 4 million jobs is over two years and it's relative to the baseline path that would have existed without the stimulus, and that baseline path -- let us not be -- let us be very clear -- is not going to be a favorable one.
The president has inherited probably the worst economy since -- that any president has inherited since Roosevelt. If you look at the month of January, the economy lost jobs at an annual rate of 7.2 million.
Now, that rate's not going to continue, we trust, but against that baseline, it is important to recognize that it is going to take time to work this situation through.
But one thing is certain: Without these steps, without the job creation, without the efforts to support the financial system, without the efforts to stop the vicious cycle of foreclosures, a very serious situation would be even worse.
Rescue plan details
GWEN IFILL: You mentioned the efforts to rescue the financial system, which brings us to the fourth leg of that stool. Secretary Geithner made his grand announcement last week, and it didn't go over terribly well on Wall Street. When will they and the rest of us get to see some of the details which they felt were missing in his unveiling?
LARRY SUMMERS: Timothy Geithner gave a brave speech. It would have been easy to provide all kinds of backdoor, nontransparent subsidies to banks and, frankly, many expected it. And if it had happened, bank stocks probably would have done better. It would have been easy to create a false sense of concreteness in a complicated situation, where these stress tests had not yet been performed.
What Secretary Geithner instead did was recognize that what could be prudently done at this point was laying out a framework that emphasized the stress tests, that emphasized the need to infuse capital into the banking system, that emphasized the need to make credit markets work by providing the necessary leverage.
I think it was the right thing to do and just the right thing to do. And you have to judge these policies -- and this is something the president always emphasizes -- not by a daily market reaction, but by what happens over time. And I think Secretary Geithner's on the right track.
GWEN IFILL: At what point, Mr. Summers, does this administration begin to look at all of these problems and say, "It's not worth rescuing every bank; it's not worth rescuing every auto company or even every homeowner"? Have you reached that point or you see yourself approaching that point?
LARRY SUMMERS: Gwen, you ask these questions about "at what point." This administration has been in office for less than a month. It's put in place an ambitious program.
What we're going to do is execute on that program as strongly and effectively as we can and not try to get into hypothetical questions about what could happen in the future.
There are groups meeting in the White House every day to make sure those infrastructure projects get started, to make sure that we're being as aggressive as we can in supporting the financial system, that we'll be making sure that that foreclosure relief is flowing, that it's actually working, that Americans are having increased access to get those refinancing. That's the right thing for us to be focused on.
GWEN IFILL: White House Economic Adviser Larry Summers, thank you very much for joining us.
LARRY SUMMERS: Thanks, Gwen.