Lawrence Summers pronounces himself optimistic that actions already taken have set the stage for us to avoid further financial calamities and get back on the road to recovery without major dislocations. But he says we ought to take several further steps, including passing the Dodd-Frank bill to reduce foreclosures, and that efforts need to be made to get financial institutions to raise more capital and for the shareholders in the GSEs to accept more obligations to the public rather than have “their shareholders’ ‘heads I win, tails you lose’ bet with the taxpayer be expanded for this purpose.”
In general, Summers says that “at a time when much is being given to financial institution shareholders and management, action to help the economy and protect the taxpayer should be expected in return.” This seems right to me. It doesn’t make sense to let large institutions fail purely out of spite at a time when it’s possible to rescue them and keep the economy humming along. But with great power to fail in a way that brings down the whole economy ought to come great responsibility to submit yourself to formal or informal regulatory oversight. Meanwhile, we need measures like Dodd-Frank and, in general, a social safety net that works for the broad public and not just for large financial institutions.