Asking Questions of Larry Summers

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.

Comments

[Steak]

"But at least he’s smart enough to pick an interviewer who won’t ask him the really tough questions"

Amen brutha

Maria: "Some people say you are an infallible genious, others say you are a golden god, tell me again how your intellect alone will lift us out of depression."

Larry: "Shut the f*** up Donnie"

2009 Apr 15 12:51 AM

[American in Paris]

Actually Summers is quite clear. The stress tests are to see if banks have adequate capital. Obviously we want the banks to lend, but healthy lending requires adequate capital. I don't see any waffling at all. The best way to get the banks lending is to beef up their capital levels. The banks will achieve that goal over the long run by limiting their lending to their best/least risky customers. The problem is that entails a huge cost to the world economy. Several years of stagnation. What the Administration wants to do is use the stress tests to force the banks to raise capital now. Why would the banks resist raising capital now? Because it is expensive in terms of shareholder dilution.

2009 Apr 15 08:35 AM

[kelm]

CNBC never asks hard questions because they need to cycle 30-40 talking heads through their various programs every day and if they actually acted liked responsible, investigative journalists and posed probing, uncomfortable questions, no one would show up. I agree with the author that the response was simply blather.

I have been uncomfortable from the start with everyone's statements that "Summers is the smartest guy in any room". They said this about the Enron guys....it never works out well.

2009 Apr 15 08:46 AM

[Leftfield]

"Levels of capital!" They don't really care about the voters, do they? The voters are getting rolled right now so much there is no respect, like ending mark to market. PPIP. No real explanations are necessary, just a cover story, like, "levels of capital."

Open the books. The public will understand plenty then.

2009 Apr 15 08:55 AM

[Dave L]

American in Paris: How can you check capital adequacy without considering ratios?! He's as good as saying that most dolts will be impressed if the stress test reports a number with "billions" at the end, so let's not complicate things by including a denominator with "hundreds of billions" in it.

Oh, and there's another barrier to under-capitalized banks raising capital just now: nobody will buy their equity or lend them fresh funds at any price! So, as you observe, we're left with the government promising regulatory forebearance while the poor dears earn their way back to full life. Ask an American in Tokyo how well that's likely to pan out...

2009 Apr 15 09:22 AM

[Nik Kondratieff]

Well at least Maria Bartiromo is pleasing on the eyes.

2009 Apr 15 08:55 PM