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Where's financial system regulation?
Larry Summers, director of President Barack Obama's National Economic Council.
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TEXT OF INTERVIEW
Kai Ryssdal: The president offered his remembrances and condolences for the events of September 11th at the Pentagon today. He will be at Federal Hall in New York City this coming Monday, right across the street from the New York Stock Exchange. He will be speaking just one day short of a year since the collapse of Lehman Brothers and the gut-wrenching beginning of the financial crisis.
Lawrence Summers is one of the president's key economic advisers, one who's working on the administration's plans to re-regulate the financial industry. Mr. Summers, welcome to the program.
Lawrence Summers: Glad to be with you.
Ryssdal: What is the president going to say on Monday to convince people that this administration has a handle on how to prevent something like Lehman Brothers and this whole financial crisis from happening again?
Summers: He's going to highlight that nine months ago, the conversation was about whether recession would become depression and that today the conversation is about when the recession is going to end. It'll highlight that we've got a long way to go, but that the emphasis can now shift from rescue to recovery.
Ryssdal: What we've heard from the White House really so far -- the past six or nine months, and the Treasury Department as well -- is some speeches about consumer protections, foreclosure prevention programs and the Treasury Department's White Paper. What is the White House doing right now to make Wall Street safer for investors?
Summers: Right now, the level of regulation, the insistence on capital adequacy, the insistence on transparency, is very different that it's every been. It's a consequence of the stress tests that Sec. Geithner initiated a few months ago, but I think it's hard to look at almost any financial indicator and deny that some real progress has been made.
Ryssdal: You know a lot of things came together at the same time to cause this financial crisis and the collapse of Lehman brothers a year ago. What in your mind was the most important thing that happened?
Summers: I think it was the combination of a very long period of complacency and excess confidence, in which, people lost their moorings in terms of evaluation risk without any real framework of government protection.
Ryssdal: Was it an absence of protection or these banks just working around the regulations that were there, this thing you're trying to fix?
Summers: I think a satisfactory regulatory framework wasn't in place and that enabled banks -- while complying with the law -- to do things that were highly imprudent. You know, somebody once said, the scandal isn't usually what's illegal; the scandal is some of the things that are legal.
Ryssdal: Well if that's the case, can we stop this from ever happening again, no matter what kind of work you do on regulations?
Summers: I don't want to say after 3,000 years of financial history that we have seen the last financial crisis, but I certainly think we can make our system much less vulnerable than it has been. By providing for much more capital, by protecting consumers, so you don't see the kind of predatory subprime lending that contributed so much to bringing about this crisis, by stopping the kind of "race to the bottom" competition between regulators.
Ryssdal: Along those lines, a lot of the banks seems to be pretty healthy now, stock markets are doing alright, consumers are feeling better. Have we wasted this crisis, in terms of capitalizing on the fear and the problems of Lehman Brothers?
Summers: I don't think so. I think people will remember this. We've still got millions of homeowners who are underwater on their homes, we've got an unemployment rate in excess of 9 percent, we've got a government that's very focused on this. I hope and trust we will not see a return to complacency, but you're right to give the warning. Too often that's happened after past financial crises and that's why moving rapidly on financial regulatory reform is so important to us.
Ryssdal: Lawrence Summers. He's the director of the White House National Economic Council. Mr. Summers, thanks so much for your time.
Summers: Thank you.
I'm disappointed that Marketplace fails to respond to the valid critiques of the inadequate reporting presented in many of the interviews. It leaves the impression that these comments are being dismissed or ignored. At the very least, the reporter should respond to explain.
I agree....this interview was vague and useless... I came away with no confidence that regulations will be put in place, and that the ones we have now will be seriously enforced. The people supposedly doing the regulating are the same people who were causing the problems to begin with...it's the fox guarding the chicken coop. Same as it ever was...
Is Kai Ryssdal a neophyte in interviewing or a neophyte in business and economics? Last week on NPR, Guy Raz interviewed Paul Wolfowitz and had the intellectual fortitude to ask Wolfowitz about his foreign policy assumptions and beliefs in leading us into a disastrous war in Iraq. He confronted Wolfowitz and actually made him agitated. Guy Raz knew and understood the background and beliefs of Wolfowitz, but what happened to Ryssdal? Isn't this the Larry Summers who promoted deregulation under President Clinton. Was he part of the intellectual team that concocted the less regulation the better? Larry Summers gave Ryssdal the opening for some pointed questions by admitting that there was to little regulation. If Guy Ryssdal did not understand the background of Larry Summers then someone on the Marketplace staff should have formulated some background questions.
I hope that Larry Summers isn't treated to gently on all Public Broadcasting Programs.
This was interview was a huge disappointment.
You missed a golden (pardon the pun) opportunity to challenge Lawrence Summers on some of the things he said--and didn't say. Following his suggestion that the administration's "insistence on transparency" is greater is simply to compare catastrophic to disastrous: We still don't know where the $700 billion TARP money went and you didn't ask about the *new* byzantine workaround the financial industry has dreamed up--the life insurance "products" the NY Times reported on recently.
You let him refer to "a very long period of complacency and excess confidence, in which, *people* [my emphasis\ lost their moorings in terms of evaluation risk without any real framework of government protection" without acknowledging that he was the architect of the stripping of the Glass-Steagel Act, the primary means of oversight of these companies. And the key question that wasn't asked: Will he propose that G-S or something similar be reinstated?
Given his involvement as Secty of the Treasury in the actions that precipitated the crash, he should be challenged explicitly on the lessons he's learned and how specifically he plans to redeem himself.
