Asking questions of Larry Summers

April 14, 2009

Larry Summers just gave an interview to CNBC’s Maria Bartiromo in which neither side was particularly impressive. Bartiromo managed to go the entire interview without asking Summers about about the fact that he seems to be bought and paid for by Wall Street. And Summers proved himself incapable of even answering Bartiromo’s softballs:

BARTIROMO: And it leads me–it leads me to sort of a more thoughtful, broader idea here, and it feels like there’s a bit of a competition going. On the one hand, the government is saying to the banks, `Look, you need to lend more,’ lend, lend, lend, get the credit moving again,’ since credit has been stripped in this economy, literally, five quarters. On the other hand, the government is saying, `We’re performing stress tests and you need to get your capital levels at an appropriate level.’ So why would a bank lend when they know that they’ve got to get their credit level–they’ve got to get their capital levels up?

Mr. SUMMERS: Well, I think the focus of the stress test is going to be on levels of capital rather than capital ratios. And so the focus is going to be on making sure that institutions raise capital or take other kinds of steps to assure that they have capital that enables them to support their existing loans and puts them in a position–puts them in a position to expand. And that’s really where focus–really where the focus is going to be. Nobody’s looking to use the stress test as a vehicle for forcing institutions to deleverage and reduce their lending activity. Rather, the action’s going to be on the capital side, and that’s where you’re supporting a stronger economy and more lending that enables more growth.

“The focus of the stress test is going to be on levels of capital rather than capital ratios” means nothing — it’s utter blather. Summers, here, is simply bloviating: he’s not even attempting to answer the question. Does the government want the banks to lend freely, or does it want them to hunker down behind fortress balance sheets with vast amounts of tier-one capital? You’ll get no insight from Larry Summers on that front.

But at least he’s smart enough to pick an interviewer who won’t ask him the really tough questions, like whether his actions as Treasury secretary helped to pump up the financial-services bubble whose implosion we’re all now suffering through, and whether he owes the American people an apology. Instead, he’ll continue to simply ignore the irate.


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