Goolsbee Says Wall Street's Strength Returns, Not `Go-Go Days'

President Barack Obama’s chief economist said Wall Street has largely recovered from the 2008 crisis and will be strengthened by the White House-backed regulatory overhaul that Congress passed this year.

“In the long run, the financial sector will be significantly stronger because we did this,” Austan Goolsbee, chairman of the Council of Economic Advisers, said yesterday.

While Wall Street may not return to “the go-go days” when it earned “20, 40 percent of all the profits in the entire nation,” the financial industry will benefit from the new regulations because “setting clear rules of the road is going to allow the credit channels to keep flowing to the wider economy,” Goolsbee said.

During a lunch with Bloomberg News editors and reporters, Goolsbee predicted a “massive shift” of derivatives trading from over-the-counter transactions to exchanges.

He rejected arguments that the economy has been held back by perceptions that the Obama administration is anti-business or by uncertainty over government policies. He also said access to credit is back to normal for large corporations, while small businesses face continuing problems.

Goolsbee offered no hints on who might be chosen to succeed Larry Summers, a top economic adviser to Obama and an architect of the administration’s stimulus plan. Summers announced Sept. 21 that he would leave his post as director of the National Economic Council by the end of the year.

Photographer: Andrew Harrer/Bloomberg

Austan Goolsbee, senior White House economic advisor. Close

Austan Goolsbee, senior White House economic advisor.

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Photographer: Andrew Harrer/Bloomberg

Austan Goolsbee, senior White House economic advisor.

Three of Four Advisers

Goolsbee, whose relationship as an economic adviser to the president stretches back to Obama’s 2004 U.S. Senate campaign, became chairman of the Council of Economic Advisers earlier this month, replacing Christina Romer. With Summers’s plan to leave and the departure of White House budget director Peter Orszag, the administration has lost three of its four main economic policy advisers.

“The good news is we do have time,” Goolsbee said. “Larry’s not going to be leaving until the end of the year.”

People familiar with the search have said the Obama administration is debating whether to recruit a business executive to replace Summers. Goolsbee acknowledged hearing criticism from business leaders that the administration doesn’t have a prominent former business executive in a Cabinet-level role.

Goolsbee said attracting corporate chief executives to the administration has been hindered by the intense vetting process for senior posts. “People in business tend to have significantly more complicated finances,” he said.

Bloomberg Poll

In a Bloomberg poll of investors and analysts who are Bloomberg subscribers, conducted Sept. 16-17, 77 percent of U.S. respondents said the Obama administration is “too anti- business.”

“I don’t think that perception is the main reason businesses don’t invest,” Goolsbee said. “The main reason business does not invest is the demand is not there. They’re still waiting for the growth rate to get faster than, you know, 1 percent, 2 percent.”

Goolsbee said the financial sector has “pretty much healed” for large corporations. “The credit spreads are completely normal,” he said.

Average spreads on investment-grade corporate bonds have narrowed from a peak of 6.18 percentage points on Dec. 3, 2008, in the wake of the turmoil following Lehman Brothers Holdings Inc.’s collapse, to 1.75 percentage points on Sept. 21, according to Barclays Capital.

Proprietary Trading

Goolsbee pointed to decisions by banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. to close or spin off proprietary trading desks. The new financial regulation law restricts banks’ ability to risk capital by trading for their own accounts, though banks have four years to comply.

“They’re getting out of that business, which was exactly the point,” Goolsbee said.

He predicted more change in the markets for derivatives.

“We have to work through technical issues of rulemaking, but I think we’re going to see a massive shift of over-the- counter derivatives to exchanges, which is what we needed to address those systemic risks,” Goolsbee said.

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at Msilva34@bloomberg.net.

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