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Interview with Lionel Barber, Chrystia Freeland, and Edward Luce of the "Financial Times"

March 27, 2009

Financial Times: Thank you for doing the interview Mr. President.

The President: My pleasure, I read the Financial Times before other people read the Financial Times. Now it's trendy and everybody carries around a Financial Times.

Financial Times: Let's talk about the G-20. What will be your benchmarks for success?

The President: The most important task for all of us is to deliver a strong message of unity in the face of crisis. There's some constituent parts to that. Number one, all the participating countries recognize that in the face a severe global contraction we have to each take steps to promote economic growth and trade; that means a robust approach to stimulus, fighting off protectionism.

Next, we have to make sure that we are all taking serious steps to deal with the problems in the banking sector and the financial markets and that means having a series of steps to deal with toxic assets and to ensure adequate capital in the banking sector.

Third, a regulatory reform agenda that prevents these kinds of systemic risks from occurring again and that requires each country to take initiative, but it also requires coordination across borders because we have a global, we have global capital markets, and that will include a wide range of steps, additional monitoring authority coordination of supervisors and various countries dealing with offshore tax havens. Making sure that...

Financial Times: Is that a problem? Offshore tax havens.

The President: Well, it's something that is going to be discussed. I know that in my discussion I think there is a concern that we don't want people to be able to game the system or circumvent regulated capital markets and making sure our regulations are targeting not just banks but any institution that could pose a potential systemic risk to the system.

A final area of concerted action involves international financial institutions and their capacity to assist emerging markets in developing countries at a time when those markets could be under even more severe strain then some of the more wealthy nations and I think making sure that institutions like the IMF have the resources to provide such assistance that world food supplies are not imperiled as a consequence of the break down in global trade, those are all issues that I think have to be addressed.

Now, I'm confident based on conversations that I have this week with Angela Merkel, Sarkozy, as well as with Kevin Rudd as well as conversations that I have had previously with Gordon Brown and others, that there is already a rough consensus there that by the time we arrive in London we will have taken, we will have made significant progress in moving in the right direction.

Financial Times: Let's just talk about the stimulus for a moment. At the moment, there has been a 1.8 per cent GDP boost in 2009 by the G20 nations. There are concerns among economists that you need a sustainable stimulus and therefore 2010 is key. Will you get secure commitments from say, the Europeans, for action if necessary in 2010?

The President: Two points I want to make on this, Number one: The press has tended to frame this as an "either or approach". There are some G20 participants that are arguing fiercely for stimulus, others for regulation. What I have consistently argued is that what is needed is a "both and approach". We need stimulus and we need regulation. We need to deal with the problems right in front of us and we also need to make sure we're taking steps to prevent these types of breakdowns from happening again.

With respect to the stimulus, there is going to be an accord that G20 countries will do what is necessary to promote growth and trade. I think there is a legitimate concern that, would most countries already having initiated significant stimulus packages that we need to see how they work. Obviously, I admire economists. I have a bunch of them on my staff. But to start making a whole host of plans about next year, without having better information on how the current stimulus efforts are working, is something that I think is of concern.

So, what we are going to see is what the United States has led on this. We have been very aggressive in terms of our recovery package. The way our recovery package is structured, money is going out both in 2009 and 2010. But each country has its own constraints, its own political rhythms and what we want to just make sure is that everybody is doing something, everybody recognizes the need to make progress on this front and that we are prepared to step into the breech should current efforts prove to be inadequate.

Financial Times: I mean that is really the great challenge, in managing this crisis - bridging the gap between what is economically absolutely necessary and what is politically possible. How do you bridge that?

The President: That's one gap. Then there's a gap in ideas about how to approach a crisis like this, especially among economists - although on the issue of the stimulus there seems to be much broader consensus among both conservative and liberal economists that stimulus is appropriate.

You know, the financial crisis hit the United States first; it is now being experienced around the world. Not surprisingly we took some very aggressive action earlier than some other countries because its impact had been felt most immediately on Wall Street. As other countries start experiencing these drastic declines in GDP and in their exports, I think that the sense of urgency has grown, and you are going to start seeing a convergence. In all countries there is an understandable tension between the steps that are needed to kick start the economy and the fact that many of these steps are very expensive and tax payers have a healthy skepticism about spending too much of their money, particularly when it is perceived that some of the money is being spent not on them but on others who they perceive may have helped precipitate the crisis. So that is always going to be a challenge and what's also difficult is the fact that the policies we initiate all take time to take effect and by its very nature politics looks for more instantaneous gratification.

But I am confident that the American people, and I think people around the world, are looking to its leaders to lead and that some of the steps we have already taken are starting to bear fruit. We're seeing glimmers of stabilization in the economies and we haven't yet seen...

Financial Times: Glimmers of stabilization?

The President: Here in the United States for example, you're starting to see pockets of stabilization in the housing market. Our housing plan has led to the lowest interest rates, mortgage rates in a very long time and you are starting to see a huge number of refinancing in the banking sector. In certain select markets, like the market for auto loans or the market for student loans, Secretary Tim Geithner's efforts to provide a market for asset-backed securities has helped and so we still have a long way to go, but I am confident that if we are persistent and we don't approach this with a thought that there is a silver bullet out there but instead are willing to try a range of methods to deliver on the economic growth in jobs that we will get out of this current crisis.

Financial Times: You mentioned the risks and dangers of protectionism. 73 separate measures have been identified by the World Bank since the last G20 summit so what again in practical terms can your administration do at the G20 to stop this - and I'm thinking to whether there are real risks that people worry in Europe a lot about what is going on, on Capitol Hill, with "Buy American" provisions.

The President: Well first of all, I think it's important to note that here in the United States, despite some protectionist rhetoric and very real economic frustration growing out of the collapse of the financial markets and the huge rise in unemployment that the "Buy American" provision that was in the stimulus package was specifically written that had to be consistent with WTO. That the Mexican trucking provision is now subject to negotiations to ensure that we don't see an escalating trade war.

I have sent a very clear signal that now is not that time to offer hints of protectionism and I will continue to discourage efforts to close off the US market. I think that in a democracy, there are always going to be some loose ends out there. That's true here, that's true around the world but overall I don't think that we've seen a huge rush to protectionism that that isn't the rhetoric that is emanating from the leaders that will be gathering in London.

And to the extent that the American people or Europeans or Asians, Africans, Latin Americans all feel confident that their leaders are doing everything that they can to encourage and promote economic [..] and that they have their populations interests at heart, I think we are going to be able to hold the line on any significant slippage.

Financial Times: I wondered Mr. President whether you're concerned that, particularly following the AIG bonus controversy, there's some danger that confidence that business has in the rule of law in the United States has been shaken and that could hinder some of these recovery measures?

The President: I think it is a source of concern in some quarters. To the extent that the captains of industry recognize very legitimate frustrations that the American people feel when they read about huge bonuses going to members of firms that are receiving large tax payer bailouts. I think they can take steps to lessen that danger and I met with some bankers today and it was a constructive conversation but one of the points that I made is that a time when everybody is needing to sacrifice there has to be a similar sense of sacrifice on the part of those various sectors of the economy that helped to precipitate this crisis and to the extent that they're showing restraint that compensation packages are structured so that there is some deferral until money is returned to tax payers and the economy recovers that will be good for everybody. That will put [...] in a stronger position to help them.

But you know, keep in mind that although there are going to be, I think, emotional reactions to and legitimate grievances around some of these issues, the United States has been the world's most successful economy precisely because of a long-standing respect for legal contracts and orderly transparent and open market operations and that's not going to change.

Financial Times: Mr. President, given the rising tendency to populism on Capitol Hill and elsewhere, do you feel confident that at a time like this you can go to Congress and ask for the kind of backing of capitalization that most economists say will be required in the near future?

The President: I think it is very important for us to show that the money that has already been authorized is being well spent. That it is helping to result in loans going to small business and large business that are in turn investing and creating jobs. If voters perceive that it's a one-way street that we are just pouring more and more money into institutions and seeing no return other than avoiding catastrophe then it's harder to make an argument for further intervention.

If on the other hand people start saying that they can refinance their house, and their child can get a student loan and that small business is able to retain its credit line, so that there is a tangible and meaningful result from our measures, then I think we can win back the confidence of the American public.

Barack Obama, Interview with Lionel Barber, Chrystia Freeland, and Edward Luce of the "Financial Times" Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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