'Sensibly Designed Stronger Standards'

" there was a story in the front page of the New York Times I think about ten days ago about financial institutions already coming up. With a new. Products did not sub prime mortgages securitization -- for instance. Securitize and life insurance policies how do you in this new regulatory. Structure on the well balanced on the one -- hand. Not wanting to prevent innovation in the free market system but on the other hand wanting to prevent the kind of risks that could bring us back to September 2000 --"

" He -- the choice exactly right in this -- so hard you know we need to make sure that we're preserving an account kind of competitive environment allows for innovation. Because that's critical to making sure people have an idea can go raise capital to finance that idea. And that's been the classic strength and still the -- strength -- our financial system so we need to make sure you're preserving those incentives for innovation. And and we're completely committed to that. But that doesn't work so -- we learned if you don't put in place strong standards to protect consumers that are enforced evenly across the system. And it can't work if you -- huge amounts leverage risk to look in the system. And so all the benefits of innovation wanna preserve will be destroyed and undermined. If you allow -- this in this fragile vulnerable to build up in the future so. That simple proposition we're trying to do is to make sure that we said sensibly designed stronger standards minimum -- enforced across the country. For consumer protection. And to make sure that we constraining. Excess leverage in the financial system. So that we have a system that's strong enough to allowances to fail without collateral damage. And so we're not -- the possibility of having to have the taxpayers take enormous risk. Just in order protect the system from failure so. Stronger international -- centers for consumers in force with more effective deterrence more evenly. And strong constraints -- leverage. On. Up on the -- was great degrees."

" I want to pick up on the -- side of that that because you talked about wanting more capital protection -- you when the present -- uses sticker shock absorbers. Last year -- you did when Lehman went down at how to leverage of thirty to one. What it. Are you willing to Saturday's -- ratio we will. The only way this works as you said including measurable gracious and applied across the world evenly and enforced fairly consistently. But we're not going to set the number now we're not gonna try to negotiate quite yet. Four two reasons one is that done. -- the world so little fragile still that the bill vigorously Ruben now right as people are -- to aren't willing to take enough -- You know markets overshoot about came -- this period of much too much risk taking and people of -- overdoing it. And that's still the -- we've we've that would now and we don't wanna do is gonna add to the risks that you create more powerful -- the -- because of that. The second is if you try to force consensus early in the midst of what's so fragile system at risk as you'll get too low number. You be too worried about fragility and -- settle for. The lower standard. So what we decide on capitals to say let's let's get you'll -- a framework that. Will make capitalist pro cyclical force sticker shock observers in the system more comprehensively. But we're gonna have the negotiation on the number and the numbers. Not conclusions and -- the next year. Against -- to reduce the risk that speed is the enemy and a strong standard because in the atmosphere fertility -- that wanna go agreed to -- but. In the end -- come to a number the only do -- seven number. And the number we had was too -- and it was not enforced effectively. And was easily invaded. And you know this is really important because you know you can't design a system that depends on the wisdom. Of a bunch of people in Washington. Trying to catch the next source of potential risk and -- early. That may happen. You -- hope it happens when people to try want to get caught trying. But the system will never. Be strong enough if you depending on that exercise of preemptive wise foresight fighting. People Washington. We make sure is assistance is safer ignorance and for failure. And the only way to end and and recognize that deep uncertainty -- that was about the world and that requires. Just building in thick shock absorbers to absorb mistakes and to -- ourselves against -- uncertainty and risk in the world. And it's the more in a small C conservative but more robust. Approach given the limitations of human nature that this conference is called the first draft of history I -- and did it before we toward open to questions with a couple. Of sort of historical longer view questions. What issues in you were portfolio. Do you see dominating the Obama administration during the rest of these four years I think -- the apart from immediate economic yeah not not one -- okay. And -- that's part of your portfolio you see them now you know what they are. And they are making sure in education and health care in infrastructure. Mean how we use energy. That we are. Make in our country more productive. And make sure the gains of that are more broadly shared in -- opportunity for all Americans and that basic domestic -- that he set very early. -- priorities. And that's not something where. You're gonna fix it in the first. Nine months an illustration and it's something that takes enormous care persistence to get right. And it's really about just improving quality of government in areas which everybody understands you need. Government like education and again -- it senate inquiry these things and alongside that is going to be them."

" The obvious compelling daunting fiscal challenges -- face. And finally 25 years from now when historians look back on this period. Are there are important trends or events. Where problems that you think that that the media and the public is not paying sufficient attention to that they may look back and say you know that was a lot bigger than. Was generally considered at that time."

" I have honestly no idea and of course we won't know. And I guess I'd say that if you look at what we've defined as. The most important challenge -- the country now. It's sweeping enough and important enough to be focusing in those right we had a chance to make it substantially better."

" Don't go look for problems that -- had hidden so we wanna throw it open to. Questions and I would guess people are gonna come up here to them microphone again."

" Ask him as -- secretary. Later tonight from Harvard and you know Tim I wonder if you could say little bit about Pittsburgh last week and this question about the monitoring of the surplus and deficit countries. In principle sounds terrific but there's been some skeptics saying that it supported -- and logo go further. It's -- important in relation to what China is going to we heard earlier this afternoon to -- America's over. There are others who say that -- China has more domestic news -- now. That it's gonna go back to the export led model and will be back in the kinds of imbalances that led us into the crisis last time so could you tell us what. What you see is this projection of how China will grow. In terms of -- orientation and also rule whether Pittsburgh did anything about that."

" Certitude governor realities we face when is that as we say -- the country. And we invest more. It was going to be less able to rely on US consumption drive future growth. And we are seeing more -- rest of the world that's necessary very healthy adjustment for us. But it needs to be offset wasn't grow at the -- should buy -- shift to domestic demand -- less export intensive less investment sense of growth in the rest of the world. I think China certainly but I would say around we'll peoples are recognized that these reality. And that reality is the -- since then we have the -- you can actually change behavior because they've now seen the consequence of being too reliance on external demand. This look very sharply because of that and in a big strong self interest and shifting reforms in ways it'll improve come the other challenge we had this that -- You know I'd say the dominant. Consensus in in among economics -- our time was was. This. Asset price bubbles credit bubbles this cycles we see in financial markets. Are something effectively -- power to prevent and we're gonna be limited to picking up the pieces when those things happen. And I think we need to take a we try and take a run that. Trying to move more preemptively to -- these things that -- part of what we're -- finance reform is to do that. So I think those two things guide this basic approach which is try to -- countries that matter around the -- candidate is alone. To come together and think through these -- that their policies are more likely be consistent with those two objectives more stable more sustainable growth globally -- strong level. And a economy less vulnerable to these imaging cycles an asset price credit -- you should come at this -- deep skepticism. Because. You know who -- a little Sovereign States they're gonna do it in their interest and no one's gonna turn over to system committee. Or some more international organization. Judgments about. How you manage court decisions. About your economy. But on the other hand -- Interest as a group. Our. Our favor. Taking a run it in the stuff more cooperatively earlier on and so we're gonna test the proposition. They're trying harder to get these things right early by getting people to look work together. Will only improve the odds of winning economist in the future but you know you spell -- I thought in this world to him. There's been summits over time. -- Completely non credible commitments to targets and things like that which we were careful not to do. What's different about this is that if this is not G three -- G five. Or G-7 he it's he really is twenty countries that are 8585%. Collect economic activity. And and we did see a lot of support for the basic. Strategy that this and pretend that you need to watch what countries do before you know -- are needed to."

" It's over here. -- of the the American enterprise institute. Mr. secretary some of her earlier speakers so that when -- economic concerns going for was the potential for a currency crisis. India plunge in the dollar. And it gets prompted in part by. Forecasts once we get beyond the crisis of fiscal imbalances that could exceed due to growth rate. I I assume that you believe a strong dollars in the US interest. What kind of restraint does that put on fiscal policy as we move beyond the crisis to ensure that we still have a strong dollar. Thank you thank you -- I mean to say that a strong dollars for importance in this country."

" And I mean that and it's a very important if you recognize. But. I think he said the right thing which is them where -- alluded to the basic thing. You know the dollar's role in the international financial system -- is them. It's exceptional -- then you know sort of does bring special responsibilities and burdens states. And is very important that we be. -- I just Americans but make the world understand. That we are gonna go back to -- within our means. And -- we're gonna not just make sure that our independent Federal Reserve keeps inflation low and stable over time. And not just make sure that we're creating the right ancestral -- come and bring capital to this country as they always done overtime and secretive business. But that we are gonna run our country. And fiscal policy country consistently that basic objective going back to the means and no one's gonna feel -- about that to me. And that is the most important. So things we can do to make sure that we're preserving a if a modicum brought stability in the system --"

" And waiting -- from eagle capital to follow up on that and if you look at the next four to five years of likely fiscal deficits. And add them -- many Warren Buffett and others have struggled. To figure out just mathematically where does that money come from you look at. Foreign flows that are likely plus I'm still pretty low US savings rate and seem like there's a huge shortfall. How do you. Think about that shortfall and it concerns that investors. May be so nervous about it that they don't invest which defeats the purpose of the fiscal stimulus in the first place."

" It's just a few important -- business on this and not to -- darkness or add to -- let me just say we started. This year. -- is a extremely high deficit. Which was overwhelmingly the result. A set -- decisions this country -- which we can never do again. To finance not just too expensive wars. But a dramatic set of tax cuts and huge expanse and entitlements without pain for those amendments. That added a huge amount to a national dead and that combined with the recession left -- with a huge initial deficit. And there was no way no path of fiscal responsibility. That didn't have to come with fixing the economy getting growth back on track fixing the financial system and that takes money. There's no way to do it without them. And so the fiscal hawk fiscal conservative approach. To. Dealing with that huge -- deficit was gonna have to require a temporary period of exceptional measures to get growth back on track. When we've achieved that we're confident that we have a self sustained recovery in place that by again by private investment the man. Then we have to begin to bring down those steps to point -- that we can live with. If we don't go get growth back on track and fix -- financial -- make -- is repaired and working. And you're not gonna be improving confidence in the world. The US financial -- this in this country you do more damage to that more -- long term -- process -- to come with this in sequence recognized what is the critical. Important -- and we've been very careful. The president was his initial budget that to lay out a path. -- set up policies to bring those steps is down over time to a level that is sustainable. Consistent with the structure or our economy and should look -- that budget as a sign of commitment not just a recognition of the importance that the commitment to do that. And as you all know that's going to be difficult and hard for us do that -- the critically important thing to do now. Private savings has increased quite a lot United States in this period of time. And as they say that's a very healthy thing were already borrowing substantially less from Jerusalem were so again if you think about a year and a half ago we -- borrowing. From the rest -- about 7% of GDP almost has now declined. Three. May increase a little bit as we start to recover if -- had -- had a parts of the world. But you're seeing a very important change in private behavior. That means that we're borrowing much less -- will already. But you know long term fiscal position is Pete Peterson has spent his life educate you about is unsustainable. It's not just the long run it's. It's the fight and you -- And so. And two you know to get to a point where -- back to -- abilities and require. Very dramatic changes. Not just healthcare critically health care but in entitlements more -- and in the broad structure the government but there is no path to that without. Fixing this mess and getting things back on track."

" A couple of final questions -- like that -- here. I guess and then secretary Geithner to shut them aside -- the -- society. I wouldn't go back a little bit to -- i.'s question on the international side. And it's sort of a two part question one is indeed of relationship that China. That on the one hand we're looking potential. Treat. Issues already the tire issue came up we just said Steve -- last night from insanity citing. And he was talking about how much there's -- worry about the potential protectionist measures and -- what's the one hand. On the other hand we obviously have the issue of debt and our old dependence on China. As you look out lakes here two years how do you see these two pieces. Coming together not coming together what could be the issues regarding our fiscal relationship that China. The second part is to do it G-8 -- G-20 has not obligated for a second part I there you go out but I think I have to ask you this. And that incident that you mentioned that how you -- look at G title and this is being reported in the media as well. Is really beginning to take shape as a kind of -- Major body. What does that -- be the future anti aids in terms of fiscal policies as the go forward. I'm feeling in the first one -- complicated."

" Our capacity grows a country and in -- Depends. On a open. -- economy. Where opportunities for -- expanding. Not contracting. And it is a very important to recognize that. Even though again we're in the worst recession in generations. -- just -- on -- unemployment approaching 10%. That overall because the commitments that -- when he made not to resort to protectionist pressures overall. We have a remarkable record cooperation across countries -- so if you look at past periods in history. Early response. Was -- it was marred by years of division -- in this even after the lessons of the Great Depression will bracelet come together. And they mostly good things that were. Parochial and -- person of lower interest of the collective interest so I think we're in -- that that basic commitment -- busy recognition that you won't get growth without. Commitment to more open markets and without a strong -- system and that area was central to the present strategy and I think it's been. And he has been very effective. That's audience of course we're committed to looking for ways to continue to build on this basic tradition of American leadership and expanding -- opportunities. And we've got some very talented people looking not just how to put together global coalition on -- But to put together domestic coalitions and administered it to pass and make it work. The leaders as you said this he said they were gonna make the G-20. The central place for -- cooperation and economic policy. When leaders -- and I think that's a a necessary and very appropriate change but of course -- different groups or groups of countries -- still gonna find cause -- act together. Both -- Citizens Bank governors but the leaders level. And you know our test is and we wanna have a system where. -- that we believe Americans is interest is a country our strategic interest our economic interest are best served. If we get people are on the table. Working together. To do things no government can -- soon. And that requires this substantial Aleutian what bodied we use to cooperate so the G-7 G we'll we'll have a an important role going forward. But we thought it was time to shift the -- gravity -- one. Now if you ask the real quickly -- Not -- not a complicated like."

" I'm Todd Holland publicize graduate and recently -- US senator me to comment today. Capitol hill's effectively owned by Wall Street and I'm wondering if you think -- Wall Street's political influence is a problem that's. Something to be addressed was -- or. What where to go from here."

" I think that we had -- is -- security in part because frankly we let. Banks -- regulator. We let people shop for the -- basic standards. That's just what taxes were -- less regulation was weaker. And that allowed again huge and there is taking a -- would have no protections no constraints. And there's like -- reasons for that. Which I'm not the way want to talk about. But I think changing changing the system requires that you can you can't let institutions choose a regulator you can't let them choose the constraints. Under which they're gonna run. A bag because banks are special and -- special because they can huge win win mistakes happen they confuse -- an image."

" In this bare bones approach -- I am going to introduce the next battle which is my colleague Bob Schieffer. Is going to be talking to democratic senator AV club which are. And now I just wanna and I know I speak for all of us and saying thank you so much for taking -- yeah."