sotomayor's confirmation hearings before the judiciary committee. tune in to 8:00 p.m. eastern, we'll showcase the best of the program. fareed zakaria will be back with our viewers. fareed zakaria gps starts right now. s/ >> this week we have an exclusive interview with a man in charge of the world's largest economy, secretary of treasury timothy geithner. we'll have a wide range in conversation, and not a moment too soon, since the green shoots seem to have turned brown. the hopes for economic recovery were dashed last week when new unemployment numbers came out, with job losses 100,000 worse than predicted. the stock market that seemed to predict a turnaround fell last

week. now, you can make too much of a few pieces of data here and there, but what strikes me most is that we are watching a grand economic experiment, and no one knows how it's going to turn out. there are three big questions that are being tested. the first, is the stimulus large enough to make a difference? you'll recall that on this program, distinguished experts like paul krugman and martin wolf made the claim that the stimulus is too small and too slow to have much impact on a $40 billion economy? is that true? second, should the big banks have been forced to dispose of their bad assets? the obama administration has taken a middle course as regards the nation's biggest banks. it rescued them, but it didn't nationalize them or force them to sell their so-called toxic

assets. was this the right strategy, or should they have been taken off their books so they could start lending? will the banks be seen to have failed? and finally, is this recession different from all others, or at least all others since the 1930s? the gloomy case rests on the fact that this time consumers entered the recession with massive debt burdens and are going to spend years working off their personal balance sheets. if that's the case, alas, there is very little washington can do except wait. i will talk about this with timothy geithner and foreign deputy prime minister turned critic. >> this is a system. >> let's get started.

we are joined by the secretary of the treasury, timothy geithner. thank you, mr. secretary. good to see you. give us your sense of the state of the american economy. there is some good news. a couple days ago there were jobless claims that were 100,000 worse than expected. what's going on? >> it is better, but we still face enormous challenges, and it's going to be a while before we're confident we're going to have any sustained recovery in place. but we have an economy falling at a remarkably rapid rate. we were losing jobs at 600,000, 700,000 a month. the rate of the declining economy is still dramatic and the rate of job losses still very significant. those are encouraging signs we're seeing improvement in the financial markets, more confidence by consumers, and businesses here and around the

world, and that is due to the strength of the policies that this government working with the congress and countries around the world have put in place. the policies have been successful in arresting a decline providing a foundation for stability, but it's going to take some time to get through this. >> but the administration forecast in february that unemployment would reach 8.1% this year. it's now 9.5%. so obviously things are worse than thought. >> relative to what some people were concerned about and what was possible at that time, we've actually made quite a lot of progress in laying a foundation for repair. rescuing the situation was very dire and beginning to see the foundations recovering. >> again, it's very early, but why was your estimate in february wrong? what do you think you or the administration missed? >> we took a long time getting to this. we dug a big hole as a country. we went through a period where we were borrowing way too much.

these unemployment rates rose to incredibly high levels. it's going to take time, but again, just remember, only four weeks ago, people were saying we should be walking back stimulus, we should be cutting down, we should be getting to where we run the least risk. >> they say you have to do a second stimulus, because clearly, rising unemployment is a big concern. there is a possibility of further deflation. do we need a second stimulus? >> congress says it will start to take force in the second half of the year. but i don't think that's a judgment we have to make now. can't really make that now prudently, responsibly. >> a lot of people feel that

recapitalizing the banks, you've created a kind of fear of zombie banks that are stable but not really lending. i realize banks are only part of the credit picture, but is there a problem here? the banks are not lending enough. is the supply of credit enough or does it need to be ramped up? >> very good question. again, i think relative to what we thought was likely, going back to january, the financial system is in substantially better shape than it was. both the banking system, which provides a substantial amount of credit, and the capital markets, the security markets provide about half the credit, or about a third of the credit to businesses and families, as we know the program we put in place was to make sure there was capital in banks where we needed capital, and yet we're starting to repair backstopped credit markets. i think on both fronts, things have improved considerably. the basic tone of markets also

feels a little better. it's just reflecting a little better confidence. >> but in september of wa2008, u and ben bernanke said the problem here was the banks. >> but that program -- >> my question is, do you agree that if toxic assets were the problem, we haven't bought one toxic asset yet? in other words, the top program has not bet bought any toxic assets? why? >> banks have been able to raise capital with greater ease than i think anybody reasonably expected. many banks are selling a bunch of their assets and shrinking their balance sheets where they don't want to make a core business. but what it will do is help get those markets going again, because things in some ways have been better than people expected, you may see less use, less demand for those facilities

than many thought. but let's go back to the fall. what congress authorized back in the fall was absolutely essential. there is no doubt it helped revert a catastrophic loss in our financial system. >> but it's fair to say the money was used for recapitalizing the banks, not buying the assets. in other words, a calculation was made to reduce the leverage. >> that was a decision made back in the fall by my predecessor. i think it was absolutely right, but we went a slightly different approach when we came in, enk encome -- by private investors, we have actually made very limited investments in the financial sector. putting material investments in, a large amounts we inherited was from a large number of small

banks. and that is because of the effect we have had on falterring banks, we're seeing the largest banks in the country be able to go raise substantial amounts of capital. again, we should view this as a sign -- a modestly encouraging sign. >> so good that the program you announced which was to buy these toxic assets, to provide funding for the private sector to partner with you in buying them. warren buffett said he doesn't like it because it gives too much money to wall street. he says you're bribing people to get into the market. is warren buffett right? >> i don't share those concerns, but we have to think about the relative alternatives. and the classic model that many people advocated would have resulted in a much greater subsidy of banks into wall street. the classic model is that the government itself goes to banks

and says, we'll combine these assets from you at a price that the government picks up. and the risk in that context is the government takes much more risk, giving much greater subsidy to banks and the taxpayer. that's the strategy we considered and did not adopt. >> this is what a toxic government provided. that carries the risk of a much greater subsidy to banks and investors, and we considered rejecting that basic strategy. >> your growth statistics for 2010 is 0.8%. the economists -- i think it would be fair to say a lot of economists say it's likely to be over 3.2%. if that happens, the deficit as a result of the gop becomes much

higher. are you willing to do whatever it takes to keep the deficit within the gdp within the range that the president suggested? >> it is very important for the sustain ability of recovery, for confidence, that this government will bring the deficit down to a sustainable level as soon as we're confident we have a sustained recovery in place. the president is absolutely committed to that. he deeply understands how important that is. his team lives through a period where a remarkable period of fiscal disadvantage in the united states helped generate a long period of rising private investment, stronger dollar, lower interest rates, broad-based income, so he understands deeply the importance of making sure we put in place a stronger foundation for the recovery as a whole, and part of that will be a recurrent living under our means in this country. >> as a country, and there is no

mystery in this, we'll have to bring our resources and our commitments for a balance. and it's going to be a hard thing for us to do. it's perfectly within our capacity as a country to do. it is not beyond our capacity as a country to achieve, and you're right to say that affirming that commitment, keeping to it, is being poured into sustaining confidence. if we don't do that, it gets away from us, then the risk of recovery is arrested because it pushes out private investment. some people don't understand that what will lead us out of this ultimately will be a judgment of businesses and consumers. it will be private investment and consumption coming back when confidence is restored. that's what's going to get us out of this. what we're trying to do is provide a foundation for that to happen. >> we will be back with secretary of treasury, timothy

geithner. >> is it fair to say that you should have regulated the more aggressive? (man) i'm rethinking everything... including who i trust to look after my money. ♪ (woman) the dust might be settling... that's great, but i'm not. ♪ (second man) i guess i'm just done with doing nothing, you know? ♪ (third man) oh, i'm not thinking about moving my money. i am moving it. tdd# 1-800-345-2550

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good choice. only meineke lets you choose the brake service that's right for you. and save 50% on pads and shoes. meineke. we're back with secretary of treasury, timothy geithner. let me ask you about this, because i talked to a number of businessmen, and a lot of them said, can we tell geithner to stop beating up on business, tell obama to stop beating up on business? we feel like we're the villains,

like we're being mistreated by congress. >> if you listen to what the president says, i feel at times the same way. we feel deeply that the strength of the economy depends on the work of the united states. their work at putting things at risk again. the president understands that. >> do you feel it fair to say that they've been battered unfairly? >> the financial system? >> let's talk about the financial system. >> the financial system has suffered a dramatic loss of trust and confidence largely because of the judgment many of the leaders of our institutions made in managing those institutions. the consequences of those choices were vae damavery damag

to people across the country, and i think those firms will still have to do a lot to try to earn back the trust and confidence of not only those clients but family across the country, and i think it's important just to be direct about that. >> a lot of them would say there was also a dramatic failure of regulation, and the primary regulator of the big new york banks was the new york fed, where you were heading. is it fair to say you should have regulated them more aggressively. >> i'm glad you raised that, and i completely agree. there were systematic failures in regulation supervision across our financial system, and i think the response of that is very broad based, and i think it goes to everyone who was responsible, including the responsibility i had in that context. but again, look what happened to our financial system. the things that caused catastrophic damage was the build-up of risk largely outside the regular banking system.

just look at bear stearns, lehman brothers, aig, the high-end insurance companies. they chose to adopt a strict charter. we should, as a country, have not allowed that to happen, and the core part of the reform is putting in place restraints, more effectively enforced across those institutions that can threaten the stability system. so absolutely, and that's one reason we're moving so quick to lay out ambitious reforms, and the test of those reforms are going to be -- >> one of the things you said in an interview was one of the causes of this crisis was loose money, that there's too much

easy money and those interest rates were too low. what do your regulatory reformists want to do about that? how do you get the chairman of the federal reserve to be willing to take the punchbowl away when the party has begun? >> that's the classic dilemma in governments here and around the world. again, you have this period here where you have this huge generation around the world and people are looking for where to put their money, and that investment helped big booming house prices, but you're right that the cause, as i said before, is much more complicated than risk management supervision. and ultimately, of course, to have a more stable system less prone to crisis, you have to make sure that governments together don't make the mistake of those.

i think what the fed did in this crisis, which is without precedent, it's important for people to look back in time and evaluate those judgments, but i think the fed system was absolutely essential, but i think what the feds did was not only essential but extraordinarily helpful in helping to contain risk, helping to slow the mortgage crisis. >> would that have been the work of ben bernanke? >> i think the chairman has done an exceptional job, and i think he deserves a lot of competence. >> this is the last question i'm going to ask about this. it's still meaningful for businesses not to fail. they might have created big

moats around them, but you will still have big businesses. >> you cannot design a system that you would cease having across the system, and you can't adopt a strategy in that context and hoping it will burn itself out. if you just look at what happened when lehman failed, and lehman was not the cause of the crisis but a symptom of how severe it was, and it did make it substantially worse, you can see one of the consequences of allowing failure to happen on a scale that can cause catastrophic failures. globally it is a good cautionary note about not just our ability, but the capacity to extreme stress to hopefully work things out. we're going to do as much as we can to reduce the risk of the

crisis of this magnitude, but we're also going to make sure the government has better tools to manage the damage when it happens. >> when aig was bailed out, a lot of money, tens of billions of dollars, went directly from aig to a series of new york banks to may what is called the counter-parties on this. >> they sued a number of banks around europe, and they were also in the business to ensure -- and, of course, the problem was they didn't have the capital to back it up. >> so the question a lot of people ask is, why did those contracts have to be paid at what is called 100 cents on the dollar? why did you not engineer a discount, which is often what happens in these circumstances, and the feeling is to complete the thought that a number of the beneficiaries of new york banks that had ties with the u.s.

government, banks like goldman sachs? >> without the tools and authority to manage the large companies to join aig. they did not have that authority. so we were very limited in the choices we were able to make. >> you couldn't go in and say -- >> they were contractual commitments, and there was no way for the firm not to honor those without risking default. default would have led to exactly what you saw in the wake of lehman. and that outcome was important to avoid, and fortunately, for us, as a country we had the ability to avert that outcome in aig, but we did not have it in the outcome leaf man. that's why it's important so early to try to convince congress to give us more flexibility, better choices to

manage those kinds of risks in the future. but again, there is no way to do what your question asks without damaging the financial system. you saw the fabric of the financial system in the wake of lehman. but with better resolution authority, we would have a little more sensibility and better choices. maybe we would see a better outcome. >> we will be back with the secretary of treasury, timothy geithner. >> you've been through one of the most turbulent periods of financial history at this point.

we're back with secretary of the treasury, timothy geithner. mr. secretary, you're off on a trip and you're going to europe and other places. i have a cause here from euro central bank, and he said i have one message. it is extremely important that the united states say that a strong dollar is in the interests of the united states. >> a strong dollar is in the interest of the united states. i deeply believe that, and our

intention is that we put the policy in place to sustain the economy of the united states. >> as the chinese talk about alternatives, as the russians talk about it, it seems to be pointing in that direction. >> i don't worry about it because look at the responses in the world they go through at this time. when people are most concerned about risk, generally they want to be in the most liquid, safest market in the world, which is still the market for treasury bills. i think you see that consistently over a period of time, and wemt to make sure we can sustain that basic response. >> you told us about things that have caused this problem or the backdrop for it. part of the solution has to be that we spend less, we consume less. but also the chinese need to save less. that is, the policies of the chinese government that actually

make it difficult for chinese government to consume more has also changed. have you made any head way to get the chinese to stimulate production? >> a critical part of an effective strategy for the world is going to make sure that in most countries like china, but not just china, that they're shifting the growth to domestic consumption. i think you'd hear the chinese say they believe in the imperative. they're going to host this dialogue in two weeks. in the core of the parliamentary discussion, there are those of us who can place a common framework, it's already happening on significant scales, that the world as a whole adjustses to that new reality

puts us on a path where you'll see stronger development growth in those countries. i think if you listen carefully to what the chinese say, i think they believe in that imperative. if you look at the content in terms of strengthening the economy, dealing with governments they normally ensure. i think you see in that a basic risk in this imperative, so i actually recently encouraged that -- >> they haven't done anything yet? >> just think back over 30 years. i think china, relative to any country in the world, has done an exceptional job of setting out a basic strategy and delivering on that strategy. if you're going to look at the basic thrust of strategy in china, there is a lot to be

encouraged by, and they have a good record. they're doing things that cut against that a little bit now. we're under enormous pressure. i think the big arc of policy in china will recognize that imperative, but we're going to try to use that with them to put that in place. i guess they're watching and wants to be confident that we have the capacity to work together, and i'm actually very encouraged. >> you've been through one of the most turbulent periods in american financial economic history at this point. what is the principal lesson you have learned? >> i think, again, i believe that the strategy the president has laid out took the best of experience around the world in dealing with the financial crisis and made a basic strategic judgment that the

risks would be greater to the world and to america if we had been more tentative. i think the strategy we put in place validates the basic judgment that you have to be very aggressive to put in strong measures to support private investment, and you have to make sure you get the financial system stable and working. because without that, you court grand disaster. so i think the lesson which the world has learned painfully over time is a lesson that's learned tonight. >> this is going to take us a while to get through this, and you're going to have periods where they say they're leaving. it's going to take a lot of patience. >> secretary geithner, a pleasure to have you.

>> thank you.

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i'm tom foerm at cnn head quartzers in atlanta. four u.s. marines have been killed in hellman province. the marines died yesterday in two separate bombings. they died in two separate attacks last month. four churches in baghdad were bombed in less than 24 hours. eight iraqi civilians were injured. one of the buildings, a christian church, was targeted in a similar attack back in 2004. most of the iraq's estimated 1 million christians have fled the country after extremist attacks. they've told congress former vice president dick cheney ordered intelligence officials to keep lawmakers in the dark about a secret counter-terrorism program. that confirmation coming from

the senate committee. attempts to contact cheney have been unsuccessful so far. they got exclusive access to the president during his visit to africa yesterday. they asked if his visit would call for investigation into alleged war crimes in afghanistan. take a listen? >> now it appears that the bush administration evaded efforts to investigate. there were thousands of taliban prisoners under his care that were killed, others were shot. would you call for an investigation into possible war crimes in afghanistan? >> there are indications this has not been properly investigated. it just recently was brought to my attention, so what i've asked

my national security team to do is collect the facts for me that are known, and we'll probably make a decision in terms of how to approach it once we have all the facts gathered. >> you wouldn't resist, categorical categorically, an investigation? >> i think there are responsibilities that all nations have, even in war. and if it appears that our conduct in some way supported violations with the laws of war, then i think that we have to know about that. >> join us for anderson's entire interview with the president tomorrow night. that's at 10:00 p.m. eastern on "ac 360." health and human services secretary kathleen sebelius says all options are on the table right now when it comes to funding a massive health care overhaul, and that could include a new tax on the wealthiest americans.

sebelius appeared on "state of the union" this morning. >> the bottom line is it has to be paid for. we all have to play a role. they have shareholders included, individuals included. and what's been remarkable, wolf, the stakeholders who in the early '90s, were the most vocal are on the table. >> you're open to wrangle's proposition? >> we'll be back in a little bit, and fareed zakaria returns shortly. imagine... one scooter or power chair that could improve your mobility and your life. one medicare benefit that, with private insurance, may entitle you to pay little to nothing to own it. one company that can make it all happen... your power chair will be paid in full. the scooter store.

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now for our "what in the world" segment. here's what got my attention this week. this is secretary of state hilary clinton meeting with the former president of honduras. he was overthrown by the honduran military. they have suspended his membership. president obama came out on tuesday in favor of the democratically elected president of honduras. let me register a modest

descent. what he was trying to do was undemocratic. it was to stop a refer endum. he was trying to abolish things that allowed him to stay in office indefinitely. they had already declared the plan unconstitutional, and congress had began impeachment proceedings. he was arrested on orders of the supreme court. zalaya declared himself a soc l socialist in 2007. zalaya probably got the idea from his referendum from cha vez

who did the same thing in his country, as is the president of eduador and even bolivia. so while we should support democracy and we should be against political change by military coup, we should also be opposed to unconstitutional power grabs by radical democrats. we will be right back. >> everybody knows that putin is against the war and putin is against the united states. that's why to establish a new relationship and to establish our relationship is absolutely impossible.

you probably saw president obama in moscow this week meeting with putin. but obama had another meeting with a man you didn't see. that man is boris nemsov. welcome, boris. >> thank you for the introduction. it's a pleasure to be with you here today. >> boris, do you think president

obama had a successful trip to moscow? >> obama is not a god. he is a great president, but he is not a god. he did everything he can, and i think that he achieved in different way some results to show that he believes in democratic, strong and powerful russia, and he talked to all of them everywhere, a russian school, for example, when he might repeat my option. the only thing to do is por get about corruption, forget about the style. what is very important is russian tv didn't show his speech. >> this is the speech he gave to the economic schools in moscow? >> exactly.

there were no channels in my country, no channels, showed very important obama speech when he talked about the american neighbor fight russia is the second world war, in the first world war, even a war against terror, russian and the u.s. were together. but no putin channel showed that. they're afraid of official opinions in the kremlin. >> and your feeling is that putin has been building up a certain anti-americanism and this would conflict with that program? >> what is really funny, for the past three days where obama and his wife went to moscow, putin stopped anti-american machine, putin stopped anti-american

propaganda at all. for all of us who appeared visi obama. yesterday i said, mr. president, you'll stay in our country for a long time, i believe that anti-american rhetorics will disappear. anyway, what's happened is he stop anti-american propaganda which is a basic point of his politics. on the other hand, he doesn't want -- putin doesn't want to show what is the real american position concerning human rights, concerning rule of law, concerns democracy. >> let me ask you, boris. you met with george w. bush. bush had similar meetings with russian opposition leaders. how was obama's different? >> that's a huge difference. bush really came to russia and he was like a big teacher, right? who explained to us how important is democracy, how important is political

competition, how important it is to open and how important is freedom of speech, right? we sit down in the american embassy. in the end we shake hands. and that's it. right? obama, we met -- he mainly listened to us. he just made final remarks about our ideas. but he wanted to recognize what is the real tradition of russia. what russian people mean. and he listened, mainly. >> let me ask you about the condition of the real russia. you have an article in "newsweek" in which you point out the stunning statistic which is that russia has now dropped to 147th in the world in transparency index's corruption listing. one of the things we used to so

often hear was that putin and his regime had been successful and popular in russia because they had brought order and they had brought prosperity. are people now feeling that this is a regime that is highly corrupt? what is the view of, you know, what is the average russian's experience today? >> first point, putin was popular because of very expensive oil. for the last eight years, before crisis, real incomes of ordinary russian people increased 10% per year. and unemployment rate was less than 3%, 4%. that's why russian people, they are very happy. higher oil prices, commodities prices, gas prices, for example. right? that's why people didn't care about corruption, about some of the things inside kremlin, et

cetera. corruption is not a problem in russia. corruption is a system. this is a system. not because russian people want to take bribes. but because of putinism. because of the system. this topic now, step by step, not immediately, of course, but these topics step by step will be very, very, in the focus of public opinion. >> boris, you asked one of the things president obama seemed to do, at least to me, was to really try to make a distinction between putin and medvedev. he said medvedev seems to be a modern man. putin has one foot in the old world, one in the new. he met with medvedev primarily. he had a breakfast with putin. he did not have a dinner. he chose to have a private dinner instead. is making this distinction between the president, medvedev, and prime minister putin who

many believe wields real power in russia, was that a smart move for obama to do? >> yeah. i think that he did great job as far as such distinction is concerned. great job. he always mentioned that america and the president of the united states base on rule of law, right? obama showed that he wants to talk with guy who is responsible because of law. everybody knows that putin is against the west and putin is against the united states. that's why to establish new relationship and to reset our relationship with putin is absolutely impossible. you know? it's absolutely impossible. and to repeat the same failure like george w. bush did, i don't think that this is smart beliefs. that's why obama wanted to try, just wanted to try to establish relationship with mr. medvedev. yes, he is weak. you are right.

that's why he was -- like his successor. on the other hand, he's younger. he had no experience in kgb. and he has experience in business. which is great news. and this is a window of opportunity. and i think that to use such kind of opportunity will be quite smart position. >> thank you so much, boris. >> thank you. >> we will be right back.

now for our question of the week. last week i asked you whether you approve of the moves treasury secretary geithner has made so far. after something of a rocky start, we wondered, do you think he's doing better? the answer from gps viewers i'm afraid is a resounding no. almost unanimously our viewers were critical of secretary geithner with many opining he

should be replaced. perhaps today's interview change add few minds. my question for this week is actually a question i raised at the top of the show. is the u.s. stimulus large enough? do you think it will eventually work or do you think we need a second stimulus as many on capitol hill and many economists are suggesting? let me know. as always, i'd like to recommend a book. it's called "the geopolitics of emotion. how fear, humiliation and hope are reshaping the world." the author says those three human emotions are key factors in the world's political conflicts. asia is full of hope. the muslim world beset by humiliation and the west is ruled by fear. but what the title doesn't do is give you an idea of just how good the book is. fascinating. really worth reading. remember, you can now follow us on both twitter and