'This Week' Transcript: Larry Summers & Mitch McConnell

Whether it's car loans, what have you, restarting our capital markets is essential if we're going to be able to get this credit flow going. And this credit flow is, in turn, essential for consumer confidence using...

STEPHANOPOULOS: Even if that means taxpayers taking almost all of the risk?

SUMMERS: Well, they're not taking all. They're not taking anything like all of the risk, George. No taxpayer in these arrangements is going to lose money until the investor who put up the money has lost 100 percent of their...

STEPHANOPOULOS: Of their down payment?

SUMMERS: Down -- of the money they put up. So until whoever it is who buys it, whether it's an insurance company or a hedge fund, until whoever it is who buys it is completely wiped out, the government financing isn't going to be touched at all.

And there could be a lot of care given to make sure that those in effect down payments are large enough that the government's interest is protected.

STEPHANOPOULOS: Yesterday -- earlier on Friday, we saw the Chinese premier, Wen Jiabao, say that he was worried about his investments, $1 trillion investment in U.S. Treasury bonds.

The president and you pushed back hard yesterday, saying that everyone should have confidence in the American economy. But I wonder, what do you think the premier was doing there? Was that saber-rattling?

SUMMERS: Oh, look, I have a hard enough time, frankly, understanding the motives of all of the things that political people here in Washington say without trying to establish the political motives of political statements that come out of China.

But I'll say this, George, what has been very striking in this time of financial distress, even with all of the financial problems that we've had, is the way in which capital has flowed into the United States. In the way in which people have seen U.S. Treasuries as a place where their money is safe, where there is a liquid and deep capital market.

Now we've got to make sure to keep it that way. And that's why the president's budget puts a lot of emphasis on the need to have the budget deficit he inherited over the next four years, and put the country's finances on a sound basis after the -- as the economy expands.

STEPHANOPOULOS: I want to get to the budget because Mr. -- Senator McConnell is about to come up, the Republican leader in the Senate. He says he has only three problems with the president's budget. It spends too much. It taxes too much. And it borrows too much. Your response?

SUMMERS: We'd love to see Senator McConnell's concrete alternatives that gets closer to a balanced budget. The situation the president inherited of nearly $1 trillion deficits, before he did anything, came at a time -- came at a time when it was a Republican president and a Republican Congress that were making the decisions.

I believe the approach that the president is taking, which represents the first serious effort to contain health care costs in many years, that is going to stop going forward the practice of earmarks, that's going to monitor every federal expenditure in this stimulus program where people can see it on the Internet, I think it's the right kind of approach. It's the largest cuts in, you know, this category, George, so-called domestic discretionary spending. Basically, the non-Social Security, non-Medicare, non-defense part of the budget, it's getting cut more strongly than it has in any budget that's been proposed in many years.

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