'Edge of the Abyss'

" Well thank you all. And thank you for having me end. Thank you mr. secretary -- participating in this let's get right to what. Your time is is valuable to begin whereas take us back. A little more than a year ago. When you were running New York fat and it seemed that the financial system was collapsing around -- And if you can. Tell us the single lowest. Moment whether it was a piece of information that conversation. What does your most vivid memory of that period."

" It was very dark hit his dark for a long time and a supporter -- and it wasn't just the financial system. Coming to stop. It was economic activity around the world -- off -- Through it first time in modern economic history. It basically stopped around the world. And you that we were a point where you get the first signs. Not just a -- run classic bank run. On the finances and as a whole. He had the early signs of people starting to take their money out of banks that were quite healthy banks quite strong banks because of the basic sense of panic and concern. So it was extra thing and it didn't crystallize in one night one day. And it really didn't start in September belatedly started in. Late July 07. And even after. All the interventions of that period a time a few weeks. It was a long. Protracted period of -- fragility. And even January. -- nine he's still -- system that was -- you know functioning people and investing in growth was. Falling and accelerating rate. So I would say it was a -- two years not a not a moment. And during that period and particularly as we got into September. Oh hey how close to the financial system. Come to going under came very close. You can never tell and you can't. Proof that they would come what would have happened the absence of the overwhelming force that we brought to -- to stabilize the system. But. I was a broader range of institutions strong and weak broad range of people close and distant. I really thought we -- the -- you this. And I think that was the -- of course I should that judgment I think governor right judgment and should not ever gotten to that point. You know where the nineties America we should never have been in the position where you this system. Get to that -- for agility with so few options for the government to respond to protect it to sort of not contain the damage to protect businesses and and the responsible prudent from the damage caused by those that project and why did we get to that point why weren't steps taken. In 2007 -- earlier in 2008 that would have prevented us from getting -- September of 2000. You know I think that -- study for a long time it's very hard for people who -- the senator of this to look to be fair to look at it with dispassionate reflection. And and really understand it yet but I I think. We can say is that we just -- a huge amount -- risk of up in the financial system. Too much -- build. And that didn't happen just because the way the rules were written -- that was part of it. Because there was a long period -- monetary policy around the world was very very loose -- coming. And you had a huge boom and well that's United States and that money was looking for homes and pretty huge demand progressively four. The creation what proved to be very risky types of financial assets mortgages subprime mortgages. So there's a whole complicated set of villiers in that process now -- course financial history is up from tulips. To the Internet boom is the history of bubbles. But -- the job of government to make sure that the damage to those -- contained acceptable levels and we failed that test. The other thing we did is a country again as we came into this again without. Anything like the kind of basic tools the basic partially need to contain the damage. Not the object of policy should never be too. Save fuel for their mistakes. To save institutions -- themselves the edge of collapse. But the critical response that policy makers is to make sure that you can create -- system that can withstand their failure. So you can let them fail. And -- crises happen you can act to contain the damage they don't again have unemployment rise. To just on tragic alarming devastating -- you know proportions and have tens of thousand busier -- which were doing a fine. Vital businesses fail because of the errors that basic. Design of the constraints in the system. And I think those two things about prevention and about crisis response. -- the tragic failures of policy and that's why we're trying to fix the system through finance reform early. Very early you know we're only -- just beginning to see the signs recovering now and we are making a lot of progress in getting consensus on -- reforms that wouldn't. I think are essential to prevent this from happening again."

" They're a bunch of points there that you make them -- pick up on but I want to ask you looking at these nine months that you have been the secretary of the treasury. If you could conceptual allies in broad terms not specific policies. But principles. What has your and the president's strategy again. To rescue the financial system."

" Basic strategy has been -- the I hate to use the military analogy but it's a simple -- is to make sure you bring overwhelming force. Two bring growth back and get -- back to work. Stabilize the finances to make -- credit is available to vital businesses and families and that requires not just getting central banks to do extraordinary things as they have done. -- make sure you cut taxes. And make target and -- and -- create employment and encourage investment on a very very substantial scale. You need to do that globally. Because if you just do it alone is one country don't have much less powerful impact the -- the things we do will leak out and dissipate. And need to make sure that in the financial system you are bringing capital in -- Where it needs to seek and support lending. And you are fixing. Capital markets thinking who has a stuck he can't just do it by fixing -- make sure these markets are so critical to credit for small businesses. Are opening up thing working -- the strategy was to. Combined. Very substantial force to support demand. With very substantial forces stabilize the financial system. And to get capital and -- can provide credit get things going that you need to does those two things together and need to have globally. And the signature accomplishment of this president and G-20 leaders in this in this. Period has been. To come to get -- early. -- and a common strategy and executed and if you look basically at the arc of the last nine months. We basically said this is what we're gonna do this was gonna -- and we did it and we executed it and because of that. You can say today do you see you now against you the first signs just -- early signs and tentative signs still. Of growth and economy people who -- going again but it's very early. And obviously still enormous pain and trauma out there. A lot of uncertainty. And that's why you know we're nowhere close on weekend. Start to put on the breaks wind this stuff down declare victory say it's over and go on to the next thing. As you look back over the nine months what. Would you say is that most important single decision you and the president made and describe for us if you can. How old you in the process work through this again and again I think that basic things X is this is a strategy. The classic mistake country's name in financial crises is they. Wait. They moved to late. When they act they're -- they do gradual Marshall escalation. They don't get ahead of it there always behind. And they leave people having prepare for the possibility -- governments are gonna fix it is gonna get worse and -- the cut investment further. There are far more people banks will be lever all as insurance and protection against the possibility that. The economy weakens further. So that basic lesson of history and we -- in the thirties. And Japan in the ninety's countries around the wheel and then over the last decade sect guided the -- easy choice. To again try to bring a strategy of very substantial force and make -- believe that we -- gonna fix -- it was necessary. And stick with it now -- the design things. How you do it within a framework were important to -- we -- a mix of tax cuts and investments that. We're very powerful and actually quite powerful quickly into turning confidence. And the financial system we adopted a strategy that. Was remarkably effective in forcing capital private capital into the system so that taxpayers. -- on the position where they were bearing. All the costs and all the losses associate of those risks. So I think those two. Basic aspects. Design tactics but that they -- choice. Is the choice. To say you're not gonna room. Let the world live with the risk that -- with a strategy where we're gonna hope that burns itself out we're gonna hope the market solves it. Because we had experience -- that strategy. And it was a really cost the strategy. Would you say as you -- in the president's philosophy. About government. Intervention in the private sector what is reasonable involvement. And what of elevenths. This is a deep conviction. I believe the president shares and I think it's shared by his principal advisers -- across the spectrum. Again to use -- military analogy these were. The wars of necessity not wars of choice these were acts of necessity taking with extraordinary reluctance. Because we believe they were the necessary way to save this market economy. And to save the taxpayer -- the risks. Much more protective damage. And again we were careful to do. Only what was necessary and to make sure involvement will be as temporary -- as quickly as possible because it is not a tenable strategy -- country. To run it with the expectation that government becoming an eighty's -- for private actors. And can get in the business of trying to. Well it just is struggling. Run -- economy and we will not -- and it would be a mistake to try it so we've only. Done -- where we thought there was no better way. To leave intact and protect. The basic underpinnings of a market economy and we will be and we very credible making sure we're getting as quickly as possible just one example just again highlight this. When I took office. The government -- it's. Had taken equity investments. In the range of 200 billion dollars. In banks representing 95%. Of US banking system. That was the the right -- do necessary didn't do it helped craft a strategy -- supported a 100%. Today. We had between seventy and 84 billion dollars back. From the banking system and our -- shrunk by about half. The only investors -- in banks have been relatively small institutions. In a very small magnitude. And it proves the basic point if you commit to solve and make sure you get the incentives right for private capital company. You can do this in a way that is prudent these cost doesn't need the government involved beyond what is necessary. And we will not stay in these institutions and -- longer. It's. Than we -- we actually need to it and we're making dramatically. Successful progress and winding down these exceptional actions walking them back. And pulling back from the emergency things were forced him."

" Given. All of these obvious concerns you have about being involved. Could you have. Well obviously thought you couldn't but what -- how close call was it on letting General Motors or Chrysler go wander. I mean you couldn't I don't think I don't -- systemic risk by of a financial institution. Obviously car companies -- going out of business and the world doesn't end. Couldn't that have happened in the case of either General Motors --"

" Chrysler I think it's important to stroke with -- recognition that the initial judgment made to have the government provide financial support to two manufacturing companies. Was made by. He Republican president. Any Republicans second treasury. Looking at the worst financial crisis we're pick -- as we've seen generations and making a judgment that. The damage to confidence. In the collateral damage of letting these things go off the cliff and -- they would been catastrophic. Now I wasn't part of that judgment I think with that that was right judgment our choice was a different -- our choice was how to fix it how to get out. The -- to just pull plug in let them go into liquidation. And we designed. A set of conditions and government money that forced a restructuring of those institutions that was substantially greater. Than anybody thought was possible if -- much more quickly than people thought as an example there's a group of senators for -- including -- worker on the hill. The design is that conditions back again. November December last year for what should guide restructuring and I think even they would acknowledge that we did substantially better than that. And remember these firms were put through bankruptcy. And did. A dramatic change. In basic -- terms conditions compensation wage structures. So that we can be confident that this patent dollars we -- putting in we -- lead to stronger companies that could survive without public. Without without without government investment. Over time and so again I feel that. That was. Would never wanna be in this and making a judgment. But you know the auto task force which was running by Larry Summers and I. Leading daily I don't think I've seen in the weeks. They've shrunk to a very small skeletal staff and we are not going to be in the business of making any judgments about -- those companies -- run. Our job is to get as quickly as we can make sure our money's protected the taxpayer get that money and we are delivering and I commend the president made. Let me ask you for a few forecasts where do you see GDP growth for the third and fourth quarters Chris I don't I don't do well I won't ever do forecasting you know non economists -- economists. Don't know much about the future. And and but I'll use the economists is a proxy I think if you look at a broad consensus of business economists now. And academic forecasters -- independent. Most believe that this economy is going to be growing at a significantly positive rate in the second half this year. And I think by that they mean somewhere between two entries and north of 3%. And I think more encouraging -- more important than that in some ways that's the beginning it's more important. If you look at forecasters -- I think about 2010 and eleven. They're now progressively moving those forecasts -- so. And it goes that's not because today. That's because a look at the thrust of -- is for making improvements you've seen and that you see a little bit more cautious optimism out there. Of course unemployment is appalling -- And if you just listen to businesses across the country feels the an enormous enough caution. Still how they're thinking about investment decisions and -- and decisions about. About their employment base and we need to reduce uncertainty hope you'll make it more confident. That this -- the constant calmness. Given that you won't."

" Give a forecast of nothing how I ask you for another forecast without asking you for strikeouts -- is what we do on Sunday shows. Would you agree would be that general economic. Consensus. That unemployment peaks over 10%. And were in that. Roughly double digit 10% range well into next year again I won't tell you what I."

" Think is likely they Wendy's but more important which is what a consensus. Diverse consensus of economists think and I think again. That that conventional view -- initial -- is often wrong. Is that. Even as growth strengthens and comes back. And even as the rate of job to rig job loss is gonna -- significantly. It'll start to -- positive that'll happen before unemployment peaks. That's a natural path of recovery -- is we'll have a positive month. Of young people that that's obvious again unemployment before -- issued -- this growth first. People adding jobs on that second. And that'll happen before unemployment -- to peak and come down because you to have a significant positive rate of growth -- employment month the month before. You start to bring people back into the workforce but but that's the ultimate test policy and that that's what will govern everything we do is try to. To have anything to maximize the odds that that and -- comes down as quickly as possible."

" So let me project forward to next summer July August -- of 2010. And we're talking about an unemployment rate then. If not 10%. In that neighborhood. With could crucial congressional elections coming up in November how old hard -- to maintain sensible long term economic policies. At the same time that you have intense short term political pressure."

" No I'm not the politicians -- the surprise and I don't do politics. But and so I think what has a guy we do -- the president is just to make sure that we're doing. Everything sensible everything we can to maximize the odds that you have a sustainable recovery led by private investment private business. In place as quickly as possible with the finances and they can help make that work that process work. And as you've seen this goes back to your initial question about strategy. The president is trying to and even as we fix the crisis and pull this economy out of the in this he's trying to make sure we're making investments -- to make us more productive in the future and the things we're doing in education. In infrastructure. Changing it says people how people use energy. And in health -- of course actually are. Critical economic imperatives to how. Rapidly we're gonna grow in the future. And so when you make sure we are working at. Getting this government to do -- better job at those basic core things that governments have to do. To make economy's growth more rapidly make make make countless more just more broadly should make sure this become -- opportunities Americans. Expect to get in return for -- own effort and work and so. It's gonna be if you if you think about how bad this was it's gonna take -- to come out of this and most people think that. Because we're gonna to save more as a country and everybody personally saving more. That growth is going to be slower than we might typically being coming out of this and -- Reasonable expectation -- is again this just gonna it's gonna take -- while. It's gonna take awhile but again what what our job is what my job is is to try to make -- sensible. To reinforce that process of repair. So get we have a recovery that the private -- leading it's gonna bring green bring growth back."

" He talked earlier about regulatory reform and and and let let's talk about that little -- Setting up a new regulatory -- this kind of financial crisis doesn't happen again with. The prolonged fight over health care reform with a number of congressional leaders have their own ideas about. About what should be done especially when it comes through the sweeping regulatory powers of the Federal Reserve with Fed Chairman Bernanke even -- in some. Backing off -- backing away from that today. How likely do you think it is that you can get the kind something approximating your plan this year I think it's important to --"

" And both chairman frank and -- do the job. Getting the boats boats are on a package it's gonna be strong enough to work. They're committed -- that timetable and they are. But they say publicly what with this -- we talk about strategy they're pretty optimistic about that and it's very important to do. Where you get it right make sure it's strong enough. But it's very important to do right now and -- just give you two reasons why that's very important. The simple. Simple argument is about time as the enemy of reform if you really -- to act and change the rules until the memory of the crisis has faded and it's just much easier to fight reform it's much harder to keep the momentum preserve consensus. And so. I think there's a very compelling strategic case to try and do this. Now. Another important reason is that we can't do this and get this right unless we get the world to move -- us. For reasons you'll understand. And we have to be in the position we can set -- internationally. Taking issue to say -- we're gonna try to -- people to enters a stronger standards and that also requires us moving quickly. If we let the momentum dissipate here or internationally. We're at much greater risk of having this thing he picked apart and they much weaker package emerge. And it I think it is achievable in the eyes of the leadership and the legislators have to craft this. Trying to do in this time."