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FIRST ON CNBC: CNBC TRANSCRIPT: CNBC'S STEVE LIESMAN INTERVIEWS LARRY SUMMERS NATIONAL ECONOMIC COUNCIL DIRECTOR TODAY ON "POWER LUNCH"

WHEN: TODAY, TUESDAY MARCH 17TH

WHERE: CNBC'S "POWER LUNCH"

Following is the unofficial transcript of a FIRST ON CNBC interview with Larry Summers, National Economic Council Director today on CNBC's "Power Lunch."

All references must be sourced to CNBC.

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LIESMAN: THANKS VERY MUCH I AM HERE WITH LARRY SUMMERS DIRECTOR OF THE NATIONAL ECONOMIC COUNCIL PRESIDENT OBAMA'S TOP ECONOMIC ADVISORY AS YOU SAY THANKS FOR JOINING US DR SUMMERS

SUMMERS: GOOD TO BE WITH YOU STEVE

LIESMAN: LET'S START OFF WITH THE NEWS OF THE DAY AIG SENATOR SCHUMER JUST RELEASED A PRESS RELEASE ABOUT RECOUPING THE AIG BONUSES THROUGH THE TAX CODE IS THAT ONE OF THE STRAGTEGIES THE ADMINISTRATION IS CONSIDERING TO RECOUP THIS MONEY OR ARE THERE OTHER IDEAS

SUMMERS: I HAVEN'T SEEN SENATOR SCHUMERS PRESS RELEASE STEVE LOOK WHAT HAPPENED AT AIG WAS OUTRAGEOUS THE WAY THE COMPANY WAS OPERATED THE WAY IT WAS REGULATED THE CONTRACTS THAT WERE LET THE PAYMENTS OF THESE BONUSES THE ACCEPTANCE OF THESE BONUSES WITHOUT SHAME IT WAS OUTRAGEOUS WHAT THE PRESIDENT MADE CLEAR WHAT OUR ADMINISTRATION IS DOING IS BEING AS CREATIVE AS WE CAN A GROUP OF LAWYERS WORKING ON THIS PROBLEM USING RECOUPMENT AUTHORITY EXPLORING OTHER MEANS TO DO EVERYTHING WE CAN WITHIN THE LAW TO ADDRESS THIS SITUATION AND WE'RE NOT GOING TO JUST AGGREGATE THE LAW WE'RE NOT GOING TO AGGREGATE CONTRACTS WE'RE NOT GOING TO DO THINGS THAT WILL PUT THE WHOLE ECONOMY AT RISK BUT WE ARE GOING TO BE AS CREATIVE AND AS ENERGETIC AT ADDRESSING THIS SITUATION AS WE CAN WE ARE GOING TO BUILD ON THINGS THAT HAVE ALREADY HAPPENED SECRETARY GEITHNERS ACTIONS TO CUT VERY SUBSTANTIALLY THE BONUSES THAT WOULD OTHERWISE BE PAID WHEN THERE WAS SOME DISCRETION UNDER THE LAW SECRETARY GEITHNERS ACTIONS TO PREVENT COMMITMENTS TO FUTURE BONUSES WE ARE DOING EVERYTHING WE CAN WITHIN THE LAW AND WE ARE OPEN TO ALL DIFFERENT IDEAS AND IF I CAN SAY ONE MORE THING STEVE WE ARE GOING TO BE PUSHING VERY HARD FOR A SO CALLED RESOLUTION REGIME A SYSTEM THAT WILL ENABLE THE GOVERNMENT TO INTERVENE WHEN A BIG FINANCIAL COMPANY GETS IN TROUBLE IN THE FUTURE LIKE THE FDIC DOES WITH BANKS AND TAKE THE NECESSARY STEPS TO MAKE THE THINGS WORK TO MAKE THE PEOPLE WHO SHOULD BARE THE RESPONSIBILITY ACTUALLY BARE THE RESPONSIBILITY THATS THE APPROACH WE ARE GOING TO TAKE

LIESMAN: BUT IT WAS SEVERAL WEEKS AGO THAT A NEW BAILOUT PLAN WAS PUT TOGETHER FOR AIG A NEW $30 BILLION PACKAGE WHY WASN'T THIS ISSUE ADDRESSED BACK THEN WHEN THE ADMINISTRATION LEARNED ABOUT THIS

SUMMERS: SECRETARY GEITHNER AS SOON AS HE LEARNED ABOUT THIS THESE BONUSES WAS FOCUSED ON THEM WAS IN TOUCH WITH THE COMPANY WAS MAKING CLEAR THE GOVERNMENTS EXPECTATIONS WITHIN THE LAW

LIESMAN: LET ME CHANGE GEARS AND TALK ABOUT THE MARKETS THE MARKETS ARE OFF 25% SINCE PRESIDENT OBAMA WAS ELECTED 9% SINCE HE TOOK OFFICE AND YET I'M GUESSING THAT YOU THINK THAT YOU PUT THE RIGHT POLICIES IN PLACE FOR THIS ECONOMY IS THE MARKET NOT LISTENING TO THIS OR IS IT POSSIBLE THAT MAYBE YOU HAVE THE WRONG POLICIES IN PLACE RELATIVE TO WHAT THE MARKET THINKS

SUMMERS: I THINK WE HAVE THE RIGHT POLICIES THE POLICIES ARE NOT SET WITH THE OBJECTIVE OF MOVING THE MARKET OVERA PERIOD OF WEEKS THERE'S SET WITH AN OBJECTIVE OF STRENGTHENING THE FUNDAMENTALS OF THE ECONOMY BREAKING THE CYCLE WHERE WORST FINANCIAL MEANS A WORSE ECONOMY MEANS A WORSE FINANCIAL SYSTEM. BREAKING THE CYCLE OF DECLINING HOUSE VALUES MORE FORECLOSURES MORE DECLINING HOUSE VALUES AND REALLY STRENGTHENING THE ECONOMY SO THAT IT PRODUCES PROSPERITY FOR ALL AMERICANS THAT APPROACH TAKEN SUCCESSFULLY WILL ULTIMATELY BE THE BEST APPROACH FOR THE MARKETS AS WELL. WE'VE LEARNED IN THE FEW MONTHS SINCE PRESIDENT OBAMA TOOK OFFICE THAT THE DAMAGE TO THE ECONOMY GLOBALLY THAT THE SERIOUSNESS OF THE SITUATION WE'VE INHERITED IS MUCH GREATER THAN ANYBODY ALMOST ANYBODY HAD IMAGINED WHETHER IT IS THE MAGNITUDE IN THE DECLINES OF OUTPUT IN EUROPE OR IN GLOBALIZEING ASIA WHERE PEOPLE ARE NOW TALKING ABOUT THE POSSIBILITY OF PEAK TO TROUGH DECLINES AS MUCH AS 20% AND ALL THAT IS WORKING ITS WAY THROUGH MARKETS AND IT IS GOING TO CONTINUE TO WORK ITS WAY THROUGH THE GLOBAL ECONOMY SO THE CRUCIAL THING THAT PRESIDENT OBAMA HAS DONE IS IDENTIFY THE KEY POINTS FOR DEMAND AND JOB CREATION REPAIR THE FINANCIAL SYSTEM ADDRESSING THE MARKET FUNNELING CAPITAL TO KEY PLACES WHETHER ITS STUDENT LOANS OR SMALL BUSINESSES AND OPERATING ON ALL OF THOSE MARGINS AND DOING SO FASTER MORE AGGRESSIVELY THAN ANY GOVERNMENT EVER HAS IN RESPONSE TO AN ECONOMIC DOWNTURN.

LIESMAN: IS THERE A DANGER THAT POLICIES THAT INCREASE TAXES ON THE WEALTHY INCREASE CAPITAL GAINS TAXES ARE THE WRONG POLICIES FOR MARKETS RIGHT NOW GIVEN THE STATE THAT WE ARE IN

SUMMERS: STEVE LET'S BE VERY CLEAR AND YOU KNOW THIS VERY WELL THERE ARE NO NO TAX INCREASES THIS YEAR THERE ARE NO NO TAX INCREASES NEXT YEAR IN FACT THERE ARE SUBSTANTIAL TAX CUTS TO THE PEOPLE THAT ARE MOST LIKELY TO SPEND AND PUSH THE ECONOMY FORWARD THIS YEAR YES AFTER THE ECONOMY HAS MOVED FORWARD FOR TWO YEARS WHEN WE ALL EXPECT THAT A RECOVERY WILL BE UNDERWAY THE PRESIDENT HAS NOT CALLED FOR ANY TAX INCREASES HE HAS SIMPLY PROPOSED THAT THE TAX CUTS THAT HAD BEEN PUT IN PLACE WILL BE ALLOWED TO EXPIRE AND IN FACT HE WILL REPLACE THE TAX SYSTEM IN WHICH WEALTHY PEOPLE WOULD BE PAYING LOWER THAN THEY WERE PAYING DURING THE 1990S WHEN THE ECONOMY WAS SO SUCCESSFUL. LOWER TAXES ON CAPITAL GAINS LOWER TAXES ON DIVIDENDS IN THAT CONTEXT I AM NOT CONCERNED THAT THAT'S THE THREAT TO THE ECONOMY THE THREAT TO THE ECONOMY WOULD BE IF WE CONTINUE THE INPRUDENT POLICIES OF THE LAST 8 YEARS WHEN WE PILED UP HUGE QUANTITIES OF DEBT BECAUSE THAT DEBT, THAT DEBT STEVE IS A TAX INCREASE ON THE FUTURE THAT IS AN UNCERTAIN DEBT THAT THREATENS AND RAISES QUESTIONS FOR INVESTORS EVERYTWHERE MUCH BETTER TO ADDRESS THE SITUATION BRING THE DEFICIT DOWN IN HALF AS THE PRESIDENT IS PROPOSING TO DO PUT OUR NATIONS FINANCES ON A SUSTAINABLE BASIS WHERE THE DEBT IS GOING TO BE CUT IN HALF THAT'S THE RIGHT APPROACH AND THAT'S THE PRESIDENT'S APPROACH

LIESMAN: YOU ARE PILING UP A WHOLE LOT OF DEBT IN THE BEGINNING AT LEAST TRILLION DOLLAR DEFICIT FOR THE NEXT THREE YEARS OR HIGHER

SUMMERS: THERE'S NO ALTERNATIVE IF WE DON'T FIX THIS ECONOMY IF WE DON'T GET A JOLT IN THIS ECONOMY THAT PERMITS A RECOVERY WE GET INTO A SITUATION OF CONTINUING GRADING DEFLATION LIKE THE JAPANESE DID LIKE HAS HAPPENED AT OTHER TIMES THE DEBT AND DEFICIT FIGURES WILL BE BEYOND ANYTHING ANYBODY NOW IMAGINES SO YES IT IS A COMPLEX STRATEGY BECAUSE WE HAVE A COMPLEX PROBLEM WE NEED TO STIMULATE THE ECONOMY IN THE SHORT RUN WE NEED TO PUSH THE ECONOMY FORWARD AND THEN WE NEED TO MAKE SURE THAT THE DEBT IS COMING DOWN AT THE SAME TIME WE MAKE SURE THAT WE ARE DOING THE OTHER THINGS NECESSARY FOR BUSINESSES TO COMPETE AND BE ABLE TO EMPLOY PEOPLE LIKE ADDRESSING HEALTHCARE LIKE SUPPORTING SUBSTANTIAL INVESTMENTS IN A GREEN ECONOMY

LIESMAN: LET'S TALK ABOUT SOME OF THOSE THINGS YESTERDAY YOUR ANNOUNCEMENT ON SMALL BUSINESSES GOT OVERSHADOWED BY THE OUTRAGE AND ALL THE TALK OVER AIG AS WELL AS THE UPCOMING PUBLIC PRIVATE PARTNERSHIP WHAT CAN YOU TELL US ABOUT THAT

SUMMERS: LOOK STEVE WE HEAR IT EVERYDAY THE PRESIDENT GETS 40,000 LETTERS A DAY HE READS A SAMPLE OF THEM AND HE HAS BEEN VERY STRUCK BY THE NUMBER OF THEM THAT ARE A FAMILY A HARDWARE STORE A LAUNDRY A RESTAURANT A SMALL BUSINESS THAT HAS BEEN WORKING WELL HAS BEEN VERY SUCCESSFUL FOR YEARS THAT'S CONTINUING TO SUCCEED THAT HASN'T MISSED A PAYMENT THAT BECAUSE OF THIS CREDIT CRUNCH AND WHAT'S HAPPENED TO THE BANKS HAS ITS CREDIT CUT OFF AND THAT'S SOMETHING WE HAVE TO FIND WAYS TO ADDRESS AND BY STRENGTHENING THE MARKET IN WHICH BANKS SELL THESE LOANS BY PROVIDING ADDITIONAL CAPITAL TO BANKS CRITICALLY BY PROVIDING FOR DRAMATIC INCREASE IN THE AUTHORITIES OPEN TO THE SMALL BUSINESS ADMINISTRATION BY WORKING WITH BANKS TO ENCOURAGE THEM TO MAKE THESE LOANS BECAUSE IT IS REALLY A LACK OF CREDIT THAT IS OUR CENTRAL PROBLEM WE ARE PURSUING A COMPREHENSIVE APPROACH TO ADDRESSING THIS PROBLEM

LIESMAN: BEFORE WE RUN OUT OF TIME I JUST WANT TO ASK YOU A PERSONAL QUESTION I HAVE HAD THE PLEASURE OF KNOWING YOU FOR MANY YEARS THERE'S TALK IN NEWSPAPERS NOW OF A NEW HUMBLE LARRY SUMMERS THE INDEPENDENTS WRITING ABOUT IT NEWSWEEK WIRITING ABOUT IT ARE YOU LEARNING TO ACTUALLY WORK WITH OTHERS OR IS THERE A BAD RAP TO BEGIN WITH

SUMMERS: WELL YOU KNOW I ALWAYS LIKED PLAYING WITH THE OTHER KIDS IN KINDERGARTEN I HAVE ALWAYS WORKED WITH OTHERS BUT WITH MORE YEARS PERHAPS COMES MORE WISDON AND STEVE I WILL ALWAYS WANT TO WORK WITH YOU

LIESMAN: OK THANK YOU VERY MUCH LARRY SUMMERS DIRECTOR OF THE NAITONAL ECONOMIC COUNCIL BACK TO YOU.





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