>> from talking to them and listening to them over these last two and a half years of crisis, my view is they've considered this very carefully and they've decided it is in their interest to hold it together. and what they say to us privately is they will do whatever it is necessary to hold it together. there's these three -- there's many, but among the many concerns people have looking at europe and these are i think misperceptions, they worry does europe have the ability, economically and financially to make it work. i think they do. do they have the will? >> what about politically? >> what about politically. >> martin wolf wrote a few months ago, never that generous to europe, he wrote never underestimate is commitical commitment of european leaders to make integration work this is a project decades in the making. a huge political imperative for

members of the union. they say we will do what is necessary to hold this together. there's another i think misperception out there that people worry about are they actually deferring their problems or confronting them. are they doing things that will make the economics more viable. some people fear their actions are buying time in order to enable to not do anything. that's unfair to them and not true. they are doing very difficult, very tough things economically to improve the pros peblgts for long-term growth to make it easier to start a company. lower the costs, make themselves more competitive to reduce their long-term fiscal deficits and to restructure the financial system. i think this is something they can manage. i think they've made that fateful choice that they're going to do what it takes to

make europe work. >> there are five more job reports before now and election day. one just days before november sixth. what is your outlook for any real improvement barring some shocks, european and otherwise that would change it. but given the current situation, how much improvement can we expect? >> most people say they still think the economy's going to grow at a roughly 2% rate over the next 18 months or so. some people say it should be two to three. some people 2.5 to 3.5. that's the outlook they say. that's recognizing the pressures we see ahead from europe and

elsewhere. and of course that's not -- that growth is not strong enough to make a lot more progress getting more americans back to work and bringing the unemployment rate faster. that's why it's so important that we do what we really can do uniquely in the united states which is to put in place more things now that would make growth stronger. we have the unique capacity now we're judged a relatively safe place for the savings of the world. we have a unique capacity now to combine some growth improving investments and infrastructure more teachers, tax incentives for business investments and things like that combined with long-term fiscal reforms to restore gravity to our fiscal position. if we could do those things now, we'd be in a stronger place to withstand the uncertainty you're

going to face. >> now 42 senator haves signed up and said they are prepared to revisit bowles-simpson. is it time even if he cannot move a grand bargain between now and election day, is it time for the president to readdress that as many business leaders are saying and give some stronger signal that he would be willing to embrace those tough choices to give the markets a better sense of confidence going forward? >> let me say what i think would be most helpful. the most helpful things from washington in the nearly term would be a willingness to legislation things that would strengthen growth now. a commitment to extend what are called the middle class tax cuts that affect 98% of american tax payers. no reason those should be put in jeopardy as we face the challenges at the end of the year. take the risk of serial threats of defaults off the table. those are very damaging to confidence. they have no value.

no role in trying to get us to a better position in these things. and both sides should commit to negotiating a balanced framework of tax reforms and broader spending savings that will help bring our deficits down over time at a pace that's consistent with the recovery. on a glide path to reform. >> if that's not going to happen a why not take bowles-smpson and that framework by name and have the president sent this very strong signal. >> we believe, the way i usually say it is this debate about what's the right path to fiscal sustainability it really began with boles-simpson and that's where it's going to end. the framework the president laid out, although it differs in small respects from the basic framework is very close to that basic design. that's the neighborhood in which we've planned to govern. we think that's the only path to resolution politically. that's where it's going to end

up. what that requires is tax reforms that raise a modest amount of revenue tied to spending savings across the government, but still preserving some room to invest in things that matter to how we grow and move forward. i think it would be -- it would be helpful to confidence to have both sides say, and we've done it that we're willing to negotiate a framework that moves in that direction. again, that's this is where this has to go. there's no i think plausible way to get there economically or politically without that type of balanced framework. again, it marries tax reform with broader spending reforms to reduce the rate of growth and long-term commitments on health care. >> should there be a temporary extension of all the bush tax cuts as bill clinton and larry summers has suggested. >> i don't think it's fair to them. but i want to revisit that history. our view right now is and i

think this is right is that we need to take advantage of the incentive created by the sequester and these expiring tax cuts to force this town to confront and take on the things that divide us now in these long-term fiscal reforms so that we can go had and govern and start to address the many problems the country faces. and for people to say we're going to put that off, i think would be damaging to confidence. again, this is a place where people spend a lot of time worrying it's a bit of a cloud over the american economy over whether washington with work again. for washington to say we're going to differ, i don't see how it could be helpful to confidence. >> the data the fed reported on monday -- >> we would not support that. >> understood. >> is that clear? >> got it. the fed reported as of their

2010 the recession was so much deeper than anyone had expected or reported that the needian middle income americans lost 39 to 40% of their wealth. this is a devastating loss of a generation of wealth for middle income americans. how do you as a policymaker take that in and translate the effect on average american families? >> i think it tells us what we already know and what americans understand. which is the crisis was much deeper and the damage to confidence and to wealth and to people's basic sense of security much greater even than people could see in the numbers at the time. remember the economy was shrinking at an annual rate of 9% in the fourth quarter of 2008. and the stock market and house prices had fallen dramatically at that time. now those measures of wealth and income started to move up really

quite early in the first half of 2009. so the value of people's pension savings started to go up again beginning in the second quarter of 2009. and income growth, median income growth started to recover again over that period of time. but, you know, it was a deep traumatic, whole scars across the economy still. we've got a long way to go to grow out of that -- to dig out of that, repair that damage. absolutely. but most of that damage was done, damage to wealth in that report in the fed's report you can see in what happened to equity prices and home prices. that damage, those things started to improve and reverse or at least start to stabilize when the president's policies and the fed's policies started to get more traction. they got traction very quickly over that period of time it was really remarkable. you look at an economy falling at a rate of 9% a year and we had positive growth in the summer of 2009.

in a six month period you went from an economy that was falling off the cliff to an economy growing. now growth has not been as strong as any of us would like in part because of europe and head winds because of fiscal contractions at state and local level and partly because of the digging out of the excessive debt that helped create the crisis. but i think in some ways that story is a story of how effective and how quickly you saw the economy start to stabilize and recover because we were -- we did move very forcibly. we went in very hard and very fast. we did the hard very difficult political things very, very quickly. that made a huge difference. didn't solve all our problems. still a lot of challenges lade. if you look at everything in europe over the last two and a half years is a justification for that basic lesson of crisis management. >> if it's a given that americans, the average american

does not understand private equi equity, does not understand wall street, doesn't understand the banking system very well except to worry about it a lot now, what is your response after the testimony today by jamie dimon, the best banker did not know the size of these bets and did not know all the risks entailed. and that federal reserve and office of control of the currency regulators embedded in new york and london at j.p. morgan chase were unaware. what does it tell us about the regulatory system and inherent risks? >> it's a reminder of three risks. the task of risk management is unherntly uncertain because nobody knows the future. what makes this is a challenge is you cannot confidently predict how any position is going to behave on the basis of

the last three years or three months. that's what causes financial crisis and that's what makes everything about managing risk complicated in this context. it's good to know that. you need to have a lot of humanity about the basic uncertainty we live with about the capacity to predict those things. the second thing remitted to that is the best defense against that particular inherent unavoidable problem is to make sure these firms run with less leverage, more capital, more conservative funding against the risks they take. and there is no rule and there is no reform and there's no supervisor that can define their objective as preventing these firms from taking risks of making mistakes. the only test and the most important test of reform is whether you make the system strong enough that those mistakes don't matter and the best way to do that is to make sure firms hold, which we have done, hold much more capital against risk so the losses they make are small relative to the

capacity to absorb the losses and the rest of the system has similarly stronger shock absorbers. this was a pretty good test of the central premise of reforms. these losses, this risk management failure was -- was manageable given the basic capital position of that institution. but it's another example of why we all have a big stake in these reforms that are still being designed and implemented. we need to let them get some traction in place because if we preemptively allow them to be weakened relax the basic constraints then we'll be much more vulnerable to the mistakes at individual firms causing damage. i agree it's a good reminder of the inherent uncertainty you live with and that's the reality that we cannot confidently predict the future. the best way to deal with that reality is to recognize that and to force these firms to hold

much greater -- to protect them from their ignorance and ours. >> the argument being made on the hill by jamie die nonis there has to be a risk in banking. that's what the business is. that said, do you think they did anything wrong? >> oh, no. i would say that i'm one strength of what they've said is they were direct and clear and crisp in admitting the scale of the error and in trying to get very quickly to what produced that and to be very quick to figure out how to put in place a framework that in the future -- that's a good thing. again, the job -- the job of reform, the job of supervision is to force them to limit the risks to a tolerable amount.

you began with a related question, which is how comfortable should we feel about the strength of the u.s. financial system in this uncertain world. i think this is a good test of that in many ways. we've had several tests like this in the last three years. the core of the u.s. financial system we're forced to raise $300 billion in common equity since the peak of our crisis. they have much less risk. they're funded much more conservativively. they have reduced the exposure to the obvious risks dramatically over that period of time. i believe we're in a much stronger position than we were over time than we were two years, three years to withstand the effects of what's happening in europe. but europe is a large part of the global economy. its choojs are hurting growth here and elsewhere around the world. we have a big stake in helping

them deal with this more ektively. we're going to spend a lot of time next week doing that. >> why do you think wall street is putting its money in mitt romney's camp to $4 million so far reported and that 21 big contributors to president obama's election campaign in 2008 have now switched sides? >> well, i think it's -- i can't really speculate on their motives. but i suspect it's because they believe that they're more likely to get a more favorable hearing in terms of relaxing these reforms if the republicans have a stronger hand in washington. i think it's straight forward. is that fair, do you think? >> from your perspective. mitt romney was asked during a debate back in october, october 11th -- >> i don't think they'll be successful, by the way. i think the core reforms we're going to fight to preserve them

and we're going to fight to keep them. there's an overwhelming and compelling case to do so. we're still living with the scars of the damage caused by those errors. >> to your analysis you've just contributed more money to the mitt romney campaign. what romney said in october of 2011 was when asked what he would do if there were another financial crisis. >> anybody responsible governing the country would have a huge stake in presevening these core reforms. why would i want to leave the country vulnerable to another crisis. >> point taken. just to finish up what he said in answer to how he would handle a financial crisis, i can tell you this that i'm not going to have to call up timothy geithner sand say how does the economy work because i spent my whole life in the economy. >> who said that? >> mitt romney. >> must want me to respond to that? >> what about the messaging in this campaign? >> i'm not the right person to

ask about messaging. that's not really my thing. >> in terms of the president's comment, we know what he meant in response to the jobs report a week earlier. when he said that the private economy is the private sector is doing just fine, how do you explain to the american people what he meant. what's at stake. we are in the middle of a very closely fought campaign. >> i think he's trying to say this way from the beginning it's a very tough economy still. huge amount of damage leftover. a long way to go to repair that damage. growth not as strong as we would like. what we try to do is to put out as clearly as we can as powerful and creative set of proposals for helping resolve that as possible and to legislate as many as we can. and we've tried to choose ones that have had a tradition of broad bipartisan support in the

hopes that would ease the prospect of legislation. and that's what we're going to keep doing. of course, we can't just focus on growth now. we've got to worry about growth longer term. we believe as many people believe that those things would be best combined with a balanced long-term plan to restore fiscal sustainability. that's why you have to think about these two things together. we're having -- we're having a debate and it's an important debate about how to solve the long-term fiscal problem, but what's the right way to help growth now, broad based growth right now. you're trying to meet the tests you meet when you govern which is to lay out what we're for. >> you just disproved your point, you are right on the message. >> that wasn't a good message. it was my version -- >> given what you said in the past that you wanted to just seven for the first term in this very, very tough job, have are you rethought if the president's

re-elected you would stay in some role in the administration? >> no, i have not. i have not rethought that. thank you for asking, though. [ laughter ] >> you've had so much fun in the first three years. now we come to the time when the audience joins in and just to remind everyone you know the drill. please stand, state your name, your affiliation. keep questions concise. wait for the microphones to reach you. right here in the front row starting. thank you very much. >> hi. thanks for coming back to the council. you said that we needed a balanced plan for fiscal sustainability as well as room to invest. so i wanted to ask you as the treasury secretary, how do you tell the difference between government spending that is investment and spending that is not investment. >> good question.

excellent question. people would disagree on that. economists disagree on that. people disagree on both sides of the political spectrum. when we say it, this is really the only place where we're preposing meaningful changes in what we spend. we say -- we want to limit it to areas where we think there's a pretty high economic return where the private sector is undernvtsed in that where you won't see it happen without the government playing some broader role. the examples i like to cite are public infrastructure. overwhelmingly compelling case for doing that. obviously private markets aren't investing to the level you need in that context. straight forward, self-evident. education in all its dimensions. very high rumps to education. and we've seen a significant erosion in the basic relative to the rest of the world. unacceptable for us as a country. there is a pretty good case for investments in basic scientific research as we've done for decades and decades.

and maybe going beyond the support development in areas like clean energy where you're likely to see the market underinvest. that is a realtively limbed list of things. a huge part of what matters is what you do for private investment. we propose a broad framework for corporate tax reform that we think will improve the private investment. not just permanent advantage for research and development of the united states, but to clean up all the muck in the corporate tax to use that to lower rates to a more competitive level. you're right. we say investments. other people say spending. but if you put -- if you look outside of medicare, medicaid and social security, what's happening to -- we propose happen to the role of government in the economy is we expect to see a significant restraint across the rest of government to preserve room for those three or

four areas of what we think are investments with pretty good economic returns. >> here in the front row. thanks. >> i had the opportunity to hear adair turner to talk a few mops ago. i don't know what his title is. my understanding is five days before he took over the job everything collapsed here. he had a combine responsibility for oversight with british financial systems plus the climate a rather complex job. he said when he got there he couldn't begin to understand how the system worked. he put together a team and it took six months to identify how the system in the u.s. worked and who are all the players and who didn't talk to one another. he said if you don't understand that, how do you know what to fix. my question is if we understand

it, why isn't it made public? >> you're talking about the complexity of the oversight structure? >> no. he was talking about what went on at all the banks. >> the financial system. >> the whole financial system and how all of that worked. my view is that process really matters. you ought to be educating us on these unbelievable processes so we can see when you make a decision it actually makes sense. >> let me pick up on that and let me say there is no little education really about how our financial system works and how the oversight works when something like a $the billion number with j.p. morgan chase happens everyone goes the sky is falling. and maybe it is. but the average person doesn't know how to deal with it. >> i think it's true about a lot of things not just in the recent crisis. these numbers are unfathomable to most people. even in the discussions about the fiscal trajectory, we talk

about ten-year numbers needing to find $3 and $4 trillion in savings. people have no idea the dimension of that. we do have a much more complicated financial oversight structure than is typical in many countries. what makes our system unique and different is in our system banks provide about half the credit the economy needs. and the rest of the credit comes from the broader capital markets outside of banks directly from investors in that context. that's very different from europe. most of europe banks are 3/4 credit in that context. that creates a whole. that has a bunch of vangs to us. some parts of the system are weak. others can compensate. it does make it a more complicated system to manage. we also have left in place a very complicated oversight structure. so we have banks regulated -- >> how do you tell the public, so we can follow it. if it's long sentences we can't. >> i'd love to spend more time

talkling about it. it is a complicated thing. it is a complicated system. you're right that people do not have a lot of confidence that it works. they just lived through the great financial crisis since the great depression. completely understandable. the reforms themselves ale at their core they are simple in terms of capital limiting risk taking and leverage. in their design they are complicated for a lot of reasons. that makes it much harder to help people understand and believe that the system we're putting in place today is going to be better at protecting them than it was in the past. and i think you're right. we have a substantial hill to climb in trying to make that case and explain that and we can do a better job than that. >> the rule writing is taking so long. >> in part because we have too many people writing the rules, frankly. >> yes, sir. going back. thank you. >> mr. secretary, what is the u.s. interest as regards the

euro? does it matter to the u.s. whether or not europe continues with monetary integration or whether one or more countries drops out of the euro? >> i think it does matter because we have a long interest as you know in supporting this european project towards closer integration. they've chosen this path. we didn't choose it for them. and we have an interest in it work and helping make it work. but we couldn't choose for them how to do that. but, yes, i think we do have an interest in seeing to do what they need to do to make this monetary unit more viable. >> what role do we play? some have suggested that we're not playing a strong enough role. >> well, you know, there's a phrase we use i'm fair to say it this way. we can't want this more than them. and we can't make these choices for them. it's 17 countries. incredibly difficult politics. the economics and financial side

is very tough. so they're going to have to figure out what works for them. and we are doing is the maximum we can do. we're trying to be as helpful as possible. as persuasive as possible. they come to us all the time to ask us for ideas on what might work. they look at the lessons from our experience. at times we're willing to give that advice and help in that context. where we have the capacity to help them financially we're doing that. the federal reserve is doing what we can do uniquely which is giving them access to dollar swap lines which are very, very important to what they're facing now, which we've done -- we've done quickly and on a very substantial scale. and of course, we're supporting what the imf is doing in that context. people who say that we should be louder in telling them what to do and that would be more helpful. i don't think so. and there are people who say we should go write them a check so

they don't have to write a larger check to help underpin the monetary union. don't see how that's defensible. they're a very rich continent. this is within their capacity to manage. and if we the world try to limit the burden and then to fix it, then the incredibly their commitment to the endeavor will look weaker and that won't help. >> why does it matter? >> we need a strong europe. better for us they're strong and growing over time. we do not benefit from a long period of european weakancened. it has huge implications for us. not just because of the direct effects in growth and confidence. >> yes. right here in the front row. >> mr. geithner, last october at the council in new york i asked you this question, does the europeans have the financial power to solve this issue? my question to you today, are you satisfied with the gean