educational -- >> host: what did you mean, you referenced the tax programs, tax policy? >> guest: well, this is -- so i'm really going to punt in this time because this is really congress' decision. >> host: you are a citizen of this country -- >> guest: clearly one tool that you have as a legislature to address inequality is tax rates, income, wealth, inheritance, corporate taxes, all hose things. i think there are a lot of improvements could be made in those tax systems. i'm not advocating a particular tax rate. i don't think that's really -- really not my role. but it is a tool that you could consider and think about also the trade-offs of doing that. but it is one tool that congress has to look at. >> host: well, it's not your role except that you are a distinguished economist that speaks with a louder voice than almost any other distinguished economist. i know you're not going to let me pip you down on -- pin you down on what tax rate should be,

but just thoughts generally on everything from -- i'd like to hear your assessment of what we're doing right and wrong, everything from earned income tax credit to estate tax to corporate tax to the personal income tax -- >> guest: you mentioned two areas. i mean, i think earned income tax credit and other credits that reward work, reward education, that those are constructive, and they avoid some of the trade-offs that you wore toly about if you -- that you worry about if you, you know, essentially create a tax on benefits by taking away benefits if you go to work, for example. corporate taxes, seems like that's an area where there's a lot of bipartisan agreement where closing loopholes, creasing the territorial issues, those are things that i think should be able to get done, it seems to me. so there are some areas where progress could be made, for sure. >> host: i'm working with a couple of senators and speaker ryan, i'm hopeful that we can come to some agreement on a territorial tax so that we can

give incentives to companies to bring their overseas dollars back home at a tax rate of 10 or 11 or 12%. but, and that hundred goes to long-term infrastructure and -- that money goes to long-term infrastructure and at the same time -- >> guest: well, repatation -- >> host: but to have a minimum tax from then op on. >> guest: right. inis they would of being a one-time thing, you want to make that a transition to a more rational system that doesn't create that incentive -- >> host: and that part of what we're trying to do. >> guest: great. my last question, of course, is about baseball. and one of things that you love about baseball is one of the things i love about baseball, the statistics. you can sort of compare across eras, but obviously not always, and you were lucky enough to see what some thought was a perfect game where two outs in the ninth inning. my question is this, and i represent ohio, as you know. southern part of my state, pete

rose is not -- i'm not asking for your opinion on whether he should be in the hall of fame. pete rose is not in the hall of fame because of betting on games, and in the northern part of the state, "shoeless" joe jackson, some of his best years were playing for cleveland. so understanding the blemishes that the two of them have on their careers, there was a rookie player for the new york giants, and this story came up again recently because they were playing the cubs. and the cubs, it was last year. the cubs won world series in 1907, and if the cubs had actually won the world series this year which they clearly weren't close to doing, my team, the cleveland indians, would be the longest existing team to have not won a world series all the way back to 1948. but how fair was it that the first baseman for the new york giants who was this young rookie star made one mistake, and he was called bonehead for the rest

of his life. how fair is major league baseball when it labels him for the rest of his five world series appearances, 15 years in the major leagues -- >> guest: and 1907, i remember it like it was yesterday. he didn't run out the ball to second base. you know what it was like, it was like -- this is interesting, you know? they had this so-called neighborhood play, the idea that when you're doing a double play and there's a runner sliding at you, you don't really have to touch second base -- >> host: just be in the neighborhood. >> guest: and now they have instant replay, and that has eliminated the neighborhood play. the point is that the standards change. and at the time, back in 1907, as i understand it -- you can correct me -- as i understand it, the convention was you didn't have to go to second base -- >> host: the game ended. >> guest: so i think it was a little unfair to poor fred merkel who -- is he related, i wonder, to the german chancellor? >> host: i don't know, i thought of that, but i'm guessing not. i would not use that word in

connection with her. >> guest: all right. [laughter] >> host: if you ever want to be in the public eye again. >> guest: that wasn't my intention. i think it was a little unfair, yeah, that what was a standard practice was reversed in a crucial play at the end of the world series -- >> host: that allowed the cubs to win the world series. >> guest: at least that was something. >> host: thank you, ben bernanke, good conversation. thanks for your service to our country. >> guest: thank you. >> that was "after words," booktv's signature program in which authors of the latest nonfiction books are interviewed. watch past "after words"' programs online at booktv.org. >> and now from 2010, former treasury secretary henry paulson talks about his memoir, "on the brink." [applause]

>> first of all, i want to thank you for coming. you honor us, and i should declare right off the bat that i'm a friend of hank's, have been so for some years. i admire him when he -- before he took the job, i admire him a lot more after the job he's done as secretary of treasury. the name of this book is "on the brink," and that's exactly where we were in september and october of 2008. at that time our economy, our financial world went into cardiac arrest. and we had four people in the operating room that we were very fortunate as a country to have in place. we had hank, we had ben

bernanke, we had tim geithner, and we had sheila bair, the head of the fdic. i really, i know a lot of people in finance, i know a lot of people in business, and i know people in government. and i can't think of four that would have done a better job of getting us through that. now, it's kind of fashionable now to look back and pick at one little aspect or another of what was happening then, but our country's financial system froze up during that period. some of you in this room were at a party i was at in september of 2008 when the talk was our money market -- are money market funds safe. now, when you have 3.5 or more trillion of funds held by 30 million people who on a sunday night are worrying about whether they can get their money, that money was half of all the deposits held by u.s. banks at the time. you have a panic.

you had commercial paper freeze up entirely, and you have some of the biggest companies in the united states -- and is some of them are described in this book -- that worried about whether they were going to meet their payrolls in a horse period of time. you had the sixth -- short period of time. you had the sixth largest bank in the country, washington mutual, fail over a weekend. you had the third largest bank, wachovia, that needed a shotgun marriage on a monday porn morning to -- monday morning to survive. most interestingly, this book starts in early september when freddie mac and fannie mae, essentially, were broke. here are two institutions that guaranteed 40% or so of all the residential mortgages in the united states, whose debt was held all over the world in very significant amounts including by foreign governments that would not have taken kindly to a default, freddie or fannie. you had them honing a very large

portfolio of mortgages themselves. and like i say, in early september they both were broke. it's worth noting for those who take shots at some of the people who were operating during september and october that those two institutions, freddy and fannie, were chartered by congress and were ruled by congress. and for those who have heard them criticize the leverage in the banking system, it should be also noted that they allowed freddie and fannie to operate with a 40 to 1 leverage ratio, and they let them guarantee over 100 times the amount of capital they had in mortgage guarantees. so these two institutions, which were vital to the mortgage market and vital to the very integrity of the united states and which had received -- and this complicated hank's problem -- in a very short

period before september the watchdog agency that congress had established to watch these two agencies had given them a clean bill of health. and that clean bill of health, it might be pun to go back and read that now -- fun to go back and read that now. well, let's get on to hank's book. you know, when i got this book, i got it a little early, and i expected to learn a lot about the financial crisis, and i did. but i didn't realize that i'd also learn something about how to attract women. [laughter] it's a little late, i realize. [laughter] hank had a surefire approach which when he took wendy out on their first date in boston, i would like you to describe it. if you even want to elaborate on it a little bit, hank, i'd like to hear about it. >> let me say before i do that, warren, frawcialg i'm delighted to be here -- first of all, i'm

delighted to be here in omaha. again, i've been a longtime friend and admirer of warren's, and he was just a real pillar of strength and a source of strength for me during the credit crisis. now, warren was referring to something in the book. i was not a model of maturity when i was a senior at dartmouth college. my first date with wendy, we were at the boston pops, and she wasn't very impressed when i made my program into a paper plane and sailed it at arthur feedler. >> did you hit him? whether no. [laughter] she gave me another chance. >> but didn't she go home early that night? >> yeah, yeah. [laughter] yeah, she went home early that night. >> fortunately, he got a second chance. >> you're right. >> and, hank, tell us a little bit about, you know, hank's a --

he says in the book, you know, i'm a tough guy. i forget at what point you said that, but he also -- he was a wrestler in high school, he was all ivy at dartmouth, but when the president asked him to become secretary of the treasury, hank's initial reaction was not to do it. but he decided to do it. but he had one big worry, and i think this crowd might be interested in knowing what makes a grown man tremble. >> warren is talking about my mom. [laughter] i'm quite close to my mother. she's a strong woman. she's very engaged and interested in politics and policy. and she was not an admirer of george bush and very unhappy with the war, very interested in women's issues and is so on. and so there had been a fair amount of peculation in the press that i -- speculation in the press that i might go to washington. and i had turned down the opportunity a couple of times, and i assured her that i was not going to go because i had no

intent of going. but then when i had reversed myself and decided very suddenly it was the right thing to do not to say no to my country, i was in illinois where we live and still have our primary residence, and i was there op memorial day -- on memorial day weekend because the president was going to make the announcement on the tuesday after memorial day weekend. so i was going to see my mom. unfortunately at church, we were at church together, i had a long totime friend ask me -- longtime friend ask me about what i was doing next, and i told her. of course, she went up to my mom and said, isn't this great, marianna. and mom didn't think it was great. so when i arrived up to tell my mom, she already had known about it, and she was -- and i didn't see her sob that much, but she was sobbing and very angry. angry and crying. and said to me that i'd started with nixon, and now be i was going to end up with bush, and i

deserved everything i got -- [laughter] and that i was jumping on a sinking ship. but i will say, i will say this, though, in the end i say that by the time i'd finished in washington, my mother had a different opinion of george w. bush. but of it was a, it's not a good way to start off. and wendy wasn't much happier with me. so -- >> hank, one of the most interesting things i found in the book, and i'd not heard a word about this before, was your account of how top russian officials had goon to some -- had gone to some chinese officials with the suggestion, essentially, that they start dumping the bonds of the public freddie and fannie at that time. that almost sounds like a bear raid. i thought that was the sort of thing that just the evil guys on wall street did.

tell me about that. >> well, it never happened. but we were very, very concerned about stabilizing fannie and freddie. because as warren said, there was $5.4 trillion of securities that were either insured or issued directly by these institutions. highly levered institutions, and these securities were held i think about 1.7 trillion outside of the u.s. the biggest portion was inside the u.s. and we had -- i'd been trying to get reform legislation are congress beginning in 2006 and to get the kinds of reforms we needed, but we were unable to get action until they were just on the edge. and so we were able to go to congress, get the authorities. and then as we needed to really spend time poring over their books, understanding the

financial situation. well, i had -- in the book i leak out that i was in china for the olympics, and there i had -- it was given to understand that the chinese had been approached by the russians who -- with the suggestion that maybe they could sell some of the securities together maybe to test our resolve. who knows, who knows why. but that got -- >> why do you think? >> well, i would say probably to just -- i don't know why. but we'd had so many conversations with the russians, the chinese and everyone else i just knew that just any kind of sudden selling would have really spooked the markets. and i would say it never happened, but it was a, you know, when some people say to me just about everything bad that

could have happened did happen, i say not quite. it felt that way sometimes, but, you know, we -- i worried about another possibility of a sudden decline in the dollar or there were other things that never happened. and one of biggest concerns i had was getting fannie and freddie stabilized. and, in a sense, we tell the story of how very suddenly we put them boo conservatorship which was, essentially, guaranteeing their debt. because it was, it was, in essence, an implicit obligation by the united states of america. it was sort of like the banks had their conduits which are off balance sheet and with implicit guarantees. that's a little bit like what fannie and freddie were. and we were racing against time to stabilize those before we knew some bad earnings were going to be coming out from the

banking sector and particularly the lehman brothers losses. so that was a race against time. and i was fortunate, we were fortunate that we were able to get it done without the markets becoming spooked or unsettled. so that's why i was, you know, why that, what i'd heard in china got my full attention. >> there's a front-page story in the journal this morning about freddie and fannie, and it's very much worth reading. and i believe it said that there's now 111 billion that's within put in -- that's been put in by the federal government, but it's expected much more will. so, in effect, it presently looks like the federal government will lose more money in freddie and fannie than in aig by some margin. >> well, warren, i look at these programs overall, okay? we will get every penny we put into the banks back and with a profit. >> yeah, i think you're right.

>> and i think when you look at all the other programs, we may be surprised what we get back. and actually even on freddie and fannie, i'm thinking the fed will make a lot of money by buying and holding those securities. but you're right in terms of the losses. and to me, the important thing about freddie and fannie is right now the u.s. needs them playing the role they're playing. but one of the things that got us into this problem is not just freddie and fannie, but if you look at all of our, the weight of all of our programs to stimulate housing, and it just has gone too far. and freddie and fannie are not going to be able to stay in their present form. it's a -- they need to be, i their mission needs to be shrunk, they need to be restructured in very, very fundamental ways. but right now we need them where they are.

but i think how we, how we unwind in this situation is going to be very important. >> when you were getting grilled by congress and they would point out how there was too much leverage in the banking system, did you ever get tempted to say that the institution they ran had most leverage of all? >> i got tempted to say a lot of things, juan. [laughter] but i -- warren. but i resisted that temptation. one of the things i am pleased about is that i was able to build enough relationships on both sides of the aisle that congress did act before the system collapsed. and if it had collapsed, we would have easily had 25% up employment in this country. it would have been a terrible situation. and the crisis -- the book is very, is to a large extent the story of the collision of market forces and political forces.

and the crisis came at, in many ways, the worst time with an election on the horizon. and so what i needed to do was to get action there be congress -- from congress. and actually what we got on freddie and fannie which was unlimited authorities, i used the word specified. >> i liked it. >> it sounded better. but we needed those. >> yeah. >> i had to keep reminding people that i didn't design this thing and didn't create it. >> hank, you had relations with the chinese long before this, ask and you used them to good effect during the crisis. i think you told me you'd been to china maybe 70 times or so. what would be the american public's greatest misconception about the chinese and their economic system? >> well, i do believe there's a lot of mess conceptions -- misconceptions americans have even about our own economic

system. and so, but i think that the thing that we all need to keep in mind is we're operating in a global economy, and so when other important economies don't do well, it hurts us. just like when we don't do well, it hurts others. and so the worst thing that could happen to us and that could have happened to us during the crisis would be to have had the chinese economy faulter and stop growing -- faulter and stop growing -- fault falter and stop growing. and looking ahead, we need china to keep doing well. we -- it's in our best interests to have them keep doing well. now, there are plenty of differences, and there are differences in the economic area and in other areas. but i think the most important thing for americans to understand is that there is a

relationship where we're both, to the a large extent, dependent upon other. we, of course, in the u.s. we don't save enough. excuse me. can you hear me okay? so in the u.s. we don't save enough. we have a tendency to save too little as a people and as a nation be we borrow too much. and so we, you know, chinese be savings and -- chinese savings and capital are very important to our capital markets. now, the chinese save too much, and they need to continue to open up their economy and continue to open it up to competition, to move forward with the reform process, to reform their currency, to move more quickly to a market-driven currency. all those things. and is so it's very important

differences, but we just need to remember that this is a relationship we need to get right, and we need to work very hard to get it right. >> and when you, you would tell them that in much more gentle terms from time to time. and what sort of response did you get when you'd talk to them about saving more and so on? or spending more? >> well, i would simply say that one of the things we started with under george bush was the strategic economic dialogue which is being carried on. and what i generally said, see, we agreed on principle, so they agreed to open up, they needed to open up their economy to competition, needed to continue to move their currency so it was to a greater extent determined by the market. but we agreed in principle on the philosophy, but it was a matter of speed.

and so i would be thinking they needed to move it this far in this period of time, and they were thinking they needed to move it this far in this period of time. but we, we talked very directly about it, and i think thing that you need to remember is that when dealing with the chinese or any other sovereign nation, we need to put it in terms of what it means to china and their people. and i was just totally convinced that to the extent they sped up the process or reform, it was only going to benefit them and help them get where they want to get over the longer term. and i would say to them i believe in free trade and open markets, but you'll make it easier for me to fight to keep our markets open if you speed up the process of opening up your markets.

but i felt we got very good results. if you look at the history and you look at what happened to the currency when i had the dialogue with the chinese, i think the record will show that it moved, that we -- i was very proud of this ten-year framework on energy and environment because, again, we are not going to solve the issues of climate and some of the environmental issues we have and energy issues unless you get the two biggest, among the two biggest importers of oil and the two biggest emitters or carbon to work together. and there's a lot we can do working together between our two countries. and, again, i'm a big believer in engagement because there's very little you can do in this world that's important globally that's done on a unilateral

basis. >> you mentioned president bush. you know, i'm a hitting bit like your -- i'm a little bit like your mother. in fact, i want to get to meet her now. [laughter] >> remember, she's changed her mind. >> well -- [laughter] when i get through with her, maybe she'll change back. [laughter] but i, i did through the book, you know, i got more appreciation for what he did in this particular situation. you know, i've read various economists, eloquent one, adam smith, david ricardo, keynes and all that, but i've really never heard a more eloquent statement that succinctly summed up the economic world than george bush made in september, i think, of 2008 when he said in a memorable ten words, he said, "if money doesn't loosen up, this sucker can go down."

[laughter] /-- tell us, i mean, that really hit, you know, it was like gettysburg address. short but to the point. [laughter] did, as i read the book, i really did gain an appreciation for the fact that he understood what was going on, and he understood what needed to be done. was ever a time that you went to him with proposals that he shot you down on? >> no. because he was -- he wasn't -- he was only surprised when i was surprised. and i was surprised more than once. [laughter] >> what was the biggest surprise? we'll get boo that. >> well, but i would say that i poke to him -- spoke to him, one of things i learned, warren, from my previous career or is no matter what you negotiate, i could have all kinds of understandings about the relationship we would have, but if i didn't have the right relationship with the president, it wasn't going to be his

fault, it was going to be my fault. so i had a year before the crisis to get to know the president, to work with him. he had a good fundamental understanding of markets and economic issues. he cared about them. and so the conflict he dealt with was the same conflict i dealt with or anybody who had watched markets. we believe in the united states of america that risk takers should bear the responsibility for their own losses and that so big interventions were not something -- i didn't go to washington to do that, and he certainly didn't. but from day one he understood that the financial markets were about our economy and jobs. so repeatedly i'd be coming to him, and i wouldn't have to sell him. halfway through the conversation, he would buck me up and say, listen, hank, we'll

get through this. we're not always going to look good. this is going to be politically unpopular, but we're not going to let our economy go down. we're going to do what it takes to save jobs, to save economy, and that was his point of view, and he was -- you know, you talk about my mother. sometimes he was almost like my be mother to me. he would be telling me i needed to work out, i needed to get more sleep. [laughter] >> in terms of the other people on the political stage, it seemed to me that going up to the election that you probably felt that barack obama was both more knowledgeable and more interested this what was going on -- in what was going on in the financial crisis than john mccain. is that a fair statement? >> well, let's say it's no doubt fair that i had -- the conversations i had with john mccain weren't as frequent as

they were with barack obama. they were more difficult, and i certainly, he certainly gave me more anxiety about all of that. and, you know, now-president obama was attentive, engaged, and i felt comfortable he was going to support what we needed to do. but i'm quite grateful for john mccain because -- and have real respect for him -- because let me tell you, with an election six weeks away when we went to congress. and there's no way we would have, in my judgment, got the t.a.r.p. if john mccain had come out against it. and if he had played the pop list card -- populist card, we would have been left defenseless. and so as i look back, i'm

increasingly grateful of the way he handled himself during this period. but during the time he gave, you know, i lost a few hours of sleep. >> hank, yeah, you describe at one place in there, you've got something where you say you issued a veiled threat. i read what you said, it didn't sound very veiled to me to mccain. [laughter] >> well, that was, that was when he was, when he came back, you know? there was quite a scene when he interrupted his campaign to come back, and i remember i was testifying at time. michelle davis,s who is here with me today and is sitting behind me when i was testifying and handed me a note and my blood sort of ran cold. and she said to me, now, if someone asks you, excuse me, about john mccain coming back, just simply say i welcome the

involvement of, you know, of even in this and so on because i think she was afraid what might come out of my mouth. >> michelle hand you a note before we came up here? [laughter] >> no, no. she talked to me on the flight on the way down. but in any event, so as it turns out again it was a couple days of anxiety. but again, john mccain, when he was back, spent time with the house republicans rallying them, and, you know, it was -- so he did his part. and then even after we got the t.a.r.p., he did not jump on or criticize some of the things we had done which, again, were very unpopular. so american people -- and i'm proud of the pact that on one level the -- the fact that on

one level none of us liked bailouts. again, i looked at a poll once that sometime, you know, after the election but after we'd done some of the things we'd done, and i think this may be slightly exaggerated, but i recall that something like 93% of the american people opposed the bailouts and 60% opposed torture. [laughter] and yet 70%, 70 were worried that we would go into something much worse than a bad recession. and so we've never been able to explain to the american people this wasn't for wall street, this was for them. >> you have these consultations with obama, although i understand that's sort of ended after the election. but -- >> leave out the sort of part, yeah. [laughter]

>> both the president and members of the administration have repeatedly said during the past year that they really didn't anticipate the how tough things would be in the economy. from the message you were giving them, i mean, you expected things this tough, didn't you? be or am i wrong on that? >> well, warren, i'd ask you sort of what you expected, because i, i did not expect them tough. i expected them -- i knew when we went up, there's a scene in the book where we talk about ben bernanke and chris cox and i went up september 18th to meet with congress and tell them we're going to need these authorities. and the difficulty we had at that time was, as warren said much better than i could, the arteries of the financial system were freezing up. and so i knew with a certainty

that business was going to turn down because when you have companies it's uncertain whether they're going to be able to raise their short-term funding, most cfos are going to go to the ceo and say, hey, boss, i may not be able to have all the funding you need for the next 30 days, so what does a prudent company do? they start cutting back. but congress hadn't seen this yet, and is so they hadn't seen it yet this their district. so i knew with a certainty it was going to get worse. i'm not sure i knew it was going to be 10% unemployment, but i knew it was going to be bad. and is so then when the -- and i knew that if they didn't do something and it collapsed, then the businesses wouldn't be able to fund themselves, wouldn't be able to pay for the inventories and pay suppliers and would let

employees go, and that would ripple through the economy, and we'd have armageddon. but -- so then when the economy did turn down, we had this terrible situation of as congress saw it because congress saw it the way the american people had seen it, we end up and said give us these authorities, and if you don't, we're going to be in deep dodo, you know? it's going to be bad. well, they gave us the authorities, and we were in deep dodo. and as barney frank said, it's very hard to get credit for presenting -- preventing a disaster that people nebraska saw or could -- never saw or could see. >> did you really get down on your knees to plead with nancy pelosi? >> i did. [laughter] but you have to understand that i was in a cabinet room witnessing when both, you know,

senator mccain and senator obama were there in the middle of the campaign with the congressional leaders where not only did we not come together, it broke out -- people didn't come to physical blows, but there were verbal blows x it was chaos. and then the democrats assembled in the roosevelt room, and i went in uninvited, and i just, i did it just to try to break the, you know, the tension and to get a smile or laughter. and it didn't really have its desired effect. [laughter] because i remember as i recount in the book, i said i, you know, please don't go out and blow this thing up. and the speaker said to me, we're not the ones that are

blowing it up. and she was right. >> hank, you know, you've got a great investment background, you've seen how government operate here, abroad. nobody's had a better perch from which to view the economy and to make judgements about the economy going forward. as i understand it, when you were secretary you had to have your money in a blind trust. and now the blind trust presumably is over. i don't want you to give us the names of stocks --al hoe if you want to do it, you're free to do it. [laughter] but give us an idea of the composition in terms of bonds, stocks, whatever of the portfolio which you had a chance to establish here in recent months. >> well, warren, first of all, you are a great investor. you do very good, very careful

work. one of the things that i learned during my career is i'm not a great investor. so i need to, i these to find great -- i need to find great investors. i believe the system is, the financial system is stable, banking system's in better shape. i do believe clearly the recovery process has begun. you and i have a common worry about the fiscal crisis in this country -- >> yeah, we'll get to that. [laughter] >> you have one of the best lines i've ever heard as et relates to that. -- as it relates to that. but in any event, so i am -- you just need to understand also that what wendy and i are looking to do, we're going to devote the balance of our careers to conservation and the environment, and that's where our money's going. so i am not looking to make

more, i'd like to keep what i have. and so i'm not looking at it with a really long-term horizon, because i continue to believe with a long-term horizon the best way is to invest in high quality companies and many stocks. that's what i believe in. if i was a young person, i'd be looking at companies that have got good, strong market positions for the long term. so i have a lot of what i have is in fixed income markets, money markets. but then the others i have tend to be in growth equities, because i still believe that the economy can go down and sideways and whatever. but outstanding, well-managed companies and particularly companies that know how to

operate globally will prosper over a long period of time. and that's way you need to look at investments, is over a period of time. i don't put too much stake in quarterly economic data, what happened to the stock market today or tomorrow. i think the right way to rook at it for a young -- to look at it for a younger person is over a longer period of time. >> you said you have a substantial amount of fixed income. does that mean you don't worry about a decline in the value of currency? >> well, warren, i'm -- you're certainly not going to get a former treasury secretary talking -- [laughter] >> i can try. >> because i really, i really do believe that, and i worked very hard, that a strong dollar is, is just very much in our interests and essential to the success and the preeminence of the united states of america. and i believe that the best way

to have a strong dollar is, again, looking at it over a long-term view, have a strong economy and to have fiscal discipline. now, i'm not going to to give your viewers what i think is going to happen to the dollar in the next five or ten years which is, you know, what i'm really focused on because we intend to give away a lot of money over, you know, a relatively short period of time. >> so if i made you a trues fee -- trustee for my children and i said you've got to buy fixed income, would you prefer the straight bonds? >> i'd go to you, warren. [laughter] >> i give up. uncle. >> i would ask you, and i'd take your advice. but i would ask myself the question which really gets back to where you're going to go

which is that, again, which gets to current i a little bit. -- currency a little bit. i have spent a lot of time outside of this cup, and i've spent time in all of the major economies. and believe me, every other major economy, china included, has many more really significant challenges and problems than we do. they really to -- do. and we're the richest, strongest economy in the world, but we have to deal with a relatively few very important challenges, and the biggest one is the fiscal crisis. i shouldn't call it a crisis because it's not a crisis immediately, it's a challenge immediately. one of things i learned and one of the things i write about in this book is that it's very

difficult to get government to act, congress to act ask and to anything that's big and difficult and controversial unless there's an immediate crisis. we had an immediate crisis, and we still haven't got the regulatory reform we need. and, again, that's something that is absolutely critical. i have no doubt we will deal with this fiscal challenge at some point in time, but the earlier, the less burden younger generation will have to bear. >> let's go back to the fall of 2008 again and that fateful

weekend of september 18th. really on friday it wasn't known the extent of aig's problems even though they were going to come cascading in a few days. but you did have this big problem with lehman. you called together a group of people on wall street, and you thought you had barclays signed up, and i think they wanted to be signed up, but they ran into problems with the british government subsequently. seems to me on -- forgetting about lehman even. if you had merle learn. -- merrill lynch to follow the lehman bankruptcy, i think you and i agree merrill would have gone. >> right. >> what would have happened if the bofa hadn't made that deal on merrill on that sundaysome. >> it would have -- they wouldn't have lasted, in my judgment, you know, it couldn't have lasted a week. what people missed, and i think

it was easy to miss, was-a doozy. -- it was a doozy. these excesses had been building up for a long time. i knew we were overdue for a credit crisis. i told the president that when i came to washington, but i didn't expect anything of this magnitude. but it had been building up in the united states and in europe. as you can see from reading the papers, it's still working its way through. institutions had been sitting on losses. we'd be pressing them to recognize losses, raise capital. but, so simultaneously we had on the same weekend we learned about the extent of aig's problems on saturday. lehman, the run had already started on lehman. it was -- merrill was going to be right there. so you had those throe

institutions, and, you know -- those three institutions. and as warren said, we had washington mutual shortly thereafter and wachovia, and over the next weeks we had six european nations had to step in and recognizing the institutions. so this was coming at us pretty quickly there all sides. >> ironic, but in effect, i think you talked about an appetite for -- but if in effect he hadn't made this deal which does not look like the greatest deal, he offered a 70% premium on on the day before when the next day -- didn't he, in effect, kind of save the system for us? >> i tell ya, he was a confident , decisive ceo. and there's no doubt that that was very much of a stabilizing

action. >> do you think we would have gotten to tuesday on aib if there hadn't been -- aig if there hadn't been action on merrill that day? >> boy, i don't know what would have happened because i don't think, warren, i don't think we could have taken one other big institution failing, do you? >> no. >> it just, the system -- that's the thing that's hard for people to understand, is that we have ten institutions that had, you know, 50-60% of the financial assets in this country. and it was so interconnected, it just -- i think we would have, in many ways as bad as this is and it's terrible, but when we look at what could have happened, we're pretty fortunate.

>> hank, british have given you that kind of warning about the situation a couple of days earlier. but in in effect, they blocked the barclays acquisition of lehman. do you think they understood what consequences were? >> i don't know everything they understood, but remember, there was this, there was a requirement for shareholder -- >> yeah. but we overcame a lot of this country's requirements. >> that's right. and then what we needed was we needed a buyer that could do what jpmorgan did.

there was no authority in the u.s. and what i think people have a hard time understanding in the united states of america, and i had a hard time understanding, starting turning over every stone to see what authorities we had was there was no authority. but in any event, i'm not sure. i was disappointed, but as i said in the book as i reflected on it, they obviously had their own issues they were looking at, and the regulateor, it was for them a very difficult, that must have been a very difficult

decision to let one of their banks go ahead and in the middle of a run on lehman brothers, step in and make that acquisition and they could be confident that they had the wherewithal to do that. >> hank, lehman did go down on that sunday, and barclays then bought a limited part, a much smaller transaction. i think it was tuesday or wednesday that british authorities -- i guess the british authorities, said that if you had ab account with lehman, even if they were keeping your securities there, you couldn't take it out. i mean, they froze the accounts, basically, which i gather came as a big surprise to you. certainly did to me. >> that, i think -- that shocked the market. by recollection was it was

tuesday, but i could be wrong. >> yeah. >> because i recall learning about it tuesday and that was actually the day of the aig rescue. but what happened was the collateral, third party customer accounts, broker-dealer and others were frozen for a while. and investors needed to know that their accounts were safe. and, of course, when they weren't with lehman brothers in the u.k., then there was the beg erosion of confidence in the investment banking model, the viability of the investment banking model. >> that wouldn't have happened in the united states. you would have had access to your securities. yeah. and as i remember that, it didn't get publicized much, but it was a