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'Lehman on Steroids' If Debt Ceiling Not Raised: Summers

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Photo: Oliver Quillia for CNBC.com

Former Treasury Secretary Lawrence Summers warned the U.S. faces "financial Armageddon" and a worse financial situation than 2008 if the debt ceiling isn't raised.

"It’s going to be Lehman on steroids," Summers told CNBC Wednesday, on the one-year anniversaryof the Dodd-Frank financial-reform law. He was referring to the Lehman bankrutpcy filing and the ensuing U.S. financial crisis. "More important than anything else is that we protect the creditworthiness of the country by raising the debt limit," Summers said.

The former president of Harvard University said he was "heartened" to see bipartisan cooperation on a deficit-reduction plancoming from the so-called Gang of Six Democratic and Republican leaders in the U.S. Senate and supported by President Obama.

Summers noted, however, if "you look at the fine print, there’s an element of having a plan to have a plan" because it doesn’t lay out, for instance, how to raise revenue or what happens to Social Security to make it more efficient. "A great deal depends on implementation," he said, presuming it gets through the House of Representatives and is signed by the president.

Summers on Debt Ceiling & Market Bubble

Summers questioned how some lawmakers in Congress could be willing to not only let the U.S. default, but to repeal all or part of Dodd-Frank and return to the federal regulatory system of 2007 "that so clearly failed."

"I cannot understand how anyone who’s concerned with financial stability in the United States should be trying to remove the rules that say banks have to hold capital, and instead institute policies that say the United States isn’t going to pay its debt in two weeks," Summers said. "I don’t understand how that could be anybody’s agenda and yet it seems to be many peoples in the Congress’ agenda."