Summers Urges Banks to Lend More, Says Growth Pace ‘in Doubt’
By Scott Lanman and Edwin Chen
July 21 (Bloomberg) -- White House National Economic Council Director Lawrence Summers chastised some banks that received government aid for not doing enough to reduce foreclosures, while declaring that next year’s economic growth pace is “in doubt.”
“Prudent financial institutions will recognize that the profits they’re enjoying are in part a reflection of the commitment government and the broader society have made to the financial system that has enabled them to enjoy those profits,” Summers said in an interview with Bloomberg News yesterday in Washington.
While Summers, President Barack Obama’s chief economic adviser, didn’t identify any firms, he said the government will disclose names as part of reports on loans and foreclosures. Last week, Goldman Sachs Group Inc. reported record quarterly earnings, while JPMorgan Chase & Co. said it had second-quarter profit of $2.7 billion.
Separately, Summers, 54, said Obama hadn’t consulted him on the potential reappointment of Federal Reserve Chairman Ben S. Bernanke, 55. “The president will consult with whoever he wishes,” Summers said when asked whether he would recuse himself from conversations about the Fed post, for which he’s regarded by Fed watchers as a potential candidate.
Summers said the U.S. economy is “no longer in freefall,” and poised for recovery starting this year. The former Treasury secretary and Harvard University president cited recent increases in exports, and said fiscal-stimulus and foreclosure- relief programs will create a “gathering force” in the coming months.
Income Growth
Even so, income growth may not “resume in the near term,” he told Bloomberg editors and reporters.
“The pace of growth next year, I think, is very much in doubt and difficult to predict,” Summers said. That “will depend crucially on our effectiveness in implementing the programs that have been legislated” and what Congress may do on health care, financial regulation and energy, he said.
The U.S. contraction, the worst in a half-century, probably slowed to a 1.8 percent annual pace in the second quarter from a 5.5 percent rate in the first three months of 2009, economists surveyed by Bloomberg News estimate. Growth will resume in the second half of the year, the economists predicted.
Summers called the banking industry’s mortgage-relief efforts “substantially variable” from company to company.
“I would hope” those firms “consider very carefully the needs of their customers as they formulate their lending policies,” Summers said. “Some institutions I think have been very conscious of the kind of contribution they can make, and others have been much slower to get started.”
Government Aid
He said financial companies have benefited from an “aura of government support,” as well as programs to guarantee debt, backstop commercial-paper issuance and “support weaker financial institutions that were their counterparties.”
In the government’s bailout of American International Group Inc., $105 billion flowed to U.S. states and banks including Goldman Sachs and Bank of America Corp., AIG said in March.
Summers repeated the Obama administration’s call for stricter regulation of financial firms that may be considered “too big to fail.” Those banks and other companies should face higher capital requirements and limits on leverage, which would essentially tax their large and interconnected status, he said.
“We’re very focused on the ‘too big to fail’ problem,” Summers said. He declined to comment on a proposal by Federal Deposit Insurance Corp. Chairman Sheila Bair to slap fees on the biggest financial holding companies because it hasn’t been released yet.
Fed Chairman
Obama has declined to comment on whether he will reappoint Bernanke, who was picked by former President George W. Bush. Bernanke’s four-year term ends Jan. 31. Other potential candidates may include Summers and Janet Yellen, president of the San Francisco Fed bank.
Traders are placing low odds on a Summers Fed. Intrade, a Web site that lets users trade futures contracts for political outcomes, shows a 10 percent chance of Obama appointing him as central bank chief and a 65 percent chance of Bernanke getting a second term.
On health care, Summers said a top Obama priority is to standardize treatment practices and costs for essentially the same illnesses in comparable populations, using Medicare reimbursement policies as the engine.
That approach is modeled after a congressionally created commission that rewards the value of care physicians provide to Medicare recipients rather than the volume of services they deliver.
Medicare Program
Such incentives, Summers said, could “fundamentally change Medicare reimbursements in ways that we can achieve very substantial savings in the health-care system.”
Regional differences in the range of treatments vary today by as much as a two-to-one ratio, he said.
In some cases, studies have show that patients receive better care at two-thirds or half the cost, depending on regional differences, Summers said. “And that’s something that’s going to be very much influenced by reimbursement procedures, which is why the president has the emphasis that he does on Medicare.”
Summers also reiterated Obama’s pledge to sign only a health-care bill that is deficit-neutral over 10 years. The plan will be “paid for in advance,” he said. “I don’t actually understand the argument that it will increase the deficit.”
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Edwin Chen in Washington at echen32@bloomberg.net.
Last Updated: July 21, 2009 00:01 EDT |
