Obama: No 'Easy Out' for Wall Street

In ABC News exclusive, Obama issues dire warning of a fiscal "perfect storm."

ByABC News
February 10, 2009, 9:40 AM

Feb. 10, 2009— -- The following is a transcript from ABC News' Terry Moran's interview with President Obama. The president discussed his economic recovery plan with Moran in Fort Meyers, Fla., today.

TERRY MORAN:So, Treasury Secretary Geithner today has laid out the plan for the banks and judging by the reaction in the markets, Wall Street really doesn't like it.

PRESIDENT OBAMA:Well, you know, Wall Street, I think, is hoping for an easy out on this thing and there is no easy out. Essentially, what you've got are a set a banks that have not been as transparent as we need to be in terms of what their books look like.

And we're going to have to hold out the Band-Aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we're not going to be able to attract private capital into the marketplace. And so, you know, I think that you have two choices in this situation: You can prolong the agony and shareholders will be happy until they're not happy, and that could be a year from now or two years from now, or, in the case of Japan, eight years later.

Or you can just go ahead and acknowledge that, yeah, there's a lot of work that has to be done to put these banks back on a firmer footing.

MORAN:Can you say how much, ballpark figure, that will cost the American taxpayer? A trillion, a trillion-five, two trillion?

OBAMA:I can't say the ballpark figure. What I can say is --

MORAN:Why not?

OBAMA:Well, because ultimately, what happens is going to depend on how the markets respond over the long term, not today or the next day but a month from now or two months from now. How effective we are in actually cleaning out some of these bad assets out of these banks.

If we're doing a good job and we've got a template that creates transparency and accountability, clarity and consistency in terms of how we're applying this program, then what we'll end up seeing is private capital coming back into the marketplace.

If we do a poor job, then private capital will continue to stay out and frankly, at, at a certain point, the government can't replace all that private capital, so you know, our job is to get this right, get the model right. We've got 350 billion dollars of the TARP money that's been allocated but we also have the Federal Reserve Bank and the FDIC, all of whom were consulted in designing this plan.

And those resources -- I think the most important thing is to give both the market, but also the taxpayer, confidence that we're spending that money well. And if we do that well, then I think we can make an assessment down the road in terms of what else we might have to do.

MORAN:There are a lot of economists who look at these banks and they say all that garbage that's in them renders them essentially insolvent. Why not just nationalize the banks?

OBAMA:Well, you know, it's interesting. There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what's called "The Lost Decade." They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn't see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem; Sweden had like five banks. [LAUGHS] We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America's different. And we want to retain a strong sense of that private capital fulfilling the core -- core investment needs of this country.

And so, what we've tried to do is to apply some of the tough love that's going to be necessary, but do it in a way that's also recognizing we've got big private capital markets and ultimately that's going to be the key to getting credit flowing again.