DAVOS-HIGHLIGHTS – U.S. economic adviser Summers

DAVOS, Switzerland, Jan 29 (BestGrowthStock) – Following are
comments from Larry Summers, director of the White House
National Economic Council, at the World Economic Forum.

On Friday’s U.S. GDP figure:

“It confirms what we have recognised. It created a basis for
economic growth. It certainly doesn’t suggest we are in any
position to pop champagne corks. We have a profoundly serious
problem of unemployment and slow growth in middle income
(families).

“We need to do a lot more. First comes GDP growth, then
comes a number of hours people work, then comes to the level of
employment, then comes to the level of unemployment. We have a
long way to go.

On financial regulation;

“It works out that every three years, we have a financial
crisis.

“That is a system whose regulation needs to be profoundly
reformed. At the centre of regulation are some clear
imperatives. It has to be basic protection for consumers,
there’s got to be a system where we recognise we can’t have a
fail-safe system … There has to be an end to loopholes and
regulatory arbitrages. There have to be rules that constrain the
amount of risk that large financial institutions take. Financial
institutions need to engage with customers in all sorts of ways.

“But there is no need for activities that don’t have any
nexus with customers, that are purely speculative, to reside
within institutions that receive the (support) that banks
receive.”

“The policy is a constraint on purely proprietary trading.
it is not a constraint on doing business with customers, so it
does not by definition interfere with their ability to serve
their customers.”

“Banks should not be taking advantage of leverage … simply
in order to trade back and forth.

“Trading is a crucial part of a modern financial system but
it doesn’t need to be supported by governments, guarantees
provided by governments.”

“They need to think very carefully about their obligations
to their customers. The system was brought to the brink of a
collapse by reckless lending standards. In that context there’s
obligations on the part of those who benefited from governments
involvement to carefully consider their obligations.”

“Resolution authorities, restrictions on risk taking,
requirements of higher levels of capital, these all will reduce
and eliminate the tendency to take excessive risks.”

“The vast majority of funds we’ve extended have been paid
back. They have been all essentially paid back. There are still
funds that are outstanding with respect to AIG and automobile
companies and efforts to support the housing market.”

“Reserve currencies are chosen by the market. I believe the
dollar has a very central role in the international financial
system for a long time to go. That’s why the emphasis on budget
deficit reduction is such an important component in the
president’s state of the union address.

“Our priorities have to be getting the engine of job
creation of the economy going.”

On global imbalances:

“The commitment to the G20 reached to global rebalancing
means less borrowing by the U.S. and less export-led growth by
other countries. Obviously there’s still plenty to be worried
about. China’s trade surplus has come down substantially over
the last year or two. It’s going to require constant vigilance
from all countries.”

Stock Investing

(Reporting by Natsuko Waki, Krista Hughes and Clara Ferreira
Marques)

DAVOS-HIGHLIGHTS – U.S. economic adviser Summers