Lawrence Summers, President Barack Obama's top economic adviser, expressed doubt that government-controlled mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE) would be recreated in their old mold as quasi-governmental agencies.

Summers, a sharp critic of the companies when he served as Treasury secretary under President Clinton, said he expected a different model for U.S. mortgage finance to emerge, marked by a "sharper cleavage" between public and private roles.

"I think it is very unlikely that the answer lies in going back to the past," he said Friday at a panel at the Inter-American Development Bank in Washington.

Summers cited the history of the last two decades to make a forceful case for overhauling the financial system and reordering the U.S. economy by investing in health care and green technology.

He ticked off a list of financial calamities that have buffeted the U.S. economy since the Savings and Loan debacle of the late 1980s. They included the commercial real estate crisis, the collapse of Long-Term Capital Management and Enron, the tech bubble and now the housing bust.

He said such events have hurt the lives of hundreds of thousands of people and indicate the need for better capital requirements for financial institutions, closer supervision of financial markets and less moral hazard.

"Where we are domestically and globally is not okay after what has happened. And we can and we should do better," he said.

Summers said that data showing that 40% of U.S. corporate profits in one year came from the financial sector could have been a red flag that the U.S. was heading into crisis. He cautioned that the process of de-leveraging, or reducing U.S. households' reliance on debt, could cause pain in other parts of the world.

"It is not an accident that the recent period has been a period of bubbles," he said. The financial bubbles were fueled in part by the need of export-based economies with high savings rates to maintain enough demand for their goods, he explained.

Summers said policy makers should seize the financial crisis to push for bold reforms.

"Twenty years ago, I would have been more tempted by the view that during the fire is not the time to reorganize the fire department," he said.

Today, he favors the view that "there is a fire and confidence in the fire department may depend on it being reorganized," he said.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com