Summers Says Financial Overhaul Should Be Law by June
White House economic adviser Lawrence Summers predicted an overhaul of financial regulation will be approved by Congress in coming months and voiced general support for a proposal to place limits on derivatives trading by commercial banks.
“I ultimately can’t believe this debate is going to get resolved on the side of special interests stalling,” Summers said in an interview on Bloomberg Television’s “Political Capital With Al Hunt” airing this weekend. Asked about prospects Congress would act by June, Summers responded, “They should. I think they will.”
Summers, director of the White House’s National Economic Council, said a proposal on derivatives trading by Senator Blanche Lincoln, Democrat of Arkansas, is in line with the Obama administration’s goal of increasing transparency.
“We haven’t seen the language yet,” Summers said. “What we do support is the principles that derivatives need to be traded in the sunshine, that there needs to be centralized clearing, and Senator Lincoln appears to be moving very much in those directions.”
Lincoln’s provision, which could be added to financial overhaul regulation when it reaches the Senate floor, would require banks to spin off derivatives trading operations to separately capitalized subsidiaries.
Minutes after the interview ended, as Summers walked down a hallway, an aide informed him that Goldman Sachs Group Inc. had just been sued by the Securities and Exchange Commission for fraud in connection with a financial product tied to subprime mortgages. Someone suggested the news would make it more difficult for banks to lobby against financial-regulatory legislation. Summers simply smiled.
Obama has proposed the most sweeping overhaul of financial regulations since the 1930s. It includes stronger oversight of derivatives trading and hedge funds, an independent consumer financial-protection authority, and a system for unwinding large systemically important firms when they fail.
Summers, 55, blasted attempts by Senate Republican Leader Mitch McConnell of Kentucky to brand the financial-regulation overhaul a “bailout bill.”
“If this is really about bailouts for banks as Senator McConnell asserts, why are banks so opposed to this bill?” Summers asked.
Republican congressional leaders, who are seeking to maintain a united front against the legislation, have argued it would encourage bailouts because it gives the federal government authority to unravel institutions when their failure threatens the financial system.
Summers defended the authority as “euthanasia for institutions that run themselves into the ground.”
No Legal Framework
“We have no legal framework in the United States for managing the failure of a non-bank financial institution,” he said. “That leaves no choice but to provide bailouts,” Summers said, citing the Bush Administration’s rescue of New York-based insurer American International Group Inc.
Asked how long he would remain in his post at the White House, Summers said he is “very involved” in developing “a longer-term agenda of renewing the American economy.”
“I’m very much a part of that and plan to be going forward,” he added.
Summers said the administration has been “gratified” by recent data showing improvements in the economy. Even so, he said the economic downturn is still taking a toll on average Americans.
“We may have a statistical recovery,” he said. “But there’s still a very real human recession out there, and that’s why there’s a great deal we need to do.”
To contact the reporter on this story: Mike Dorning in Washington D.C. at firstname.lastname@example.org.