Published April 26, 2009
The following is a rush transcript of the April 26, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.
CHRIS WALLACE, HOST: From the moment he took the oath of office, fixing the economy has been job one for President Obama. Now, as he nears the end of his first 100 days, that seems as big a challenge as ever.
Joining us to discuss where things stand is the president's top economic adviser, Lawrence Summers.
Mr. Summers, federal regulators met with executives of the nation's 19 largest banks on Friday to tell them how they did in those government stress tests. I know at this point you can't reveal the individual results, but overall, what kind of shape is the system in?
LAWRENCE SUMMERS, ECONOMIC ADVISER TO PRESIDENT OBAMA: As Secretary Geithner said, the vast majority of the banks in the United States are well capitalized. There's work that needs to be done. It can be done in many ways — by raising private capital, through exchanges, backstopped by government capital where necessary.
But I think we're going to be in a good position to provide the support and set the framework in which the banking system can move along the process of recovery.
We've got a long way to go, but in just three months we've taken a whole set of important steps — mortgage relief for 9 million American homeowners that's going to enable families who otherwise couldn't have refinanced their mortgage to refinance their mortgage; substantial program of support for small businesses who have often been the group that bore the brunt of this credit crunch; measures to get the markets going so that you've got more of a flow of mortgage credit.
We've seen near — extremely high levels of mortgage refinancing, a substantial reduction in credit spreads for consumers. We've got a long way to go. There are still serious problems in this economy.
But both with respect to the financial side and, what's obviously crucially related, with respect to the income side, the measures we've taken I think are very strong and offer the prospect of containing a very serious situation.
WALLACE: Well, I — that's very interesting. When you say containing a serious situation, do you feel in that sense — not that you've solved all the problems, but the sense of a financial crisis, the sense of an economic free fall — that you now have that under control?
SUMMERS: I'd say this, Chris. Six or eight weeks ago, there were no positive statistics to be found anywhere. The economy felt like it was falling vertically.
Today, the picture is much more mixed. There are some negative indicators, to be sure. There are also some positive indicators. And no one knows what the next turn will be.
But I think that sense of unremitting free fall that we had a month or two ago is not present today, and that's something we can take some encouragement from. But it's going to be a very long road. There are going to be steps forward, and there are also going to be steps backwards.
Policy is going to have to persevere. We're going to have to be determined. There are steps that everyone's going to have to take to lay a foundation for a more responsible and a more enduring kind of economic expansion than the one that we had enjoyed previously.
WALLACE: Let's talk about one of the problems, and it's really right on the horizon. Chrysler's deadline to come up with a viable business plan is this Thursday, just four days away. What are the chances that Chrysler is going to have to file for Chapter 11 bankruptcy?
SUMMERS: We're hopeful that the negotiations which have been proceeding with great energy are going to conclude successfully. You never know with any negotiation until the very — until the very end.
There are some issues that have been worked out. There are some issues that remain to be worked out. But it's in everybody's interest, we believe, to see these negotiations succeed, and we're hopeful that they will.
It's obviously a situation that we're monitoring carefully, but it's a negotiation between Chrysler, between its potential acquirer, to Fiat. There are important issues with creditors, with a range of stakeholders.
And as I say, we're hopeful that that negotiation is going to work out successfully.
WALLACE: If it doesn't work out, Mr. Summers, how do you view a Chrysler bankruptcy? How damaging would it be to the economy?
SUMMERS: As I say, we're hopeful that it's going to work out, and it's not really right to get into answering hypothetical questions.
The president's made clear his commitment to a strong U.S. automobile industry. It's the backbone of the economy of a significant portion of our country, and it's something that's almost iconic for the United States.
So we're bringing a lot of determination to this, and we will certainly do our part to support a successful negotiation.
On the other hand, the president's made clear, and I think most Americans would share this view, that you've got to have responsibility, you've got to have accountability, and you can't have a situation where companies proceed on the — on a permanent basis relying only on cash from the government.
And that's why he made clear that there needed to be a new structure in which Chrysler could operate that would make long-term viability possible, and that's the end we're all working towards.
WALLACE: But, Mr. Summers, the reason I want to pursue this — there have been a lot of stories, as you well know, in the papers over the last few days that indicate the government is basically telling Chrysler to prepare for a bankruptcy, a lot of optimistic talk that if you had a pre-packaged bankruptcy Chrysler could survive perhaps in a deal afterwards with Fiat, where Fiat, the European automaker, could pick and choose what parts of it wanted to keep.
You sound like you really want to avoid a bankruptcy.
SUMMERS: No, the focus, actually, is not there because in certain circumstances a bankruptcy is not about a liquidation at all. It's really about change in legal — change in legal form that actually protects the company and enables it to function more effectively.
Really, the focus of our efforts is a focus on the American economy. It's a focus on jobs. It's a focus on communities. It's a focus on the economy being able to move forward, and that's what we want to see, and that obviously is going to require a whole set of decisions and judgments by the Chrysler company and by a range of its stakeholders.
And we believe that's possible, and that's something that's going to — that should — that should take place. As I say, we're hopeful that this is all going to work out in a successful way, but obviously, there are multiple — multiple contingencies.
WALLACE: Mr. Summers, at the very beginning of the interview, you talked about the fact that there are going to be a lot of hard days ahead, but that the picture is more mixed, as you said.
We're not in a vertical free fall, but there certainly has been some bad news recently. The — initial jobless claims are up again. The total number of Americans that are — that are getting unemployment benefits is at an all-time record of 6.1 percent.
How much longer — I don't mean, you know, June 27th, but your sense - - how much longer for this recession? And are we going to dip into double- digit unemployment?
SUMMERS: Chris, there are two kinds of economic forecasters, those who know they don't know, and those who don't know that they don't know.
We've recognized from the beginning that if you look at the pattern in the economy, it was clear that there were going to be sharp declines in employment for quite some time this year, that experience suggests that even strong policies, very strong policies like the ones we've enacted with the Recovery and Reinvestment Act, with the president's financial stability plan, with the president's measures to provide for refinancing of mortgages — that even strong plans take time, take six months or more, to have their impact on the economy.
So I suspect that the economy will continue to decline for some time to come.
I do think if you look at the consensus of professional forecasters, that consensus suggests a somewhat better performance towards the end of the year.
You know, one indicator that economists watch closely is something known as the inventory cycle. Right now, the sales of businesses, their shipments, are running substantially ahead of their production. That means that inventories are being drawn down.
And when inventories are being drawn down, they eventually have to be built back up, and that will be a source of momentum in the economy, probably in the second half of the year.
There are other factors that suggest that there'll be a cyclicality in the economy — retirements of cars because they just wear out. To replace the number of cars in the country in normal times takes 13 or 14 million automobile sales. Automobile sales have been running closer to 9 million of late.
We've got about 1.5 million new household units that are formed, but the economy is running at a rate where we're building only about 500,000 new residences.
So these imbalances can't continue forever. And when they're repaired, they will be a source of impetus to the economy. Just what the timing will be, no one can know. What I think is very clear — very clear; and I think almost everyone would agree with this — is that if we had done nothing, if we had not stepped up and provided substantial demand with the Recovery and Reinvestment Act, if we had not been prepared to support families on their mortgages, if we had not taken steps to rebuild trust and confidence in the banking system, then we'd be in a far, far worse situation right now.
We're going to need to watch and monitor these economic developments and take appropriate steps. This...
WALLACE: Mr. Summers...
SUMMERS: ... these problems weren't made — weren't made in a day or a month, and they're going to take real time to fix. But I think we're on a path towards containment and towards building a foundation for expansion.
WALLACE: Mr. Summers, I know this isn't your specialty, but we've only got about three minutes left, and I'm going to try to do a lightning round with you of quick questions and quick answers.
The president said this week that he's prepared to crack down on credit card abuses. Why not go for an immediate freeze on retroactive interest rate increase, as opposed to waiting — as opposed to waiting until the Fed — Federal Reserve regulation kicks in in July of 2010?
SUMMERS: We're working to get legislation passed in the next few weeks, and that legislation would have provisions that protect the consumers, some of which would take place immediately. Some may take a little time for the computer systems to be adjusted, but we want to see relief come fast.
WALLACE: So you'd like to see an immediate freeze on retroactive interest rates?
SUMMERS: We'd like to see — we'd like to see relief come fast. There's a lot of complexity in the — in the details, and that's being worked through in the legislation process.
But if the legislation passes with the kind of leadership that Senator Dodd, Representative Maloney have shown, you'll see benefits to consumers that will come very, very quickly.
WALLACE: The White House revealed the other day that last year you made $5 million working one day a week for the hedge fund D.E. Shaw. What did you do to make what averages out to $100,000 a day? And is there any possible conflict with the fact that you're helping to oversee the economy?
SUMMERS: I was providing strategic advice on a range of economic — on a range of economic judgments.
You know, when it comes to ethics, Chris, what we're all asked to do is to disclose everything about our financial lives. A set of officials, not politically appointed officials, government officials, review those reports in great detail.
They ask us as a condition of working in the government to divest certain of our assets, and they instruct us that there are certain policy matters that we're not to be engaged in — for example, any specific matter that affected the firm that I was affiliated with — and we comply with those rules.
So none of us make our own judgments about conflicts of interest. Those judgments are made by officials, career government officials, who are specially trained in that regard, who apply broad standards.
What this president has done is...
SUMMERS: ... really raised the bar on that in setting higher standards for what's going to be deemed a conflict of interest, what types of previous...
WALLACE: Mr. Summers...
SUMMERS: ... experiences — lobbying and other things — are inappropriate.
WALLACE: ... we have less than a minute left, and I do want to ask you one more question, and I suspect you figured this one was coming.
You were spotted at that meeting with credit card executives. It sure looked like you were falling asleep. Question: Do you find President Obama's speeches less than compelling, sir?
SUMMERS: Chris, you know, it's kind of like I was thinking about the fine print on some of those credit card disclosures, which is written boring enough to put you to sleep.
And President Obama wants us all to fulfill our American dreams, and I guess I was starting that day.
WALLACE: But you know, you've been — you've been a serial dozer, because you were spotted at an earlier meeting — are you not getting enough sleep, sir?
SUMMERS: We're all working very hard in this administration, Chris, because we think that we want to support the president in what is a tremendous responsibility that he has to get this economy growing again and to again establish a period when family incomes are rising.
WALLACE: Did the president rib you?
SUMMERS: Oh, we've all joked about American dreams in various ways.
WALLACE: Mr. Summers, thank you. Thanks for talking with us. Work hard and please, sir, get some rest.
SUMMERS: Good to be with you, Chris.
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