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Summers Defends Administration's Bailout Plan

On CBS' Face The Nation, White House National Economic Council Director Lawrence Summers defended the administration's plan to stabilize the financial system, particularly its efforts to steer the so-called toxic assets of the major banks into a new private-public partnership.

"It may not be the last resort but it should be the port of first call," Summers said of selling toxic assets to private investors. "That's precisely what the investment facilities that [Treasury] Secretary Geithner has spoken of are directed at — creating a vehicle that will enable banks to sell these assets not to a public owner but to a private owner who may need to receive some kind of government guaranteed financing. But I think we do want to keep it in the private sector."

Summers then made a comparison between this crisis and the savings and loan crisis 20 years ago.

"People often sort of make everything be the same," Summers told host Bob Schieffer. "But you really had quite a different situation in the early '90s with the [Resolution Trust Corporation]. At that point you had a large number of closed savings and loans… Here we're frankly trying to be preventive and we're trying to help address the problems with the banks before they fail and need to be completely taken over by the government. And that presents somewhat different circumstances. That's why the private sector approach that Secretary Geithner has spoken about has such power."

Summers also defended the administration from criticism that President Obama lacks a clear plan or that that the details are not well enough known yet.

"There's a clear plan," he said. "The plan has a pillar of support for the capital markets that enables banks to sell their assets to the capital markets. The plan has a pillar that is infusions of capital into banks to enable them to be in a position to lend. The pillar based on what's going to happen in the banking system is based on a careful and rigorous evaluation of the situation in the banks precisely to overcome that problem of no one knows what's going on that's described. Those are the stress tests. Those stress tests are currently underway."

Schieffer also asked Summers whether the government knew where all the money poured into the banks has gone.

"We certainly have a picture of what's going on in the banks... We're getting a much closer and better reading on the situation of the banks through the stress tests that are an integral part of Secretary Geithner's financial plan," Summers said. "These banks in a year take in a trillion dollars of which the government's $25 billion or $10 billion or whatever it is, is one component. Then they lend out on a very large scale. So it's not really possible to take a particular dollar that came from the government and say where that particular dollar went.

"But what I can say is that it is a crucial focus of what is a very close and intense relationship now between the supervisors and the banks following these capital infusions that there be increased lending," he added.

On Friday, Summers gave a speech on the economic crisis at the Brookings Institution where he laid out the roots of the crisis and defended the administration's plans. You can see our coverage of the speech within our EconWatch blog.

More from Face The Nation (3.15.09):

  • Summers: AIG Bonuses Are "Outrageous"
  • Friedman: Tom Friedman: "Fairness Has Left The Building"
  • Read the full transcript> (pdf file)

    To watch video of Lawrence Summers on Face The Nation click below.

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