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A Conversation with Lawrence H. Summers

Speaker: Lawrence H. Summers, Director, National Economic Council; Former Secretary of the U.S. Treasury
Presider: Tim Ferguson, Editor, Forbes Asia
November 17, 2010
Council on Foreign Relations

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TIM FERGUSON: (In progress) -- the Stephen Freidheim Symposium on Global Economics.

This is -- this is a privilege, to have this gentleman with me, who needs very little introduction, but I will do that sparingly in a moment.

First, some housekeeping: This is an on-the-record session of the council. It is being teleconferenced to members outside of New York. That makes it all the more important that you turn off your portable devices, as that will interfere with the sound.

We will have a conversation up here for a few minutes, and then turn it over to members and guests. I'm sure you are well prepared with questions for our guest today.

Lawrence Summers, as I say, is -- needs no introduction to this group: 20 years in public life, or the public eye; most particularly of note today, his service at the Treasury Department in the Clinton administration, ultimately as Treasury secretary; and now as director of President Obama's National Economic Council. The two are perhaps relevant in comparative context that may come up in today's discussion.

Dr. Summers, the first session dealt with a backdrop of exchange rates and capital controls, various factors that are ever more present in the economic discussion. After a period of rather benign economic indicators in 2010 -- post the crash -- we're now seeing considerable volatility in things like commodity prices, rates, to some degree in currency and such. What is your take on why the last couple of months may have shown a greater jumpiness in some of these areas of the markets?

LAWRENCE SUMMERS: Well, let me first just say that on the subject of the exchange rates, I have learned to follow the lead of J.P. Morgan, who was famously asked what his prediction was for the bond market. And he leaned forward, he paused, he lowered his voice. His audience waited to see what the great man would say. And he allowed that, in his judgment, based on a lifetime of experience in the markets, going forward, bond prices would fluctuate. (Laughter.) And I have a similar degree of confidence and a similar forecast with respect to -- with respect to exchange rates.

Look, I think that you have seen a number of developments. Relative to any sensible set of concerns that one would have had when the G-20 came together in London in the early spring of 2009, the world is incomparably more stable, secure and prospering than anyone could have expected. The Stock Market, after all, had fallen more between October of 2008 and March of 2009 than it did between October of 1929 and March of 1930. Similar things could be said about the levels of global trade. Similar things could be said about loss of employment.

The collapse was averted. The emerging markets re-attained what I've earlier called escape velocity: self-sustaining growth, not driven by unusual policy, but driven by the virtuous cycles that characterize successful economies -- rising incomes, rising spending, rising spending, rising incomes, greater capital investment embodying progress, spurring larger markets, that spur still greater investments and so forth.

That process appeared to be -- appeared with -- very far from certainty but with significant probability -- to be engaging in the industrialized world last spring.

The extent of the dislocations within the European system both were jarring to the European economies, and coming so soon on the -- in the wake of the traumatic events of 2008, were jarring on a broader basis -- that along with a judgment that one can make in retrospect that -- that more of the growth was inventories and was the result of macroeconomic policy, rather than natural organic growth. And I think most people guessed in the spring, contributed to performance that was somewhat below par. And those two -- those two things, along perhaps with some rising uncertainty about what was going to happen in China, have led to an outlook that is somewhat more uncertain right now.

The other hand, if you look at the VECs or other measures of implied volatility, if you look at credit -- if you look at how much most credit spreads have widened, you have to say that it is a remarkable thing that anybody would be talking about the increases in volatility over the last month or so as a significant event, because they are at best the Appalachians compared to the Himalayas of the increases in risk and volatility that took place in 2007 and 2008, that took place in 1998, that took place at a variety of other moments.

I had a tennis coach who told me when I was a kid that you're never as good as you think you are when you think you're good, and you're never as bad as you think you are when you think you're bad. And that has always seemed to me to be a useful thing to keep in mind in looking at economies and in making judgments.

The late Rudi Dornbusch, who spoke here many, many times, used to say something that I think is also helpful, frequently in making sense of economic events. Paraphrasing him slightly, he said: Things in economics take longer to happen than you think they will, and then they happen faster than you thought they could. And that is on the one hand sobering with respect to imbalances and crises, but it is also relevant with respect to recoveries and take-offs. And so I think those two perspectives also operate in the direction of diminishing the extent to which one allows one's pulse to be overly influenced by what's happened in the last month or two.

FERGUSON: Granted that I have a hill to -- a hill to climb here, as you suggest, let me -- let me posit that in addition to the nervousness in Europe that you referred to and which continues to be acute, that now in Asia, in several of the emerging economies, there does seem to be an acute concern about inflationary conditions and such that may prompt some of these exercises of capital controls and the like.

Do you grant that there's anything more than a temporal anxiety to the situation in these emerging giants?

SUMMERS: I think I'd say three things.

First, having an involved around the world in one way or another with problems that involve excessive capital outflows and problems that involve excessive capital inflows, it would be a very serious mistake to treat them as symmetric.

The problems associated with excessive capital outflows are far more serious. Any one of us would much rather live in a nation that too much capital was trying to get into than a nation that too much capital was trying to get -- was trying -- was trying to get out of.

Second thing I would say is, it is the natural economic force that when capital is trying to get into some place, when there is a demand for investment in a place that exceeds the local supply of savings or when the balance moves that way, the way that happens is that the relative price of the goods in that place goes up. That's why when the financial sector is doing well, prices in New York rise relative to prices in other parts of the country. That is a very fundamental mechanism.

It can manifest itself in different ways. With a flexible exchange rate, it can manifest itself in an exchange-rate appreciation. With a fixed or managed exchange rate, it can manage -- it can manifest -- it can manifest itself in a rising rate of -- rising rate of inflation. Either way, there is an impact on real exchange rates.

There is a(n) understandable urge at such times, particularly when there's the -- there's the -- there are concerns associated with that process, if it is perceived as temporary, it can be dislocative of real economic activity. And if it is way, way temporary, it can create situations of easy-in-easy-out that can, on the other side, create very difficult problems of capital-outflow management.

Therefore, I think there has been a change in global financial thinking relative to what would have been the case 15 or 20 years ago towards much more acceptance of the notion of various kinds of fiscal measures or regulatory measures directed at influencing the pace and character of capital -- of capital inflows. The somewhat doctrinaire views that prevailed in the late '80s or early -- or early '90s -- I think there has been a shift, and I think it's to be debated just how efficacious such controls are. It's to be debated just what the best ways to administer them. I suspect at the end of this episode we'll know much more about the subject than we do right now.

I don't myself see a strong case for the rest of the world resisting controls on capital -- on -- (or ?) taxes on capital inflows when -- if countries judge them to be in their interest. You know, I think in a way there's a(n) imperfect but not entirely unwarranted analogy with similar things with respect to flows of people. We tend to think that a country that won't allow people to emigrate is really doing a sort of totalitarian and problematic thing. We tend to accept as a given that countries may prudentially limit the immigration into their country. And in the same way, when capital controls are directed at encouraging expropriation without consequence, which is the root of a great deal of capital control that took place decades ago in emerging markets, that's a rather different thing than appropriate limits on capital -- on capital inflows.

FERGUSON: As you say, one adjustment mechanism for these shifts in capital flows is the exchange rate. The earlier discussion today dealt considerably with the Chinese situation, the amassing of considerable foreign reserves.

Are we approaching a situation with regard to China where the proper adjustment of exchange rates could be on the scale of, for example, what was done at the Plaza Accord with Japan in the 1980s?

SUMMERS: Well, I mean, what took place in the -- what took place in the Plaza Accord was a communique got issued that used the word "orderly appreciation." That's what actually took place in the Plaza Accord, that there was no sudden -- there was no sudden movement. There were -- in the period after that, there were rather substantial market moves over a long -- over a long time period, not particularly driven with actually levels of intervention that would look extremely low by today's standards.

And so economic experts debate the extent to which the Plaza Accord was the -- was the driving force and the extent to which a variety of market conditions were the driving force. And you could find fair-sized -- you could find market moves ahead of the Plaza Accord in the relevant currencies.

So I don't think that's an especially -- but obviously, it involved movement -- it involved international discussions of exchange rates. And there's a feeling that there should be international discussion now around imbalances. But beyond that, I think there's a certain naivete in the attempt to carry that -- to carry that kind of analogy too far.

FERGUSON: You don't think that the consequences associated with that adjustment in exchange rate, which included the buildup of serious bubbles in the Japanese economy -- you don't think that that is weighing on Chinese policymakers, as some say?

SUMMERS: That's a rather -- that's a -- that's a -- that's a rather different -- that's a -- that's a rather different question in terms of what Japanese -- what the lessons -- what, if any, were -- are the lessons for Chinese policy of what took place in Japan. You know, while I'm a public official, there's going to be a certain vagueness to my comments in this -- in this area. So if you're not entirely certain what I'm saying, that's somewhat -- that's rather intentional. (Laughter.)

But I guess I would make two points. One is that the experience of Germany and the Deutschmark, which followed a very similar -- which was essentially symmetric with respect to whatever exchange-rate policy was in the '80s, has none of the elements that were present in Japan. And so that would tend to lead one away from a simple version of the analogy.

I think a closer reading of the macroeconomic history of the 1980s would suggest that there was, as you suggest, a period between -- largely in 1985 and 1986 that had some of the elements that you referred to, and there was a period that began in early 1987, where the dominant -- where the dominant preoccupation was easier money in Japan to promote lower interest rates to avoid appreciation.

And so if one was looking -- and again, I'm not especially big on the premise of the exercise -- but if one was looking to lessons of Japan's experience that might have bearing on other countries today, I think the argument would be at least as compelling that the post- Louvre easy money to avoid appreciation was bubble-creating as the opposite argument would be.

And Mr. Kuroda, the current president of the Asian Development Bank -- has actually lived through this period as a Japanese official -- has actually written about that period in some detail as -- and its lessons, and has also written, drawing a kind of parallel lesson about the dangers of suppressing appreciation from the experience that I'm not old enough to remember closely, in the early mid-'70s after the Smithsonian Agreement.

FERGUSON: Let me ask you about capital flows in a very different way. We're in a rather extraordinary situation in which the emerging or what used to be the poorer countries of the world are building up significant capital stocks, reserves and such, and are in the process of more or less repatriating those reserves to the industrialized developed countries.

Would you agree this is a rather extraordinary situation, and what are the implications of it?

SUMMERS: I've said often that if you lived on Mars and you studied economic theory and then you were asked: You have a world with two major parts -- an industrialized core in which growth is relatively slow, populations are aging rapidly, there is essentially -- there's very -- there's very low labor force growth, and a rapidly growing, younger -- rapid labor force growth as well as productivity growth -- and technological conversions periphery. And then you asked: Which way would you expect the net flow of capital to be, we wouldn't pass a student who expected it to be other than from the -- from the industrial core to the -- to the emerging periphery. So I think it is a very important phenomenon to understand.

And it has multiple aspects. As MIT's Ricardo Caballero has suggested, there are elements of who has capacity in producing legal certainty and safety for those who want to have liquid assets that are very safe. And that kind of capacity may affect the ability to attract investment.

There are issues of who is newer on the scene and therefore has more need for liquid reserves that may affect the pattern. And there is centrally, as any number of authors have emphasized in different ways, the question of vendor finance as an economic development strategy. And if one believes that export-led growth, for a variety of reasons, is likely to be particularly rapid growth, particularly conducive to the import of technical change, particularly conducive to the discipline of competition from those who are further -- who are further developed, particularly conducive to various kinds of industrialization, the management of real -- the management of real exchange rates may be a way of achieving that kind of export-led growth. And one concomitant of that is a pattern of capital exports which is seen most clearly in a sense in financing the current-account deficits of those with whom one runs a current-account surplus.

There are examples that go in both directions, and I'm not -- you know, people are much closer to this -- to this history than I. The experience of Britain from the Civil War to World War I would fit the story that you have in mind or that would be taught in Mars. The experience of the United States at the very beginning of the 20th century would be one of some net exports -- despite the frontier, despite the West, all of that -- some net exports, and some concerns in other parts of the world about being under-sold by an excessively competitive exchange rate.

So I think the answer is that it is at first paradoxical. It does raise questions of sustainability, but it doesn't rise all the way to inexplicable.

FERGUSON: All right. Well, on a certain level, investment interests from the Chinas of the world to the United States and other industrialized countries is a -- is a pure positive. On the other hand, it does seem to add in many quarters to a sense of anxiety about a long-term American decline.

Do you see what is happening in the broad scope of capital flows in the world to speak at all to that point? And what, if anything, can government officials such as you do in policy-making to address that?

SUMMERS: I've lived my life on the Eastern Seaboard of the United States: Philadelphia, Boston and Washington, with frequent visits to New York. Over the course of my life, the fraction of both American GDP, and of any professional sports league, that takes place in that Eastern Seaboard has declined quite substantially. It has declined as the rest of the country has, in a variety of ways, caught up; the most important development being air conditioning in the South, which changed fundamentally the economic geography of the country, but there are a whole set of other developments.

If there is -- the proposition can be debated, but in the fullness of it all, life on the Eastern Seaboard of the United States is better because of the progress and the convergence that has taken place. In the same way, U.S. GDP was half of world GDP in 1947, and it's on the order of a quarter of world GDP today. So you could call that 60 years of decline, or you could call that the basic success of building and integrating rising -- more increasingly prosperous global system. And I -- there's lots of things you can question and there's lots of senses in which history's not continuous, but I think a thoughtful person would tend to say that the second view was probably the right view of that.

So if you say what's my forecast of the share of world GDP that will be American GDP in 2030, will it be greater today -- greater than it is today or less than it is today, I think all forecasts have a way of going wrong -- (chuckles) -- but I would guess that it would probably be less. Does that constitute decline, or does that -- or does that constitute successful evolution and success? I don't think you -- I think that we have learned painfully again and again that the economic success of others and increasing global integration in no way guarantee that good things will happen; and a sort of crude determinism that says prosperity will mean that everything works out is, I think, badly wrong.

On the other hand, I think that it would be a mistake to somehow overdo the consequences.

I also think it's instructive to look back at aspects of the history. There's a sort of powerful concept which is the opposite of Robert Merton's. Robert Merton the Elder talked about self-fulfilling prophecies. There's also a notion of self-denying prophecies. John Kennedy believed that Russia would have a larger GDP than the United States did in 1985. That was his -- that was the firm belief of the elite of that time, and a reading of the Samuelson textbook of that era would have been supportive of that view. That did arouse concern, and that concern aroused a whole set of things we did as a country that were enormously constructive and contributed to making that prophecy be wrong.

If -- every time the Council on Foreign Relations had a panel of broadly this kind between 1988 and 1992 -- 1989 and 1992, somebody found it clever to observe that the Cold War was over and Germany and Japan had won. It was an absolutely -- bit of conventional wisdom, and it was part of a process that led to a variety of kinds of renewal that were very healthy for the United States.

So I don't mean to dismiss the current wave of declinism, but I think these types of concerns are best channeled into a whole set of constructive efforts directed at renewal. And I am quite -- I don't minimize the problems we have at all, but I am quite optimistic about our future, and as I look around the world and ask whose hand I would want to be playing, I think our hand, in a whole set of ways, actually, looks very good.

FERGUSON: Before I turn it over to our members and guests, just to follow on that point on domestic policy for a moment, as you say, there are things that you would see that need to be done, and others very much have their own views. What -- could you identify, maybe -- as you're approaching your last 40 days or so, two months in office, what would you identify as the most urgent actions that the American body politic could address?

SUMMERS: Look, I think the single most important test of the success of our -- success of the policies of a public and the private sector will be, does the growth rate pick up significantly in the next three years? I think if it does, large numbers of problems will fade away, and I think if it doesn't, they will be close to -- they will be close to unaddressable.

Second, even with -- even on an optimistic judgment about the resumption of growth, we are not currently on a path where the public sector's revenues and public sector's spending assumptions are properly reconciled, and putting in place an appropriate framework for doing that is terribly, terribly important.

Third, we do not -- we are not doing what we could be doing, especially at a moment when -- think about it -- federal government can borrow nominally for 30 years at 4 percent.

At such a moment, we are not doing what we should be to renew the nation's infrastructure, broadly defined, its physical infrastructure. Look at airports here. Look at the airports you fly from here, and the airports you fly to across oceans. Look at the quality of mass- transit infrastructure. Look at degrees of congestion, incidence of -- incidence of potholes, even incidence of water-quality issues. That's the tangible, classic infrastructure.

There is a broader infrastructure that is less public: the infrastructure that supports the virtual economy at a time when more -- less and less is going to be physical and more and more is going to be information. Why should -- why should we not be in the top 10 on any measure of connectivity? Why should it be the case that 7-Elevens use information technology much more intensively than doctors' offices do? Why should it be the case that we don't apply IT, in which we're a leader, when doing so would save 75,000 lives a year by preventing medical errors?

You know, there's a broad debate about education in the country and, you know, it's kind of in the same -- on one level, we've made a lot of progress and a lot of positive things that have happened; but, you know, some of it's kind of the same. People on the right say there should be more standards, and if there isn't more standards nothing else matters. And people on the left say there should be more money, and that's what's really important. And, you know, we can have the debate back and forth, or we can actually decide that there's merit in both positions -- (chuckles) -- and that we need -- we need both reasonable physical infrastructures and reasonable infrastructures of support for accountability in terms of data and all of that.

And I would say the fourth and final thing I would -- I would highlight is that I think we do -- I say this to audiences like this one -- we do need to think about obligations of citizenship as well as privileges of citizenship. That's true of an impatient and demanding electorate. It's also true of its elites. And I think it would be a mistake not to recognize that some of what is going on in the country is a concern that too many in its elites seem like citizens of Davos as much or more than citizens of America; that there was a time when George Eastman had a fantastic set of ideas about photography, and the result was that the city of Rochester had a prosperous and healthy middle class for a generation-and-a-half. And Americans still have equally good ideas, but it doesn't tend to be the case that there are large, prosperous middle classes created in America in the wake of those ideas.

And how that's going to be addressed in a way that is healthy for the long run of the global system is something I don't think we've fully figured out, but need to.

FERGUSON: Well, we have a good deal of upstanding citizens right in this room. Dr. Summers has agreed to stay a bit over our allotted time, so if you can raise your hand for any questions, and we'll bring a microphone to you.

I see one here in the back. Please identify yourself.

And please ask a one-part question. (Scattered laughter.)

QUESTIONER: My name is Richard Tillman (ph). Hi, Larry. How are you?

SUMMERS: Hi, Rick.

QUESTIONER: I want to just ask you about the issue of how this administration deals with the private sector going forward to produce jobs and growth. That's something that's been quite a lot talked about in the press. But I also want you to address a second part of what I would call a twin leadership deficit.

Is the private sector, particularly the CEOs in the private sector capable of leadership the same way that you observed in the Clinton administration or have they pulled back their horns for a whole series of reasons? And so in a sense we don't simply have a(n) administration leadership deficit with the private sector; we have a twin leadership deficit.

So I'd like you to comment on both of those aspects.

Thank you.

SUMMERS: I think -- I think my remarks about citizenship were intended to be a call to the kind of leadership in the private sector that you were -- that you were referring to.

Confidence is the cheapest form of stimulus and I think we in government need to be attentive to that in a world where there is very substantial uncertainty.

At the same time, I do think it is worth observing that S&P 500 profits are up by approximately 60 percent since the fourth quarter of 2008, and that is a rather stunning increase in two years. And so as one thinks about how times have been in the corporate sector, I think that perspective could usefully inform some of the commentary.

Now, of course, the fourth quarter of 2008 was an isolated and particularly difficult period. But even if you look at various kinds of trend lines and so forth with all the challenges, profitability has been quite robust, capital costs are quite low. And so I think in an odd moment, in an odd sense, the largest challenge is actually -- the largest short run challenge, I think, is probably seen in quite similar ways in government and in the private sector. If there were more customers walking through the door and there was more demand, then a lot of good things would be -- would be happening.

And so I have to say that I think that a lot of the constraints on various kinds of business activity that are sometimes ascribed to uncertainty, we do need to work to minimize that. I think have a lot to do with the fundamental fact of demand being less robust than many would hope.

FERGUSON: Question in the far back, please.

QUESTIONER: Is this working? Andrew Grummer (ph) from Arnold, Bligh Schroder (ph). You mentioned West Germany and their model of transitioning from weak currency of the '60s, '70s to the stronger currencies of today. It didn't create the greatest spending population. And I'm curious from the Chinese perspective, is the German model and the American model of transitioning from an export to a consumer society -- are there -- are they the only two models that the Chinese can follow? And -- or is China going to be its own exception and create its own rules?

And I'm just trying to get your thinking if you were in the Chinese position, what model would you look to, what are the positives and negatives and -- or is this going to be a totally different path which would put a -- obviously, a lot of pressure on our fiscal policy and trade policies to transition through this?

SUMMERS: I've got enough problems with American economic policy without trying to put myself in China's place. I'll say this. The share of consumption in GDP in the United States is about 70 percent. In Japan in its highest savings years was somewhere in the mid-high 50s. In China, 10 to 15 years ago was 45 percent and in -- a couple years ago it was 35 percent.

And of course, that would likely be associated with significant increases in domestic demand.

FERGUSON: We have a question from Randolph Baxter of the U.S. Bankruptcy Court in Cleveland about the Euro and the volatility among -- with the European Union and such, to which I will add the possibility of even a fragmenting of that Euro bloc.

"What will be the effect on capital markets in the United States?", Mr. Baxter asks.

SUMMERS: Oh, I think I'll leave that to the investments -- to the investment analysts. But I think we have observed last spring to some extent, have observed in the last several weeks that uncertainty regarding the European situation tends to have consequences for markets that go beyond Europe.

So the failure to resolve -- the failure to resolve difficulties in Europe is unlikely to be constructive for other parts of the world.

FERGUSON: Question around here.

QUESTIONER: Thank you. Mr. Secretary, my name is Roland Paul (sp). I'm a lawyer. I ask this question with due respect and considerable personal admiration.

As you know --

SUMMERS: Uh oh. (Laughter.)

FERGUSON: That's the only way to respond.

SUMMERS: With due respect, that's different from respect, you'll notice.

QUESTIONER: You can strike the due. But as you know, there's a movie making the rounds in the theaters called "Inside Job," in which it's pointed out that in the Clinton administration, you vigorously opposed the regulation of derivatives. I wondered in light of hindsight whether your position may have changed?

SUMMERS: With respect to my current position, I worked very hard to support the president and Secretary Geithner on the financial regulation bill that passed the Congress that involves at a number of levels by far the most sweeping derivatives regulation in terms of forcing large parts of trading to exchanges in clearinghouses, in terms of forcing things to be consolidated into institutions that are supervised in consolidated ways that represent by far the most serious regulation that it ever existed in this country and which go far beyond regulation anywhere else in the world.

That's the position -- that's the position that I support.

With respect to the Clinton administration's record on this and with respect to what took place in the intervening eight years, obviously, one would do some things differently with hindsight than at the instant. But I would caution you that this is an enormously complicated story that if you want to pursue it, you should read the rather comprehensive sets of recommendations that the Clinton administration put forward in this area and that the Congress was unwilling to pass at that time, and make some effort to avoid rushing to judgment based on -- based on films that have a point of view.

FERGUSON: Steve Friedheim, please.

QUESTIONER: Steve Friedheim, Cyrus Capital.

JP Morgan has set the price, one of the largest IPOs in U.S. history today, General Motors. As far as we understand it, the book is very, very strong, 60-plus billion (dollars). The price talk is going up, and you know, 18 months ago, the administration, your team was faced with a very, very different situation.

If you could talk a little bit about the GM experience and what lessons learned were there? And specifically, is there a place for government intervention in the private sector?

And if so, is GM a model or is it very specific to an individual case and can't be used?

SUMMERS: No comment I make has any bearing on any of the remaining uncertainties surrounding the IPO, which prices at the -- prices at the end of the day and such.

Look, I think you have to judge this, at least my judgment as a person who co-chaired the auto task force for the president; I wouldn't pretend to be an objective observer -- but I think you have to judge that the core decisions -- one, that the government couldn't stand by and allow the automobile industry to collapse with the consequent unemployment in the millions and costs imposed on the public sector in the tens of billions. I think in light of where we are today, that judgment has to look like it was a pretty good one.

Two, the judgment that was highly controversial at the time, that in order to do it, it was necessary to go through a formal bankruptcy process with the provisions for adjustment that that required -- painful as it would be for many of the creditors, many of the other kinds of stakeholders in the process -- the fact that we were able to go in and out of bankruptcy in less than 90 days on something of that scale, is I think a tribute to the skill with which our automobile -- with which the automobile working group chaired by Steve Ratner, Harry Wilson and others, the quality of the job they did.

But I think the president's core judgment that, support, yes, with real bankruptcy, I think that was the right -- I think that second judgment was the right judgment.

Third, I think the judgment that we were going to force restructuring, but that it wasn't going to be Government Motors; that we weren't going to be setting regulation with a view to their competitiveness, that we weren't going to be using it to achieve nineteen different objectives, that we were basically going to force a real restructuring, force a change in management, but then we were going to let the company run itself with a view to, as rapid as possible, reprivatization, that core strategic judgment was correct.

I think the fourth judgment, that we were not going to try to take on all the concerns of all the companies that were associated with what had happened, but were going to regard the automobile -- the large automobile companies as central -- we're going to provide additional support as necessary to make that support work, but we're not going to engage in a broader effort to override market forces -- I think that was the correct judgment.

Is this a -- is this a model? I think it depends on it.

Every half century, when there is an epic financial crisis and potentially major disruption and the DIP financing market has collapsed, should the government consider a carefully constrained role in DIP financing? Yes. And the view that it's yes I think is supported by this success.

Should the lesson of this be that failing large companies should as a matter of national industrial policy be bailed out even in non- extraordinary circumstances? I think that would be a very dangerous lesson to learn from this -- from this experience.

FERGUSON: Well, with that, Dr. Summers, I will say the council would be delighted to have you back when you are fully at liberty after the turn of the year, but -- (laughter) -- but I think we can appreciate your candor under the circumstances today, which has been remarkable.

So thank you very much for joining us. (Applause.)

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