Larry Summers Defends His Boss -- And Previews More Interventions

National Economic Council director Larry Summers admits in a speech today that the "necessary fixes" to the nation's economic problems "come from the application of common sense in an area where complexity can blind sophisticated observers to the obvious."  Ostensibly, Summers, speaking to the Council on Foreign Relations in New York, is talking about the financial world's resistance to big fixes intended to mitigate the effects of markets that have crossed the line that separates managing risk and creating it.  Summers's role in fostering the expansion of the risk market -- and it being an opponent of regulating derivatives -- is presumably an example of how "complexity" can "blind sophisticated observers" like himself to "the obvious."  

But that's not the message. It's that the administration has a thoughtful approach to these interventions, that they were justified, and that they are being handled in the most effective way possible.

He is also laying the groundwork for the imminent of proposals to reregulate the financial system and create a systemic risk facility that would empower the government to intervene before major institutions fail.

Let me be absolutely clear at the outset about two aspects of President Obama's approach about which he has been particularly consistent and firm since the crisis began while he was campaigning for president:

The first is an unequivocal recognition that we only act when necessary to avert unacceptable -and in some cases dire -outcomes.  Barack Obama ran for president to restore America's role in the world, reform our health care system, achieve energy independence, and prepare our children for a 21st century economy..  He did not run for president to manage banks, insurance companies, or car manufacturers.  The actions we take are those of necessity, not choice. 

The second point on which the President has been unambiguous is that any intervention go with, rather than against, the grain of the market system.  Our objective is not to supplant or replace markets.  Rather, the objective is to save them from their own excesses and improve our market-based system going forward.