>> what is different about the regulatory reform that you are laying out in the united states? >> we had a system that was very unstable and fragile. it undermined the great strength of this country. it took the savings of america and as investors around the world and channel them to the best ideas. our system is still pretty good at that, but it was very unstable and fragile. it did a bad jazz up at protecting consumers and investors. those are things -- it did a bad job at protecting consumers and investors. those are things we have to change. >> it seems like the system you

are laying out which you will unveil on wednesday is a bit of a compromise. you are putting in a new set of regulators. how is that going to work? >> we are trying to focus on the things that were at the core of the problems we saw in this crisis. there were other elements that you would not put in place today. they would be nice to do if we had infinite capital. we are trying to focus on the practical issues which are basic gaps in protecting against systemic risk crisis prevention, is that in our consumer protection. we need to change that first by putting in place stronger protections. we can streamline other aspects of it as well.

>> you did not like the idea of having a risk regulator. what about consolidating them into one institution or person? >> you have taken many people involved causes accountability problems. -- you have too many people involved which causes accountability problems. that is an important thing to fix. we want to eliminate gaps in the bigger structure. there are markets that are critical to how the system functions. we want better tools for managing places. those of the core reforms we want to make. >> what role did congress make it? men like bernie franc still have

supervision over certain areas. is that a problem? >> no. congress has to be willing to legislated these reforms. a lot of the changes we need will require legislation by congress. we have been working very closely with the chairman and ranking members to try to build a consensus on the reforms. we are moving very early to do this. we have an economy that is still facing more challenges. because of the magnitude and the pressures and the importance of reform, we are trying to move very quickly while the crisis is still in people's minds. we do not want people to get comfortable again. that is why we are trying to move very quickly. wha>> what are you going to get rid of? are you getting rid of the office of supervision? >> i am trying to focus on the

core objectives of our plan. we want a system that does a better job of preventing future crises. we want to protect consumers and investors better and have better tools and managing future crises. we need to do a better job of making things were stable. >> talks of the acid buying program. is that dead -- the talks of the asset buying program. is that dead? >> banks that were weak and could not raise equity were greatly affected. the credit markets provided by have the credit in our economy were not functioning very well. we put in place a framework of

facilities to try to report those core futures of our financial capital markets. if you look at where we are today, we have made some substantial progress. i think you are saying risk premium come down and markets starting to open again. that is a very encouraging thing. you raised a question about toxic assets. >> the system seems to be getting healthier. they think the toxic assets are not high enough.

>> are banks able to raise equity -- are investors' confidence in their ability to judge the strength of a bank's. we will put in place these facilities, because we think they are good insurance against the risk of a future downturn. we think they prevent some fraud help in the credit markets. we want them to be in place. as the world gets better, you may see less demand for these facilities. >> as a taxpayer, is this notion my interest now? >> the whole thing was designed to make sure we get maximum benefit at the minimum risk to the taxpayer. those protections are still up the core of this. the key thing is that broad concern in the markets about the possibility of a deeper and more attracted global economic

downturn, concern about a wave of inflation, systemic problems is a dramatically diminished. that has helped provide some stability and economic activity. those are its critics we do not want -- those are encouraging signs. we do not want complacency to set action. >> the banks are getting healthier. 10 of them want to return their federal moneys. why are they not landing at the level we had hoped if they are healthier? >> there is much more credit available today in a wooded bend available in the absence of the capital. if we had $1 short of capital,

it would not have been as good. this is a crisis that was created where households took on too much debt. it has gone to high levels. there is a recession that is the persian part because people have to go back to living within their means. you will see that credit flowing as people get themselves back to the point where they are living within their means and are less vulnerable in the future. that is a healthy process for the country. you will see a slower recovery than we would normally see as a result. >> others have mentioned the fact that the stress tests may have missed the big area of stress which is commercial real- estate lending. is that true? >> the stress test was designed

by the fed. they were very careful to put in concerted estimates of potential lawsuits across all areas. they put out a really important picture. it shows the losses they used against things over the last century. the estimates they used -- they used an abundance of caution. the estimates they used were worse than the peak two years of losses in the great depression. unemployment was 30%. our economy has -- had shrunk dramatically. when you saw that level of transparency brought to banks' balance sheets, you see a lot of capital coming into the financial system. >> you were in china recently. how worried are they that their debt in america -- you mentioned

you were hoping to see the debt be 3% of gdp. they did not think that was possible. >> i think the chinese have a very sophisticated understanding of the strategy we are embarked on. i think they understand that faced with the crisis we were faced with, it was necessary for us to take extraordinary action. the result was an increase in borrowing. that was going to be the best path to get this back to where our budget deficits are lower and war sustainable, and we can get out of these extraordinary interventions in the tonnage of sector. the responses to be aggressive. that is the best way to get yourself back to the place where you can pull your fiscal

house in order. they recognize that. they recognize their economic state is very closely tied to hours. >> -- two hours. -- to ours. >> what do you look at to gauge the economy when you wake up in the morning? >> we look at the economic data and the financial markets. my sense is that you need to look at everything. there is no particular measure that dominate others. you have to look at everything and see what is out there. you have to be cautious. we've seen a lot of

improvements and encouraging signs of progress. it is still. it will take some time. it will be uneven. it will be a challenging time frame for businesses and families across the country. unemployment is good to keep rising even as " stars to occur for a time. what to make sure people understand we will keep at this until we fix it. >> you mentioned about unemployment rising. it is not a lagging indicator if you lost your job. how do you evaluate have the american people are doing and help the taxpayers a doing? critic>> confidence has improve. that is a sign. it has improved as they have seen the president and congress act.

confidence around the world came when they saw the president and leaders come together and commit to a very substantial amount of policy force to help the economy. crises to not burn themselves out without the risk of terrible damage. i think the lesson in the financial crisis is it will be cheaper if you are forceful early. that helps to turn confidence. we have a ways to go. >> we spoke with bob schiller early on. he does not see the bottoming out of the real-estate market. do you? >> i try not to talk about markets or the outlook in its detailed ways. if you step back for a second and look at our economy, we came into this with big pockets of

excess leverage in the financial sector. a long time frame of excess borrowing by the housing sector and a big boom in real-estate. the rest of the economy was pretty resilience in pretty healthy. they know about or dramatic imbalances. we are two years into this. there's been a lot of adjustment in the financial sector and the real estate sector. private rates are at 5% after being-for some time. you are seeing a lot of healthy adjustment so far behind this. we still the challenges ahead. it is important to recognize that those are necessary conditions for getting through this. one of the great strengths of our economy is that our economy is so flexible.

will the of this earlier that many other countries will because we adjust quickly. >> you alluded to this idea that there is a silver lining associated with this. is there a several mining and that american consumers have to get back to some older values? >> you do not won any family to go through this to learn the basic lessons of learned -- of living within your means. i think it is a healthy process. if we are careful in making sure that as the fix the crisis, we are laying the foundation for a more productive economy. we will have a more stable a sustainable growth in the future. that is what the president is trying to do. we want to make sure we are making investments that will improve energy efficiency and

improve infrastructure so that the basic foundation of the economy is more stable in the future. these are healthy adjustment in behavior. i think people will be focused more on what they do than what they earn. i think that is the healthy thing. >> you mentioned health care and the president is beginning to roll of his plan. it is still unclear as to what his plan is. what happens if health care this guy gets past this year to the economy? how are we going to pay for that. >> i think the health care will get passed. there is a lot of brought support. fixing health care by and lowering costs is very important to the competitiveness of the u.s. economy. it is just as our long-term fiscal challenges. the path of fixing the economy

does go through health care in some sense. there is a good chance this will get passed. there is no doubt that we can do better in getting better quality outcomes and lower future cost growth. that is what we are trying to do. >> it is unclear as to how it will be paid for. >> it is very important, that this be done in a way that is a deficit neutral over the long run. we want to make sure that it comes out consistent with that. we face some very daunting long- term fiscal challenges. we need to make sure that americans understand we are going to bring those deficits down to a sustainable position even as we tried to address and improve health care outcomes.

if we do reform right, it will keep -- it will help us address long-term deficits. the biggest driver is this unsustainable rate of growth in health-care costs. >> digitizing medical records may make a difference. many have mentioned this notion of a value added tax to help pay for medicare. is that in our future? >> the cost to count in a fiscal sense -- they have to be scored by an independent body as being real. there may be other things that will be helpful in long-term reform and we will know if they deliver. we have to have a real, measurable things.

there is a long list of things. i did nothing anybody believes we are at the final destination. . >> the ftse says there needs to be new management at citigroup. do you agree with that -- the fdic says there needs to be new management at citigroup. do you agree with that? >> one of the reasons we have to have reform of the financial system is that i do not think we have a situation where we have so many entities crawling over institutions sending conflicting signals adding to basic uncertainty.

we of the united states of america. we have should be able to design a system where there is more clarity. that is something we want to work to in this context. we need to look at the u.s. financial system today versus where it was in in january. we are in a stronger position to get through this today because of the capital that has come into the system to make sure we have a system that is reinforcing recovery and not constraining it. >> there is a misperception about the public of you. they think you were a longtime banker. you were a regulator never a banker. you said you do not understand baker's. >> i do not know and i said that. i have been accused of being a banker many times. >> i question your skepticism about them.

to the care about anything else besides [unintelligible] ? >> i am not going to answer that question. [laughter] it is hard to judge motive in these things. >> are you frustrated that they have not had other interests? >> we ran an economy that relies on the market. it realized that we have a set of constraints against excessive risk-taking. those basic protections failed for many reasons. the basic checks and balances of oversight were insufficient. supervision did not do what it was supposed to do. part of that was because compensation was designed in a way that it overwhelmed those

checks and balances. that is something that we have to fix. last week we announced some broad principles. we want to give the ftse more authority on -- fdic omore authority on things like say on pay. we want them to take risks in our economy but the right kind of risk. not tell little and not too much. -- not too little and not too much. we need better protections for the innocent victims in this system. >> what do you want the banking system to look like five years

from now? the government has talked about having smaller players. it seems like you want a bigger players. >> do you want bigger elephants rather than all of these small players? >> one of the great things in our system is that we have about 9000 banks. we have large institutions and we have very diverse of regional and local banks across the country. it makes our system more resilience in this crisis. our system is not nearly as concentrated as the systems of almost every other major economy. to view the canada, switzerland, japan, much of them are much

more complicated than ours. i do not think we won to end up with the more complicated system than what we have today. >> some bankers are concerned there will be taken much regulation. -- too much regulation. >> you want to have a system where innovation is rich and healthy. it will always try to get around the constraint posed by regulation. we have to fund the balance. we did not get it right. you can look at the last 10 years since a regatta right. but we have to readjust it -- you can look at the last two years and say we got it right.

but we have to readjust it. we cannot go back to where it was. that is because of the damage of the crisis. it was so acute. the only path to a more stable system will be more capital in the system and greater constraints on risk-taking. that is a necessary solution. we can do it without depriving the economy of the benefit of innovation. i think the risk is getting it's smarter, tighter, better able to adapt to various conditions. >> as a consumer, how my going to be protected? and i'm looking at a mortgage or a security, how do i feel like the government is looking out for me now?

>> the basic objective is you want to have a system where there is more disclosure. there is more standardization. people are thus likely to be taken and vanished during their moment of weakness. if you look at what happens with the core proposals with the credit card reform passed a few weeks ago you can see the basic element of our efforts. consumer credit and generally was the focus of another bet practices -- bad practices. we want to change that. >> we only have a couple of more minutes now. we have a couple of different types of questions. are you and larry summers still could buddies? >> we have a good relationship.

he is one of the most talented people in the world sitting around the table looking at options figuring out how to think through options and make choices. it is my privilege to work with him. >> if you were the cfo of the financial system, what would you decide? what is his job? >> his job is to help make sure the president is getting the best device across the entire spectrum. he is doing a great job of that. >> you had a rocky beginning in this job. and the time you were announced as treasury secretary, and you could do one thing over, what would it be? >> that is an excellent question. i am focused at the moment -- if i go back, i think we made the right judgment early in making sure we have substantial

microeconomic policy forces at work to get the economy back on track. a very aggressive comprehensive program of efforts to help stem the tide of the housing crisis, capital and financial institutions, and get these credit markets going again. if you could get what has happened, the president at the earliest state started working with countries around the world to make sure they were doing a complementary actions. a lot of what you are seen around the world reflects the strength of that stimulus. we are not going to get everything right. we need to adjust strategy and adapt: 4. i think those court judgments for right. -- we need to adjust our strategy and adapt. i think those court judgments -- core judgments were right.

>>"washington journal" is next. after that will be the house want more spending. .