Larry Summners Says Default Would Make Lehman Look Like Nothing

Jul 16, 2011
J. Webster
Comments Off on Larry Summners Says Default Would Make Lehman Look Like Nothing

Larry Summners, the former Treasury Secretary and Harvard President, and star of The Social Network, well not star but you know what I mean, said the United States default on its debt obligations would be far, far worse than Lehman Brothers collapse in 2008.

“It seems to me an unthinkable financial risk to take,” Summers said in an interview on “Fareed Zakaria GPS,” scheduled for broadcast tomorrow. It would cause “a cascade that makes Lehman Brothers look like a very small event.”

Summers said a potential default makes him worry about “runs on banks, runs on money market funds,” exchanges facing “the prospect of collapse, institutions that had been built over decades” being “swept away.”

“The ability to carry on routine financial business — to clear checks, to pay bills, to meet obligations would be lost,” he said.

“It would be a totally self-inflicted cataclysm,” he said. “There’s no question the United States can meet its obligations. This idea that somehow that we cannot pay because we’re having a political fight over how to handle the spending and taxing” is “democracy functioning in the worst possible way,” he said.

The quotes above are from Bloomberg:

After the interview Summners went back to eating donuts and re-watching clips of The Social Network. Not the whole movie, obviously, but just the scene in which he, or rather his character, makes a glorious appearance. He slammed his hand down on the arm rest of his chair each time he castigated the Winklevoss twins. Those were the good old days he thought, remnants of a powered donut across his face.

In all serious though, the Obama troops are coming out in full force to try to push back the Republicans, making the round of financial talk shows to express their concern about the debit limit and default. It’s absurd though, to risk losing the triple A rating by even playing around with this debt limit. Raise it already and be done with it. Don’t understand how this could benefit anyone. Since, of course, a lower rating equals higher interest rates and higher costs to borrow money.

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