Summers Urges Congress to Toughen Financial Oversight
White House economic adviser Lawrence Summers urged lawmakers to pass legislation that would toughen supervision of the financial system, saying a failure to act swiftly would leave the economy vulnerable to another crisis.
“We believe it is critical to move rapidly while the events of the last years are clearly in mind,” Summers said in a speech today at Georgetown University in Washington. He warned that “a failure to change the rules of the road will result in future crises that will adversely affect the lives of millions and cost taxpayers untold sums.”
The Obama administration is pushing Congress to enact the most sweeping overhaul of financial regulation in 75 years, seeking to tighten oversight of Wall Street after a series of shocks that toppled major securities firms, froze credit markets and led to the worst recession since the 1930s.
The Treasury Department has proposed giving the Federal Reserve greater authority over the capital, liquidity and risk- management standards of the largest financial firms. Congressional leaders haven’t supported the proposal and are considering giving broader authority to a council of regulators.
Summers, director of the White House’s National Economic Council, said “a paramount objective must be to address the issue of moral hazard” that leads to excessive risk taking.
Consumer Protection
Summers also defended the Administration’s call for a consumer protection agency for financial products against an ad campaign financed by the U.S. Chamber of Commerce that charges the idea would constrain small businesses from extending credit to customers.
He compared the ads to charges that Obama’s health-care plan would create “death panels” that would deny the elderly medical care. Obama denounced those assertions as “a lie, plain and simple” in a speech to a joint session of Congress on Sept. 9.
“I would suggest those ads are the financial-regulatory equivalent of the death-panel ads that are being run with respect to health care,” Summers said. “Those with an argument make it and those without a good argument try to scare people. And that is what is happening here.”
Summers added that the White House considered the consumer protection agency a key element of its regulatory plan.
Obama ‘Determined’
“This is a critical issue,” he said. “It is one on which the president is determined.”
Summers defended the administration’s economic-stimulus package as a “necessary” step to revive the economy, even though it swelled the budget deficit. A key financier of the shortfall has been China, he said.
With about $801 billion in U.S. government debt, China is the largest foreign holder of Treasuries.
“We have a substantial appetite to borrow and they have a substantial appetite to hold reserves and lend to us,” Summers said. “That is a relationship that has been very substantially in our mutual interests and it has very much been a source of support for both economies.”