This is a rush transcript from "On the Record," February 12, 2010. This copy may not be in its final form and may be updated.
GRETA VAN SUSTEREN, FOX NEWS HOST: Former Secretary of the Treasury Henry Paulson, guess why Governor Sarah Palin rubbed him the wrong way when they talked. You get that inside story right now and so much more because moments ago, Secretary Paulson went "On the Record." He takes you on the front lines of the financial crisis and talks about his brand new book, "On the Brink."
VAN SUSTEREN: Directly to your book. When the president called and said, will you be the next secretary treasury, or however it's done, your mother didn't seem wild about the idea, did she?
HENRY PAULSON, FORMER TREASURY SECRETARY: That's an understatement.
VAN SUSTEREN: What did she say?
PAULSON: My mother is an outspoken woman and she said to me, you started with Richard Nixon and now you're going to finish with George Bush. You should be ashamed of yourself, and you're going to be joining a sinking ship.
So she was -- my mother is a very strong person, and I'm not used to seeing her cry, but she was sobbing when she said this to me. But again, she loves her son and she got used to the idea, and by the time I finished, I'm not sure she would have voted for George Bush if she had to do it over again, but she had a much different opinion of him as I was leaving the administration than going in.
VAN SUSTEREN: She warmed up to him at your swearing in, did she not?
PAULSON: Yes, she warmed up to him a bit at my swearing in, a bit. So she agreed to come and be there.
VAN SUSTEREN: In the book, you write that you got a phone call with candidate for vice president Sarah Palin and you said, these are your words, that she "rubbed you the wrong way." What happened?
PAULSON: Well, again, this was early on. It was the first conversation, and it was with candidate John McCain and Sarah Palin. And as I think back on it now, she was really right on the -- all of the hot button issues.
So she immediately focused on -- because we were talking about the need to come in and stabilize, put Fannie Mae and Freddie Mac into conservatorship, these two huge financial institutions. And Sarah Palin immediately got to the point and asked what was going to happen to the CEOs. Were we going to replace them? Were they going to get golden parachutes? What was going to happen with the compensation?
So the only thing, the comment that I made really had to do with, she started calling me Hank right away. People know me, I'm the most informal person there is, so everyone at the treasury called me Hank. But I never met her before. I just assumed that that's what happens on the campaign trail as you're campaigning, it's a very nice style.
But it just struck me as being a little bit odd at the moment. But again, as I look back on it right now, she sure had a grasp of where the American public was and what the hot button issues were.
VAN SUSTEREN: There's an interesting story between the election and the inauguration of President Obama in which there's a discussion about whether or not President Bush, his last act in office is going to be veto something or President Barack Obama's first act of office will be to veto something. Neither of them wanted that had veto. So tell me what happened?
PAULSON: Greta, what you're talking about here is taking down the last $350 billion of the TARP funds. And so I had been concerned all during the transition that we were going to be left defenseless without this money, because we dealt with some very serious problems with Citigroup and Merrill Lynch and a number of other situations.
So we had been talking with the incoming administration about how to take down the last $350 billion. And it couldn't be taken down without the active involvement and support of President-elect Obama. So that was a given. We had been working on it.
And George Bush, everything he had done, he wanted it to be a very smooth transition and he was doing everything he could to cooperate. And so there was an interchange at the end where the -- when the Obama administration came to us and President-elect Obama came to George Bush, he said that in taking down the TARP, if there had to be a veto.
The way the TARP was structured, the take down was there was a fast track take down, and if the measure didn't get a majority support in either house, then the president would have to veto.
And George Bush didn't want his last act to be a veto, and President Obama didn't want his first act to be a veto. And so George Bush just said to Barack Obama, let's make sure we don't need a veto. And that meant that the president-elect had to get very involved and his team got very involved, and they did, and the TARP was taken down.
VAN SUSTEREN: What's particularly interesting about your book is as I recall in history, we're reading about these and following these, but there is so much space between the events that you compressed it all and we see how perilous things were.
The book is "On the Brink." What would have happened, do you think, if we hadn't done the TARP money, the bailout? What's your speculation on that?
PAULSON: OK, if we had not stepped in, the government hadn't stepped in to prevent a collapse, and the system had collapsed, we would have been in a situation where industrial companies all over America, Main Street companies, small, middle-sized, and big companies would have had funding cut off. They wouldn't have had bank funding to pay their bills to sustain their basic business operations.
That would mean they wouldn't have been able to pay suppliers, pay employees, employees wouldn't have been able to pay their bills. This would have rippled through the economy.
VAN SUSTEREN: Catastrophic?
PAULSON: Catastrophic. I believe 25 percent unemployment.
VAN SUSTEREN: You give President Bush high marks in this book, do you not?
VAN SUSTEREN: Why?
PAULSON: I know that's disappointing to people that want to believe in the caricature that's been painted of the president.
But the reason I give him high marks is the president was very engaged. He understood the importance that markets play, and he understood that if the financial system failed and collapsed, the American people will be left holding the bag.
And so repeatedly at every step of the way when I consulted with him, he would support me, buck me up, and say, Hank, this may not always look pretty. It won't be popular. It won't be politically popular, but we're going to do what we need to do to preserve as many jobs as we can in this country and to prevent a collapse.
So, for instance, when you use the example of me being in the president's office right after the Republican convention, I was talking about something that was going to be very unattractive to the president. He was no fan of Wall Street. He was no fan of Fannie Mae and Freddie Mac, absolutely. He had very strong philosophical principles about markets and so on.
But rather than getting angry when I brought him the news, he just simply said, we are just going to deal with it.
VAN SUSTEREN: The book is obviously very serious about serious events and is also very cloak and dagger and intrigue and we get an inside view of what went down. It's a great read. Thank you.
PAULSON: Greta, thank you.
VAN SUSTEREN: There is so much more of our interview with the secretary, he was very generous with his time. So on Monday, go to GretaWire.com and watch the entire interview and find out all the background about this TARP money. It's fascinating.
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