>> charlie: welcome to our program. as the president of the united states signs historic financial regulatory reform legislation, and as the chairman of the federal reserve testifies about the american economy before congress, we have a conversation with the secretary of the treasury, tim geithner. people ask two things about this financial reform legislation. number one, will it prevent another crisis? number two, does it speak to, in terms of capital requirements, and risk and leverage, the very things that caused the crisis in the first place? >> i've always said that the centerpiece of any reform is capital. stronger capital requirements. constraints on leverage. forced to institute more stable funding. that's the most important way to prevent future financial crises and it is the most important

test of reform and what this bill does is provide authority that the government of the united states did not have to make sure we can set and enforce those capital requirements on these institutions, not just the banks but the large institutions, complicated institutions that are the big global leaders in these areas like goldman sachs, like morgan stanley, like g.e. capital, not just citibank and j.p. morgan, we're in the midst of a moderate, steady recovery, you have had six months now of private-sector job growth, private investment is actually pretty strong -- it's a recovery led by manufacturing, by production coming back, people making real things that the world needs, and we're saving more as a country today as a whole. it's not getting better as fast as we would like, and a lot of that is simply because, again, this is a crisis in part caused by the fact people are living beyond their means for a long period of time so inevitably we were going to go through a very

difficult transition as people saved more, reduced their debt burdens and the crisis caused stunning damage to basic confidence among businesses. again, they just stopped in their tracks, and they -- they were very tentative about sort of coming back and believing again the economy was going to be stable moving forward. now in a transition, charlie, from the imperatives of the emergency -- of the immediate rescue -- to starting to have a transition to growth led by the private sector, and that transition is not going to be easy, or even -- or choppy, but it's a healthy, necessary transition. >> charlie: secretary of the treasury tim geithner for the hour. funding for charlie rose was provided by the following.

>> charlie: additional funding provided by these funders. >> and by bloomberg. a provider of captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> charlie: tim geithner is here. as treasury secretary, he's been at the center of a year-long effort to protect the country from another financial crisis. earlier today president obama signed into law the biggest overhaul of financial rules since the great depression. the president spoke about the bill during a ceremony at the ronald reagan building. >> this reform will help foster innovation, not hamper it. it is sdiendz to make sure that

everybody follows the same set of rules. so that firms compete on price and quality, not on tricks and not on traps. it demands accountability and responsibility from everyone. >> charlie: the president promised there will be no more taxpayer-funded bailouts. >> reform will also rein in the abuse and excess that nearly brought down our financial system. it will finally bring transparency to the kind of complex and risky transactions that helped trigger the financial crisis. shareholders will also have a greater say on the pay of c.e.o.'s and other executives, so they can reward success instead of failure. finally, because of this law, the american people will never again be asked to foot the bill for wall street's mistakes. there will be no more tax-funded bailouts. period.

>> if a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy. >> charlie: finally, the president said the bill helps all sectors of the country. >> in the end, our financial system only works -- our market is only free when there are clear rules and basic safeguards that prevent abuse, that check excess, that ensure that it is more profitable to play by the rules than to game the system, and that's what these reforms are designed to achieve. no more, no less. because that's how we will ensure that our economy works for consumers, that it works for investors, that it works for financial institutions, that it works for all of us. this is the central lesson not only of this crisis but of our history. ultimately, there is no dividing line between main street and wall street. we rise or fall together as one

nation. so these reforms will help lift our economy and lead all of us to a stronger, more prosperous future. >> charlie: there are many who see this financial regulatory reform as a victory for the president and for secretary geithner. he has been in the line of fire now. "the washington post" observed that few treasury secretaries have had such sweeping influence over such a wide realm as time geithner has, but the u.s. economy is still struggling. unemployment is painfully high. all eyes are now on the administration as it turns to explaining what this bill is all about and how it helps americans. i'm pleased to have secretary geithner with me on this day. welcome. >> nice to see you, charlie. >> charlie: this bill. what does it do? >> i think you have to start by looking at the basic failures that led to the crisis. after the great depression, we put in place the strongest protections over our financial system and they helped lay the foundation for decades of

investment innovation growth on a scale you hadn't seen any other major economy deliver over time, but we let the moss accumulate, the rust develop and we let an entire parallel industry of people in the business of finance -- mortgage brokers, pay-day lenders, large investment banks and large insurance companies -- operate outside of those basic constraints without the basic protections the system needs to function well to make sure it's providing finance for companies, helping consumers save for retirement, put kids through college, and that brought us to the edge of financial collapse because you had a huge parallel financial system operating with enormous leverage, taking huge amount of risks and really taking advantage of large parts of the american economy. and what this bill does is correct for that basic failure. what it does, establish a new set of rules of the game that apply evenly and fairly to all those institutions with a basic

set of simple protections for consumers and a set of much more conservative, effective constraints on leverage and risk-taking and as you heard the president say this morning, if you have a large firm again like a.i.g. did or like lehman brothers did or like bear stearns did take risks that take themselves to the edge of failure, then it will give the government the tools to dismember them safely without the innocent -- without the rest of the economy -- without the taxpayer having to bear the costs of propping them up, and that's a -- that's the fundamental achievement of this bill and it's landmark legislation. >> charlie: let's talk about the consumer aspect first. >> what it does is it takes a bunch of diffuse authority that's now spread over more than five, maybe seven, a lot of people, a lot of different agencies and it puts in one place the authority to establish across the system, banks and nonbanks, a set of simple protections for consumers so they'll have simple disclosure, much less risk of being caught

with a fee they didn't anticipate or being tricked into a loan they can't afford, faced with a huge payment shock that no one can expect them to meet in the context, so it provides that basic protection, but the singular achievement, this goes across the bill, is this simple, basic premise which is if you're going to be in the business of providing credit -- financial services, you need to live under a set of simple rules of the game so that where the government is providing those protections to consumers and that's not what washington failed to do so we allowed a bunch of companies -- again, like mortgage brokers or pay day lenders -- to provide credit without those protections and this new authority will fix that. >> charlie: will professor elizabeth warren be the new director of the consumer agency? >> let me just say, she is an incredibly capable, effective advocate for reform. she was way ahead of her time. way ahead of the country in pointing out what was actually happening in the credit business. all the bad stuff was happening

-- the looming housing crisis she was pioneering and pointing ought those risks and she is a -- i think probably the most effective advocate of reform we have in the country on these questions, so obviously, i think she would do a great job in that position. >> charlie: is she a candidate? >> that's a judgment the president has to make and we just signed this into law today, looking at how we're going to make sure we put people in all these new jobs who are going to be able to come with great confidence and trust and credibility, and we want to restore the confidence of the american people that the people in these jobs are up to the challenge of providing the protection -- >> charlie: but she has the qualities you're looking for? >> absolutely, without a doubt. >> charlie: other other question is if her nomination will be approved by the senate. there is political controversy. >> that's a question for colleagues in the senate to answer but of course, like anybody who has been a champion of reform she's earned her enemies over time and there is no doubt she would face

criticism and opposition up there but that's the price of entry to these jobs because again, if you're for change and reform you're going to earn some enemies. >> charlie: the volck rules. is this all that paul volcker wanted? when he said this bill with some of its composite "took some of the purity -- with some of its compromise took some of the purity of what i wanted to see." >> it's very true to all of the things that paul volcker and the president said at the beginning were going to be essential, because what it does is, again, it puts in place a set of much stronger basic constraints on risk-taking across the financial system and he was obviously decisive in helping shape this and helping explain it, helping sell it. the volcker rule is an important part of it. what that rule does is a simple thing. it says if you are a banker, you own a bank, we don't want you taking advantage of the station, of the privilege of being a bank and using that to subsidize a

bunch of risky activity that could imperil the stability of the system. that's a simple, just constraint and the bill achieves that. >> charlie: let's take a look at that. so deposit-bearing banks now will not? or will be able to engage in proprietary trading? >> will not be able to. >> charlie: does this mean that goldman sachs which became holding companies are going to have to make hard decisions as to which business they want to be in? >> it will. these reforms necessarily will force very substantial changes on how these large financial decisions are managed. now, a hot of these things have been forced by the crisis. this is a searring experience for these firms and they already today because of actions we took are forced to run with much bigger cushions against the risk of future loss but this bill will force changes on them because we believe that for the financial system to do an adequate job of providing credit and capital to growing businesses it needs to be a more

stable system. >> charlie: if they say we want to do the business we were in we have to make hard decisions whether we want to provide the protections we have. >> absolutely. that was the foundation of this financial system that we built after the great depression that worked so well for so many decades but the mistake washington made was to -- they weren't called banks, they were called investment banks or other fancy names, to operate without those limits on risk taking, without those limits on leverage, without the adequate capital commitments. that wasa a tragic lack of oversight. >> charlie: people ask questions about this reform. number one, will it prevent another crisis? number two, does it speak to, in terms of capital requirements and risk and leverage, the very things that caused the crisis in the first place? >> i have always said that the centerpiece of any reform is capital. stronger capital requirements.

constraints on leverage. force institutions to manage with more stable sources of funding. that is the most important way to prevent future financial crises and it is the most important test of reform and what this bill does is provide authority that the government of the united states did not have to make sure we can set and enforce those capital requirements on these institutions, not just the banks but the large institutions, complicated institutions that are the big global leaders in these areas like goldman sachs, like morgan stanley, like a.i.g., like citi capital not just j.p. morgan -- that's the centerpiece of what we need to do. >> charlie: did those banks fight hard this reform? was it tough sledding to get this through because of the opposition of wall street? >> there was a lot of opposition -- there was a lot of political opposition from the minority party. >> charlie: they said too much regulation. >> i fundamentally don't understand the basis for the opposition. again, anybody who looks at what

this country went through, what this country is still living with in terms of the scars of the crisis, i cannot look at that system and say it was -- it did what it was supposed to do, it brought the economy to the edge of collapse, it caused enormous damage not just to -- to the financial system but to well managed companies, well managed banks, well managed investment companies and to people that were very careful -- didn't borrow too much, it caused a huge amount of damage. i think there is no credible way you can look at that system and say we didn't need comprehensive sweeping reform. people have different views about how we do it but the opponents of this bill decided that they would run a strategy of trying to slow it down, stretch it out, carve out as many sections of the industry from the bill as possible. no surprise they did that because again -- >> charlie: was it different than the fight over health care reform? >> oh, yeah, it was very different -- now -- because

different interests were at stake -- but i want to go back to this basic strategy. i think the basic strategy of trying to slow it down in the hopes it would improve the leverage of the opponents on different terms, a weaker bill was a very misguided strategy because as you saw, even as the crisis stabilized, receded and the economy recovered -- the economy started growing again people were incredibly angry about what happened. the anger did not dissipate. the anger is still living with that frustration and that meant you saw building political support for a very strong bill that didn't fade over time. i think that was a fundamental miscalculation and i think we got a very strong bill. >> charlie: did it drive a wedge between the president on the one hand and the administration and wall street and the business community on the other hand? >> you know, i don't -- i don't think that will endure. what you are seeing today, of course -- there is nothing remarkable in this -- is that businesses would like to be able to operate with less regulation,

fewer constraints and, of course -- and they all want to operate with lower taxes, there is nothing remarkable about that, that's the story of any administration, republican or democratic but again look at the crisis we faced. we had a economy that was falling off the cliff in total freefall. businesses stopped -- businesses cut deeply into the basic bone of their productive capacity. fired -- let go millions of americans because they were so panicked about the possibility of deep, enduring losses to their basic businesses. they were out of -- it was lights out for the american economy paus of these basic failures of fundamental -- because of these basic failures of protection and oversight. what the president did is he came in and said i'm going to do the tough things necessary to put out that financial fire, stabilize the economy, stabilize the patient, restore growth and fix the things that were basic broken to grow our capacity in the future and the business community community and the financial community was

overwhelmingly supportive of those but they want as much power influence as they can to make sure that they can operate with lower taxes, lower regulation in the future. our job, though, again, is to try to do what we think is best for the broader public interest for the economy as a whole and i think in this bill you saw that broader public interest prevail. >> charlie: why do you think the schism between business and the president is temporary? >> because i'm very confident that the president of the united states understands that the xe-- governments don't create jobs. the job of government is to make sure we're providing the basic framework that allows businesses to innovate, prosper, compete -- >> charlie: and the fairness and the rules -- >> exactly, and again, this crisis illustrates that economies cannot function well with the financial system that misallocates capital to subsidize housing, allows pervasive -- it's not good for the american financial system -- economy cannot function with an

education system that is not equipping our children to basically -- with the skills they need to compete in this world -- can't function with the business community living with crushing burden of health care costs over time. those reforms that he took on very early were very difficult, very politically difficult to undertake, terribly complex and hard to do but we're much stronger as a country because he was willing to do that early and i think that fundamentally those things are absolutely essential to the overall health of the american business community. >> charlie: this is a complex bill, 2,300 pages, some say too complex -- david brooks said too much faith in government experts and the ability to use social science, but did you and the administration and the president get most of what you wanted? >> we did. we did. few exceptions -- good to define the exceptions. we on the basic principle i began with want to make sure that people who are providing credit to consumers, families, businesses operate within a

simple set of rules and protections and as you saw, auto dealers were largely carved out of the bill. >> charlie: you lost that battle. >> that's a battle we lost. but fundamentally, we got what we -- what we needed to get. i want to go back to the point you made that you attributed to david brooks because it's very important for people to understand you cannot prevent financial crises, and you cannot run a strategy for financial stability based on the hope that you are going to have a bunch of presidentials, bureaucrats in washington sitting at their desks figuring out how to go out and preempt risk-taking in the future, diffuse the next major bubble. they will be good at that, sometimes, but they won't be good at it often enough -- they won't accurately enough -- they just won't operate with perfect foresight, courage ahead of the curve all the time -- it's just not achievable. they will do their best. >> charlie: and the new crisis will not be like the old crisis. >> it will be different. it's like wars and generals.

we've got to make sure we're not just preventing past wars but future wars. the bill is operating on the fundamental premise to make it as simple as possible you need to force the system to run with much thicker financial cushions against loss in the future against future recessions. that's the best -- >> charlie: taxpayers next time will not have to bear the burden. >> exactly. the best protection against that is the simple protection of building in greater shock absorbers into the system. when people make mistakes in the future it's less devastating and we can dismember them safely. they'll take risks in the future -- >> charlie: but you're saying on the issue of too big to fail it will be different this time, the government will not have to step in because you will have the tools to see it coming and you will be able to deal with it in terms of stockholders, in terms of dismantling a firm other than simply having the taxpayers come in and say we'll take it over?

>> the challenge of too big to fail has confirmed this bill through two very important provisions. one is to force these large institutions to run with much thicker financial cushions, capital against the risk of failure. that's very important because it reduces the risk that they fail in the future but it also has this other advantage -- if they fail, if one of those firms fail, those other institutions are much more likely to be able to absorb the shock that comes with their failure because they'll be living with much stronger shock absorbers but the other thing it does as you said, if we face a future lehman or future a.i.g. we will now have the ability to come in and dismember that firm, sell it off, unwind it, shut it down without the taxpayer having to bear the brunt of the cost of that failure and so this bill establishes a very simple principle, which is banks should pay for the price of bank failures, not the taxpayer -- or not the average businesses, or not the average american, banks should pay for the cost of bank failures. >> charlie: derivatives.

did it do what you think it should have done about derivatives? >> absolutely. it does something very important and fundamental on derivatives. this is a $600 trillion market. it was operating largely off exchanges. without basic transparency exposure and without much authority to the cops to prevent -- police, fraud and manipulation. it brings this market out of the dark, tell force the standardized markets, interest swaps, onto central clearing houses and it will make sure that the firms that are in that business hold enough capital to get back those commitments. what a.i.g. did was to make hundreds of billions of dollars of commitments without the financial resources to back those commitments. that's what brought that firm to the edge of collapse. >> charlie: if these reforms had been in place in 2007, would the crisis have been prevented? >> the crisis would have been much less severe, much easier to manage without pushing the

economy into the worst recession we saw since the great depression. we're not going to prevent all future financial crises, it's not within our power but it is our obligation and this bill gives us the ability to reduce their frequency, reduce their severity, make sure we can manage them much more carefully to maintain the damage -- what you want to do, charlie, is in a simple way if somebody makes a mistake again, takes a bunch of risks they don't understand and gets to the edge of collapse you want to be able to put a fire break around that fire, put that fire out without it jumping the fire break and putting at risk a set of other institutions that were well managed, a set of people that were careful and prudent in their decisions. >> charlie: fannie mae and freddie mac were not dealt with here. >> they're next. >> charlie: they're next. that's what you are saying. now that we've got this bill finished we'll turn our attention to them. >> absolutely. we've got a very smart, capable team of people working for six

months looking at alternative ways to reform those institutions and frankly fix the broader housing finance market. >> charlie: it's said this gives you more power. >> does it give me personally more power? >> charlie: no. the treasury department. >> treasury becomes the chairman of a council that is made up of the principal supervisors and regulators. the basic authority for the rules -- for the design of the rules and the enforcement is left as it should be with those independent, specialized regulators -- the f.c.c., the -- the f.t.c., the federal reserve, et cetera. what treasury's job is to make sure that there are no big gaps, that the overall rules are sufficiently conservative -- they provide enough promise of stability, that they're frankly tough enough and to make sure that as the market adapts over time, the system adapts too. we don't want to fall again so far behind the curve of risk taking in the future and it's very important that the treasury secretary have this rule because ultimately it is the executive

branch, it's the secretary of the treasury on behalf of the president that has to bear the cost of fixing up the mess. it's the treasury that has to clean up the mess when it happens so that treasury should have some role in trying to make sure the system has the protections. >> charlie: will it in any way thwart economic growth? >> this is a very important challenge for all of us in part because we're putting these challenges in place at a time when recovery is now just about a- . we're a year into positive growth after this crisis so we want to make very sure, and this is a difficult balance as we put in place these tougher rules on capital, for example, on leverage that we do so with an adequate transition period so we're not hurting lending prospects, hurting growth in the interim. that's a very different balance to strike but we'll get that balance right. >> charlie: people in the business community would say i want to know that the president and the secretary of the treasury, both who have never

had real business experience understand business, understand regulation and understand what's necessary to provide corporations with the opportunity to create jobs. >> absolutely. >> charlie: and recognize that business, especially small business, creates the jobs that america is missing today. >> exactly, and recognizing the critical role the financial system plays in that process. >> charlie: and providing capital so that they can -- >> providing loans and capital at affordable rates to finance growing business, small business, that was the signature, defining strength of our financial system over many decades, and we are going to be absolutely certain that we make sure we preserve that streng because that is the foundation in many ways of all of which makes the american economy work -- it's why our companies are still operate at the frontier of innovation and almost every industry today because our system has been so effective at taking the savings of americans

and savings around the world -- >> charlie: the capital in a productive way. your argument is the financial system is stronger and capital is stronger because now there is a set of rules and restrictions that will make it function better and therefore risk will not be so built into the system -- >> exactly right. >> charlie: that it can destroy the system. >> not just that, not just because of this reform bill but because of the actions he took and we took at the beginning of his office again to put out the financial fire -- again at enormous political cost at a time when -- >> charlie: the fact that he's now slipped below 50% in approval? is that what you mean? >> i meant that the reason why financial crises are so devastating to countries across history is because politicians come in and confront the difficult choice of trying to do what is necessary to save an economy from collapse. it requires -- it requires saving a financial system that was at the center of the crisis.

that is politically difficult everywhere. most leaders come to confront that and they say "i would rather not take that political risk" and they wait and they dither and they hope it will fix itself or they take half measures because they know the political cost of doing what is necessary is so devastating, but this president understood, and i think correctly looking at the lesson of history not just us in the great depression but japan in the 1990's and said if i don't make those choices now, early on, the economy will be in a long, deep, terrible, difficult recession and the fact we're growing again as a country now is because he was willing to act so quickly and that puts the business of america in a much better position than they would have been. >> charlie: some people worry that the recovery, while it may not engage in a double dip but that the recovery has stalled, number one. they're very concerned that job creation is not where it ought to be. they look at the housing market which led to the crisis and it

seems to have stalled and they say are we getting worse or better? >> i think you have to start by acknowledging that we still face enormously difficult challenges. a lot of these challenges were just the scars of the crisis, just the damage caused by the crisis but we have some very difficult fiscal problems as a country. we need to make sure we're working hard to strengthen the competitiveness of the american economy as a whole, we have high leflsz of unemployment, long-term unemployment and a real risk that those people need new skills to find the jobs the economy is going to produce in the future -- these are going to be very difficult challenges we're going to face, but the economy has now been growing for a year, we're in the midst of a moderate, steady recovery, you have had six months of private-sector job growth, private investment is actually pretty strong -- it's a recovery led by manufacturing, by production coming back -- you

know, people making real things that the world needs and we're saving more as a country as a whole, it's not getting better as fast as we would like and a lot of that is simply because, again, this is a crisis in part because of the fact people were living beyond their means for a long period of time and so inevitably we were going to go through a very difficult transition as people saved more, reduce their debt burdens and the crisis caused stunning damage to basic confidence among businesses -- again, they just stopped in their tracks and they -- they were very tentative about sort of coming back and believing again the economy is going to be stable moving forward. now we're in a transition, charlie, from the -- you know, the imperatives of the emergency, of the immediate rescue. to starting to have a transition to growth led by the private sector and that transition is not going to be easy or even or choppy but it's a healthy, necessary transition. >> charlie: what's wrong with the housing market?

>> housing market was in freefall when we came in -- i think if you look back to even in march of 2009, most people thought housing prices could fall another 20 or 30%. actually, prices on housing stabilized. interest rates came down so it's much more affordable to buy a house or refinance a house now today and there is much more stability -- prices are rising in parts of the country where they had fallen the most so you are seeing the basic process of healing and housing advancings i think actually more rapidly than we thought but you have millions of americans still that are at risk of losing their home and that is fundamentally because people -- so many millions of americans lost their jobs in this crisis and as the economy grows, as jobs come back, you will start to see more stability in housing markets over time. it is getting better -- gradually better but the trauma you still see out there is the

scars of the crisis. >> charlie: if it was politically tenable, should we have another stimulus? >> we think there is a very strong economic case for providing targeted support not just to extend benefits for unemployed -- >> charlie: right. >> which congress is on the verge of enacting, fortunately, but also to make sure states have more support to keep teachers in the classroom, keep cops on the street, but also to provide support for small businesses, make sure they can get access to credit. we provide a set of targeted tax incentives for small businesses with which we think will be helpful in making it easier to hire people back and start reinvestment. we think there is a good case for those measures, we're going to keep pushing them but the economy as a whole is going into a transition now where it's going to be less reliant on the government and that's appropriate -- we did what you said to do to break the back of the financial panic and help stabilize an economy in crisis. >> charlie: there are people who are worried about whether the recovery, which was growing, has slowed down.

some say it's because of the end of the stimulus expenditures that were made -- >> the economy has slowed -- what happened in the recovery is -- you know, economic growth was almost 6% annual rate in the fourth quarter. it came back -- >> charlie: one quarter. >> yeah, it was just one quarter, it started to moderate in the first quarter, that was an inevitable moderation but the economy is growing, i think most economists think that in normal times we're a 2.5% economy, most economists the next 2 1/2-3 think we're going to be growing 4%, optimists 4%, people less optimistic say a 2.5-3% economy. there are a lot of wise people who forecast. i don't forecast. what happened to this economy in the spring and early summer was you had a very damaging, very scary financial crisis start to gain momentum in europe and --

because of the debt issues? >> because of the debt issues and that caused a new wave of caution concern across all economies as a whole, and that did provide some moderation and growth. >> charlie: you and this chairman of the federal reserve ben bernanke have been working side by side even before this administration began when you were at the new york fed. he's testifying this week. there is increased sense that the fed may feel a necessity to do something because of their concerns -- >> let's say it this way. it's important for americans to understand and investors around the world to understand that we have the ability to help protect the economy from the risks that we -- you see growth slow too much going forward and we are going to do everything we can to make sure again we're -- repairing the damage caused by the crisis, we have a economy growing again, creating jobs again, that's the obligation of responsible government, for that to happen you need businesses to expand and grow again so our job is to create the conditions to make them more likely, but we're

still pushing on the hill for targeted additional support -- there is a good case for that. but again, i think what you see is a steady, moderate recovery. we would like it to be faster, we would like it to come a little more quickly and we'll work to improve the odds that it happens, and -- but i think people understand that this crisis was very deep, cut very deep and scars of confidence, it's going to take time to heal what was damaged. >> charlie: with respect, they also understand that the unemployment rate is much higher than they ever imagined it would be at this time that they thought that job creation would have been better by now. >> the unemployment rate is much higher than anybody expected -- >> charlie: within or without the administration? >> yeah, because businesses really stopped in their tracks because of the trauma of the crisis and they cut so deeply into the basic fabric of their labor force base, and again, was

see is very encouraging -- you see companies starting to hire again. you're seeing them add hours back after they reduced work week for people, you're going to see economy grow and that's a good thing. >> charlie: are you confident that the banks, both the new york, wall street banks and the huge banks as well as regional banks, as well as local banks are offering capital to businesses to hire new people, to build up inventory, to do what they do? that capital flow is in position to enable american business to create the jobs that they want to create. >> i do with some exceptions so let's start with the exceptions. if you're a small business and you operate in some industries that are still under a lot of stress, if you operate in the real estate business, it is still very hard to get credit on

acceptable terms -- still very tough. but if you look across the economy as a whole, this financial system is in a much stronger place to make sure that it can finance an expanding economy, and if you just look at the price of a loan, the price of capital has come down dramatically from where it was in the peak of the crisis and it is much easier today for a company to go out and borrow risk capital than it was three months ago, six months ago, nine months ago, not to mention in the dark days of the fall of 2008, and that's again because of the actions the president took to make sure we strengthened the financial system quickly. congress is considering just this week a new set of targeted measures to help small businesses, a set of tax incentives but also some credit measures to the small business administration and directly through states that will help them get access to credit, more terms -- we think that's a good strategy to reinforce this process of healing. >> charlie: look at the global economy. you were at the g-20 -- the

president was at the g-20 meeting and what came out of that was essentially a message of we better reduce spending, was it not? >> i would say -- >> charlie: characterize. >> i would say there was a general recognition out there that growth is the central objective -- central challenge we all face together, and to make sure there is going to be growth in the future, you need to make sure that our citizens are confident that their political leaders are going to have the will to bring their fiscal positions back to earth, back to balance, restore gravity to those deficits over time but the central challenge is to make sure that the economies are growing around the world because you're not going to fix those long-term fiscal problems if you're not growing. there are a bunch of courts around the world, greece is an example but -- bunch of countries around the world, greece is an example but it's not just greece, to make sure they are reducing the size of government, there is no alternative path for them but most of the economies, the same is true of the united states

have outlined and have committed to -- a path over the next several years to bring those deficits down at a rate that will allow the economy and the private sector to recover on its own, so people do it different speeds, there is different levels of coverage, some countries moving more rapidly, i think the u.k. is a good example but i think everybody recognizes that you got to have growth, got to have growth now, got to make sure you're reinforcing growth now, but you're not going to grow in the future unless your citizens understand you're going to be able to make those tough choices over the medium term to be able to bring those deficits down. >> charlie: deficits are about expenses and revenue. this administration wants to extend the -- wants to extend the middle class bush tax cuts and not extend the middle class tax cuts -- the tax cuts for people who make more than $250,000. what's the idea behind that? is it populism? is it good economics? what?

fairness? >> it's good economics and it recognizes that we have to balance these two objectives which is to make sure, again, we're growing. thus, we commit to extend the tax cuts that go to more than 95% of -- >> charlie: under the philosophy that if you have tax cuts, you put more money in people's pockets and therefore they spend and therefore it helps the economy? >> yeah, and it's fair. >> charlie: and it's fair. that's 95%. >> more than 95%. what we're allowing to expire is the tax cuts that president bush put in place for the most fortunate -- richest 2-3% of americans and we think letting those expire is a prudent, sensible act -- >> charlie: why? that's what i'm asking. >> allows us to make a contribution now to starting to reduce our long-term deficits, we think it's fair, because again, we don't want to solve those future deficit problems by raising the relative burden on working americans -- middle-class families. and the economy can afford that -- you know, this is good for perspective, kaerl -- we're just restoring those tax rates that

only affect 2-3% of americans -- we're restoring them to the level they were in place at the end of the 1990's and as you know, that was a decade where you saw -- >> charlie: economic growth. >> you saw terrific outcomes in terms of growth, private investment, productivity and that was growth that was very broad-based for the gains, very broadly shared -- >> charlie: it is proof that tax rates at that level for people who make over $250,000 is not an impediment to growth. >> i do believe so. >> charlie: the deficit. you have to -- >> i do not believe so. >> charlie: the deficit. you have to stimulate the economy and then you deal with the deficit in a serious way? >> i would say it this way. >> charlie: there is a huge tension here and capitals around the world how do we grow and how do we reduce the deficit? >> the way to balance those objectives is to do what the president is proposing to do, make sure that we stand up and identify ways to make sure we're

reducing those deficit over time, restoring balance to our fiscal position, restoring gravity, go back to living within our means so what the president did is -- right when he came into office he said we've got to get these deficits down, while we act today to do what is necessary to break the back of this crisis, restore growth to which economy in freefall we make people understand that as we get through it we're going to bring those deficits down so he's laid out a very detailed set of expenditure cuts, restraints and targeted, and quite limited, changes in tax rates for a very small fraction of americans. it will begin that process. now, but of course, we all recognize these deficits -- when we came in, the only way to get them down is to make sure that we -- again, we put out the financial fire, restore growth to the economy. >> charlie: you appointed a deficit position because it's -- a -- >> charlie: you appointed a deficit commission. there are many people, and you

know them all, wobelieve that the -- i think co-chairman said it this week that it's a cancer that will go to the heart of the american system if we can't deal with this deficit. >> absolutely. >> charlie: are you confident we can do that? because it's come at the heart of the complaint of a lot of people about the way america is. our friends around the world, political organizations domestically, it's the rallying cry, deal with the deficit. >> i'm very confident we're going to be able to do it because we've always, and this is the great strength of our country, if you look in the past as how we manage crises like this, we find the political will, find the political consensus to do what is necessary and if you look at financial markets, you look at how much where the treasury is paying to borrow today, there is a lot of confidence, not just of americans but investors around the world that we're going to find the political way to do it. there is no choice.

there is no alternative for us. we'll be able to do that. but what the president did is taking a model that president reagan used in social security several -- several -- >> charlie: sure and the military base closings as well. it's too politically charged, it's the third rail in american politics. >> you want people to step back from politics and take a look at how to solve this and begin to build the political consensus across the aisle that's going to be necessary to get anything done. >> charlie: this is an interesting day for you because as i said you have finished a part of what was essential to do in your judgment to create a new set of rules for going forward and at the same time make sure that you didn't -- while you reduced risk and leverage, at the same time you didn't handcuff the american enterprise system, right? >> absolutely. >> charlie: do you have under discussion really creative ideas that we may not know about to deal with the jobs question? because jobs creation is at the core of our economic growth.

>> in fact, we spent time with the president just this morning going through a set of ideas, alternative ways that we can again continue to make process on getting this economy going again -- >> charlie: new ideas? give us some insight in terms of where the thinking is on the part of this administration. take us into the oval office this morning. >> we have difficult challenges with high rates of unemployment and job creation not fast enough to bring those down as fast as we would like, we have a big growth competitiveness challenge for the american economy, want to make sure we're strengthening across the american economy and we have these very difficult long-term fiscal problems we're going to have to find the political will to solve so we are spending every day trying to make sure that we are looking for ways to make sure we are making progress in addressing those basic challenges because they are fundamental to our capacity to grow and fundamental

to restoring confidence among americans that this economy is going to work for them, but -- but -- and these are hard things, there is no easy, simple answer -- >> charlie: if it was easy you would have done it. >> we would have done it, yeah. >> charlie: are there new ideas to deal with this issue? so far it seems intractable and surprisingly -- so much so people are saying is there a new norm about employment in america? >>a as you have seen, it is a very -- >> as you have seen, it is a very difficult political moment. the president has got enormous, complex things done, a framework of reforms in place, health care and education in the financial system that will be hugely important to how this economy functions in the future. the big challenge we face, i think, is not a short-yardage of ideas and one of the great strengths of this president is he forces all of us to look broadly -- cast the net broadly -- republicans, democrats, people across the political spectrum that the challenge is to try to figure out how to

legislate reform in an atmosphere where there is so little faith in public institutions, so little faith in government, so little faith in congress and frankly, not a lot of support from the partisan minority for things we think are necessary for the country. >> charlie: is there financial reform and the creation of the kinds of things being done here being done internationally? >> critical part of our strategy is to make sure that we're raising standards in the united states that we pull the world higher too because we don't want the risks to move outside the united states to london or elsewhere. >> charlie: exactly. >> we are working just now and we have been doing so from the beginning to negotiate with the other major financial centers a set of tough reforms that will make sure there is a level playing field globally across the financial systems -- >> charlie: i assume that's part of what was at g-20. >> it was. again, the president began this process more than a year ago in london at the g-20 meeting there, on capital, for example, you asked a lot of questions about capital, wer going to change the rules of capital

leverage here with a global agreement so there is a level playing field around the world. >> charlie: what i'm asking, is that happening? that's up to the germans. >> we're going to negotiate it -- >> charlie: it's on their agenda as well. >> it's in their interest too. look what happened to them. they don't want to run a system that's built on attracting a bunch of risk away from new york to london, frankfurt or zurich. they have a tremendous interest in joining us with a set of tough rules globally but you raise this broader question about the enormous opportunities for americans and what's happening in china, india and the emerging markets and this is going to be a great strength for this economy. we are uniquely good at producing the things those countries need to grow and expand and american businesses have a huge economic stake in those markets and we are working very hard to make sure not just in china but elsewhere to make sure that again they face a level playing field in those markets. >> charlie: most people believe

that by 2035 chineal the have the largest economy in the world. >> i think that's likely. the future is uncertain. >> charlie: we found that out in 2008, the future is uncertain and you have to make hard decisions you never thought you would have to make, especially you. chine aon the other hand, with the kind of growth it has and its worldwide focus is doing two things in its money. it's locking up a lot of minerals. a lot of mineral contracts on the one hand. on the other hand, it's creating huge consumer demand with its own stimulus program. and thirdly, it is spending a lot of money -- call it stimulus money to create what is called the clean-tech business. >> that's right. >> charlie: which, if they lead that -- and this is not u.s.a.-china conflict, it's just the world of ideas. what does it mean for the united states? >> the remarkable thing about china is they are demonstrating the capacity to act. >> charlie: exactly. >> and take on incredibly

difficult challenges and move with -- looks like decisive force and far-sighted strategy -- >> charlie: globally. >> to address those challenges. i think that's very impressive to watch and behold, and china is going to be a challenge for us and for companies that exist which are not pro china, but i am very confident that we have much more to gain from china's growth and stability than we have to lose and i think again if you look at -- what does china care about today? what china wants is to be able to take advantage of the things that america is still uniquely good at. they want to have more access to the types of products and technologies that americans are so dominant in and what our job is to make sure that americans are continuing to innovate, they stay ahead of the frontier innovation, that we're creating the incentives to make sure it happens and i'm very confident we're going to be able to do that. >> charlie: i made this point

before that when medvedev came to the united states, originally want to go to silicon valley, when hew jint, i think he stopped in seattle on his way -- when hu jintao, i think he stopped in seattle on his way which says about the where ideas aring being born in america. >> we have to work very hard to make sure we are preserving and fostering that strength and advantage. it's important americans understand again we have been through such a terribly wrenching crisis, we're still living with a very tough economy, huge trauma, scars of this crisis still -- it's important americans still understand that we are exceptionally strong and resilient at finding things that people need to grow and expand around the world and we still have great companies competing effectively in all those areas and we need to make sure we are doing everything we can to reinforce that basic strength of this country. >> charlie: what do you worry

about the most looking ahead at america, the u.s. economy,america's role in the global economy? >> my biggest concern, i think this should be the fundamental concern of all of us is to make sure that our political system -- that our leaders in washington are able to find ways to work together to solve these problems. they're not going to be solved by democrats alone. they're not going to be solved by republicans alone. >> charlie: not solved by government alone. >> absolutely not solved by government alone but what government has to make sure is the things that only government cans do, they play a central role in educating children -- >> charlie: national security. health care. >> a financial system that we create the basic fabric that allows economies to function well but again, these things require people working together and frankly, stepping back from politics sometimes and finding ways to bring creative solutions to these kind of problems and i think the biggest challenge we face is make sure that we

demonstrate that our political system is up to the challenge because these are bigger challenges than we've faced as a country in a long time but if you look back to the last 18 months there is grounds for optimism again r because again in the face of enormous pressure, enormous crisis, enormous challenge, this president found a way to do some hard, tough things that are absolutely going to make us stronger going forward. we've got to make sure we're finding the will to bring that kind of force and leadership to the other challenges we face. >> charlie: thank you very much on a very busy day. >> nice to see you. ♪

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