National Economic Council director Lawrence Summers should try staying awake during his meetings with the president. Last week the husky, unlikable super-genius revealed a little too much about the administration's view of too-big-to-fail banks in an interview with PBS:
JEFFREY BROWN: The too-big-to-fail issue, why not go further? Why not just limit the size of banks?
LAWRENCE SUMMERS: Jeff, that was the approach America took to banking before the Depression. That was the approach that America took to lending in the thrift sector before we had the S&L crisis.
Most observers who study -- who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies and hurt the competitiveness of the United States.
But that's not the important issue. They believe that it would actually make us less stable, because the individual banks would be less diversified and, therefore, at greater risk of failing, because they would haven't profits in one area to turn to when a different area got in trouble.
And most observers believe that dealing with the simultaneous failure of many -- many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.
Seeking Alpha has a list of what "observers" are actually saying. HuffPost cites some more. Here's an angry reaction from Alternet, which is kind of dumb -- but when you're an intellect as might as Larry Summers, where are you going to find interlocutors of your caliber?
More serious than Summers' well established habit of citing a fake consensus of experts to support his claims is that these comments embarrass an administration that is trying to promote the fiction that it is seriously interested in ending bailouts for gigantic banks. It might make intuitive sense that regulators would rather deal with a few big, identical institutions than with many diverse ones, but that's not the story the Democrats are using to sell their financial reform plan. So between Thursday and yesterday, somebody must have found a woodshed big enough to take Summers out to. Here's what he had to say on one of the Sunday talk shows:
"We must end too big to fail," he said on Face the Nation. "There is no one associated with the White House who believes "too big to fail" is acceptable, or that it's acceptable for financial institutions to rely on a bailout."
Glad that's squared away.