why bob asked the question the way he did, because our financial markets and wall street failed us big time in 2007 and 2008. and there's been a lot of focus on that, and deservedly so. mistakes, or risk-management, business practices -- flawed business practices, a piece of business practices. but you know, if you just leave it at that and only blame the banks who deserve a lot of blame, we will be right back here again. because there has been much less talk about the flawed government policy that created the problem. we as a country saves too little, borrower to much. as a nation and as a people. of course -- driving from policies that are flawed and uncover just to do that. -- encourages us to do that. we stimulated the living daylights out of housing -- tax laws, fannie and freddie, fha,

and so on. we need to deal with some of those things. we had a flawed regulatory system. it wasn't a matter of not enough regulation. we needed better regulation, but we have a system that was just plain broiled. -- brokaw, just plain broken. somebody put it in place just after the great depression so we had an emergency powers to deal with banks but not with non-banks. we need to learn our lesson and a lesson to take away is not that capital markets are not worth while and don't provide social benefit. the lesson we need to take away from all of this is what mistakes were made so we can correct them. it that is one of the things we do in the united states of america. when there is a problem, we shine and light on it and we move quickly to correct it. we need to do that. in terms of his first question on the tarp. this is something i heard a lot. let me be really clear on what we were doing. the purpose of the tarp bank

capital program in october when we announced the program, and on a single day we put capital in nine big banks with over 50% of the deposits. and in the days and weeks after that, we recapitalize many, many banks. these were non-failing banks. most were healthy. the idea was rather than nationalizing banks as they failed and putting all kinds of restrictions on them, was to get ahead, inject confidence, prevent a collapse, recapitalize the banking system. you can only do that if it was a voluntary program so we needed to design a program that was the lead to protect the government -- that the government would get paid back and the banks would voluntarily accept. let me quickly put that in a context for you. in early september we had been forced to -- and ordered to prevent a real can laminate, --

in order to prevent our real calamity, forced to come in and essentially nationalized fannie mae and freddie mac. $5.4 trillion in securities outstanding. it would have been an incredible disaster if we had to do that. we did that, we fired the ceo's, as we wiped out the equity shareholders. this was a tough action. the following weekend, we at lehman brothers, merrill lynch, an aig going down all at the same time. we tried very hard and we couldn't find a prop -- powers that worked to save lehman brothers. we tried. merrill lynch avoid failure because they were acquired by bank of america, its bank of america acquired lehman brothers it would of been worse because merrill lynch would gone down and would of been worse. aig was taken over under very tough terms, the ceo was replaced and essentially nationalized. we then had to have tried to -- have a treasury guarantee three. dollars trillion of money

markets to avoid an implosion. when we were working to get tarp -- wamu essentially failed and was acquired by j.p. morgan. what cobia was acquired while it was failing -- wachovia was acquired. and six european nations had to nationalize certain banks. so, we made a judgment that we had to do something so dramatic and move quickly. and we were tired with dealing sequentially with one failing this edition after another and dealing with it -- dealing with it at hoc basis. so we said, how do we do something that doesn't look like nationalization, doesn't have government control -- let's design of the security, non-of voting preferred, and i hoped and expected we would get 2000 to 3000 to accept. no sooner than we announced it, critics like people like ask the question and others immediately started pounding, saying -- you know what, you can't let banks get away with this. you got to put restrictions.

you got to make them learn more. -- lend more. i said -- more than what? more than it would have lent if they fail? how are we supposed to make them land? you got to make them land, put this and that restriction. and as soon as that happens, the banks started to get concerned and congress pass legislation to retroactively changed the rules. so, we had many banks that applied, had been approved and withdrew. many others didn't apply. so rather than having 2000 or 3000 banks taking capital we had a roughly 700. it worked. but they also rushed to pay back the government. now, i look at it and say if 3000 taken capital and kept it for three or five years, it would have been more useful than any stimulus plan. it is interesting to me always that the same people that stigmatize the program and

criticized it and said you got to make the banks do this -- or the ones who caused the banks to pull back and regional banks not to take money -- they are the ones who say why did you give money to the regional banks? why didn't more banks take it and why didn't they lend more? that is a perspective. you can see i care a lot about it. but the one thing i've got to say -- i was in a class and i tried to explain it and the class didn't really understand. and when i left government, i thought the tarp was one of the most successful government programs of all time. i thought that. but a poll showed 92% of the american people were into the tarp and 60% against torture. so, what do i know? [laughter] and i think the reason is that we don't like bailouts or rescues -- in our country, the united states of america, we

believe that if people take risk, they can make money. but if they take risk and the tax payer has to bail them out and then they have to pay bonuses, that is wrong. i think it is wrong get everybody think that's wrong. i did things that were apparent -- abhorrent to me but i did it for the american people because, -- abhorrent to me, but i did for the american people because what if we had one of the big institutions go down? but i was not able to make that connection between wall street and main street. even though bob asked two related questions, they are really one in the same. understandyou don't the role of markets and how important they are two main street, you are never going to understand why we had to do what we did. on that note, you can tell i don't care at all about this.

[laughter] then i am sure you would not have gotten an a in box bicycle as. >> i can tell you -- bubble was a better student then i was. he was also a great public speaker, even in college, and a tremendous actor. [laughter] yes, he was -- he was. he was the star in all of the plays. [laughter] >> first of all, let me thank you for the introduction. i hope it is on. i will shout. it isn't working now? >> i don't see the hand held, either. >> ok, it is up and running. i want to thank the president for putting these programs together. i think they have been great. i especially want to take a

moment of personal privilege because it is a great honor for me to have a chance to moderate this program. i played a small part in the effort to try to address the financial problems of 2008. and we were on the brink of a disaster of extraordinary proportions as a nation and the world. and really one person stood between this country and its fiscal meltdown of catastrophic proportions which would have impacted main street in a incredibly dramatic way. and that person basically thought outside the box and its -- things that were not typical of governance and got -- got the congress to do things i never thought congress would be willing to do and lead the world and a process of that destabilizing and then trying to correct some fundamental failures of our financial markets and as a result, we avoided a massive disruption that would have affected every

american an incredibly difficult way. unemployment clearly would of gone well beyond what it has gone then we would have had probably an event equal to the depression in my opinion. and that one person who stood up and basically did what needed to be done was hank paulson. [applause] probably something he learned here at dartmouth that caused him to do it. first off, obviously we appear to be facing another significant financial issue. europe is in a difficult situation. our own country has gone through turmoil over the debt ceiling. i guess i would ask you, did you see similarities with what we are going through now and 2008 and you see greece as a precursor but if -- much as lehman brothers and a devastating event?

>> a question of lot of people asking right now. i see them as very, very different situations. let's take united states -- 2008, what is our issue? our issue is growth. we need growth and we need jobs. and this is an issue for the whole economy. in 2008, the housing bubble felt disproportionately on the banking system. and a bubble by definition means that it is unrecognized until it bursts. and there is no doubt bubp will extend -- people saw the bubble, but the full extent of the housing bubble was a surprise to the markets in 2008. it's really was. so today, the risks are, i think, pretty obvious. and i think people largely understand them and are focused

on them. and i think the banking system has got more capital, and as a regulated and is stronger in this country -- much stronger and a financial markets in this country are much stronger. the challenges growth. let me just tell you why the challenges growth. the consumers had so much debt in 2007, it was 1005150% of disposable income in 2007 -- it was 150% of disposable income. today it is 110%. in terms of wealth, i am sure it has to be off the charts. if you look at that in terms of disposable income it is still way below -- above any historical level. so it is unrealistic to think the growth will be led by consumers anytime soon until it adjusts itself. so, that's the challenge. now, let's look at europe.

the effects of the house and bubble and 2008 i taking longer to play out in the capital markets and the banking system in europe. and by far, the most pressing problem and the important problem and challenge in the global marketplace today are structural issues in the european union. here i am talking about a large fiscal deficits in a number of nations there, and structural issues of the eu itself. now, the leaders are working on this and it will take some time to resolve these problems. and they made some progress, taken a number of steps. they have not been easy to take given the technical issues and political issues. they've got a lot more to do and it will be messy politically because of they will

be tough political issues. one thing we should not underestimate is a vague commitment of european leaders to preserve the european union, to hold it together, and to preserve stability. now, in terms of lehman brothers versus greece -- i see that as very different in most respects. lehman brothers was an institution we worked to save, we did not have the authority to save it. we did not have emergency powers for the non-banks. on the other hand, the eu have been working and taking steps to -- and it has got the powers -- for months to deal with sovereigns like greece bang parrot out of a 2008 banking crisis -- greece. out of the 2008 banking crisis leaders everywhere requirements for banks to have more capital. we need that. there will be a spotlight on european banks and that thing one similarity is it will be

important for the largest most important european banks that owned the most sovereign debt to be well capitalized. >> thank you. what about this s&p downgrade and what do we need to do to get our fiscal house in order in your opinion? >> ok. two questions. the first of all, the s&p downgrade. first of all, our political process, our government has not been working at a aaa level, so there is no doubt about that. but despite that, i would take u.s. treasury of where it -- over other aaa sovereign debt and a day of the wheat -- week. it does not say we do not have important issues we have to deal with. but in my judgment, other major countries all have more significant, more difficult-to- manage economic issues than the united states of america.

you are asking me that question -- course, senator gregg, was a key member of the bulls a sense and -- bowles-simpson commission, and by far the biggest structural issue in the united states is our fiscal deficit. but coming back to the deficit commission, what they showed, i think to the world -- which i think a lot of the markets already understood -- is we are such a rich country and such a big economy that if we act soon and there is shared sacrifice with and solve this problem by spreading the sacrifice throughout different segments of the country so no group has to sacrifice too much. now, the longer we wait, obviously the more difficult it is going to be.

what do we have to do to get our fiscal house in order? i think it comes down to we need growth, and so when we go about -- we have to reform entitlements and we have to reform the tax system and we have to reform the tax system so it will give us the revenues we need and give us growth. i start off by saying, despite all of the criticism and how poorly the government performed and all of that -- and i think the criticism is deserved -- let me tell you something, we had, beginning with bowles- simpson and throughout the summer, this is the best public debate i have seen on this in my lifetime. and people understand more about the problem than they ever have before. that is number one. number two, i would say as important as cutting is and cutting expenses, and as an essential, that alone won't get you there.

you've got to reform. you have to reform entitlements. and when you talk about entitlements, think of medicare. that is where the huge dollars are. and you need to reform the tax system and all the stuff -- i find it very uninteresting and not even terribly relevant about should the tax cuts expire, what should we do with rates. the question should be asked is -- since we need more revenues, how do we get them in a way as we have as little drag on jobs and growth as possible? how do we get them and remain competitive? and no one who is credible that i have heard defends our tax system. i don't think our tax system will get us there. so, we need reform. and we need basic reform. judd gregg, he was the one, the super committee, first person i heard of it was from you. so, i think that idea is judd's

-- the way i look at it is this. of course, congress took an underwhelming step in terms of the first cut. but it was a step, right? it was a step. now we've got a super committee, and wait and hope they undertake reforms. i, for one -- i, for one, think it is unlikely we will get reform until there is a new election. but i could hold. -- can hope. but even if we don't get reform. if they get their objective, $1.50 trillion, which is an easy lead over a $40 trillion pace over five years -- actually, 10 years. excuse me. i can't make it worse than it really is. thank you for catching me. over 10 years, it isn't easy lift. but let me tell you, you've got to start someplace.

but you can't get reform unless -- that can only be done on a bipartisan basis. that can only be done when both parties want to compromise and cooperate and i don't think we can do that with the players we've got in washington and i think we need a new election. i hope i am wrong. but even if i am right i think i -- we are heading in the right direction. >> it leads to another question. we obviously went through this very significant -- albeit an official of the end of this summer. i want to get your thoughts on the tea party and its influence and also the possibility of a threat of default to our debt. >> ok, well, let's start with the tea party. even before that, i wanted to say something about the political process. and it is sort of crazy for me to speak about what senator gregg because he knows more about that than i do -- with

senator gregg because he knows more about it. if one of the lessons i learned in washington is it is almost impossible to get something big and difficult and controversial gun without a crisis. -- done without a crisis. twice we got congress to act, and they did it before the system collapsed, but it took a crisis. and even if the vast majority of members of congress, in my judgment, understood the deficit and were determined to disarm the about it, it would still be an ugly process to get there. it would take time and be an ugly process. i will get to the tea party. i get all of my republican friends and democrat friends -- mainly democrats -- asking about the tea party and trying to put me on the spot. i start off by saying -- you know what? the tea party did not come on to capitol hill with guns and take over by force. they were elected. elections have consequences and voters from both parties respond to the people who voted for them. and there were a lot of people came in the last election, the voters wanted them to come in

and change government. and i am hoping that the next election, the voters will say, you know what, we want you to come in and compromise in and solve problems and fix the major problems and fix what's wrong. we want you to do that. maybe i am being naive. but i would like to seeing the fiscal deficit be the centerpiece of the campaign. and then whoever wins, feels motivated to come in and solve these problems. the electorate has got to be educated, because right now -- you know what voters are telling people in washington? we want benefits that we don't want to pay for. we want benefits we don't want to pay for driehaus selfish is that? -- and how selfish is that? because, you know, all of you

are students here -- your parents want what i want for my kids. i want them to have the same opportunity i have and i made great sacrifices for them to have the opportunity. but in our country, we've got my generation being incredibly selfish, not willing to make a sacrifice and the people who pay for it will be the next generation. i think we need a mandate. now, on the debt ceiling, when i is -- what i say to people on that, whenever i am asked, what i said is there is no danger of default. leaders on both sides said it repeatedly that they were going to raise the debt ceiling. so, it was an ugly process to get there. it wasn't pleasant. but again, i come back to what i said earlier. to get major reform, you are going to have to get people who are going to want to cooperate, compromise, and i think we will need another election to get us there. but at least i never thought we were in danger of default and at least the american people

now have had a real education. >> i want to change focus and then we will get to questions from the audience. you have been one of the leading experts and one of the most knowledgeable on the issue of china. you set up a new institute on china. tell us where you think china is going. is it a threat for us either economically or militarily and what is their future and their problems? and tell us a little bit about this institute. >> ok. i wish it were -- if i lived in new hampshire it would be in darkness but i live in chicago. dartmouth -- my proudest moment is when i gave a commencement address in 2007. i love this school. i did you are getting as good an education as there is. it short improved. i was in a class today and sophomores were asking me all kinds of sophisticated questions. i did not know what an investment banker was when i was here -- i was an english major. did not know the difference

between a stock and a bond. the institute, what we set up at the university of chicago is an independent institute affiliated with chicago and it is going to be focused on u.s.- china. and the reason it is as i believe when you look at major problems in the world today, i don't care if they are in the economic arena -- i care a lot about environmental issues, or in foreign policy, national security -- you look at these big issues, if the u.s. and china are not cooperating or working together we have almost no chance of solving them. and if we are working with others we got a good chance. i view this relationship as very important this is not going to be like other institutions. it will not be a think tank but a do-tank.

we have people who are action- oriented. the first and then we will do is unsustainable organization. we will look to negotiate and get important things done. now, china, the first question you asked was isn't china a threat. i get asked that all the time. are they going to knock us off of our perch, are they a threat to our position globally, global leadership -- leadership. let me begin by saying this very, very simply. we are by far the largest economy, the richest economy, in the world. there is not another major economy -- we've got sick of the -- significant issues, but

all of them, including china, have much more daunting issues than we have. our ability -- our problems are of our own making. they are not of china policy making. and our ability to solve them will be more difficult if china has problems. so those people rooting for china are rooting for the wrong thing -- be careful what you wish for -- because if they have problems our problems will be more significant. number one. if you look ahead -- people say where we will be 15, 20, 30, 50 years from now. i would never, ever bet against the united states of america. but, if we are not continuing to be the world leader and the most powerful and important country on earth, it will not be because of china or any other nation but because we did not have the wisdom or foresight or

the political leadership to make the policy adjustments we need to make to stay competitive and to stay on top. in terms of strength -- i would get to the military in a minute. in terms of strength, our strength, including our military strength, is rooted in our economic strength. china understands that, everyone understands that. so, the most important thing we can do is fix our economy. that is number one. i get asked -- there was a story in "the wall street journal" about a chinese aircraft carrier and i get asked a military question. what i say there -- i can't speak from experience. but what i say, in china and in the u.s., that there are a fair number of people in the u.s. who are concerned about china's

military involvement. there are a good number of people in the asian region that are concerned about that. i believe the key thing we need is trust. you only get trust 3 transparency. so, i am a big believer in military-to-military dialogue, transparency, trust building. when you look at the economic relations between the two countries, we have a lot of economic tension. that is the nature of economic relationships. 30 years ago we didn't have any economic relationship, we did not have tension hybrid of the good news was no tension but the bad news is we did not have a relationship. we had at attention with the japanese or the canadians or the europeans. -- we had tension with the japanese. the military, we did not have the history. the military's don't like or trust each other very much. we really need the trust

building there and i think it is really important. then i end with strength. i am all for coming from a position of strength. that means fixing our economic problems and being strong economically and asia with trade agreements, being strong -- strong diplomatically and militarily and asia. >> now we are going to take some questions from the audience. who has the first question? there are some questions back there. >> hi. thanks for taking my question. there are several western countries suffering from the same disease -- high debt and very high unemployment. the discussion has been mostly about how we control debt, and unfortunately, according to many it has been to cut spending, which is leading to higher unemployment and lower gdp. i have not heard a single

politician or president or prime minister lay out a plan on how to create jobs and boost the gdp which in the and it creates prosperity and peace -- pays down the debt. are you aware of any plan anywhere in any country and most importantly what would you do to create jobs, and using job creation and prosperity to pay down the debt. >> i am not going to comment on politicians. i tried to stay out of that. but i would say for myself, because i think this is about job growth, economic growth, job creation. and this is, as you say, it is a problem in many parts of the developed world. it and i think even with the developing world, china has got a really difficult job to keep doing this.

because nowhere in the history of the world as any nation transformed itself so dramatically so quickly. and the demand for change is unrelenting. and chinese people have high expectations for their leadership. and i think it will be increasingly challenging for them to be as integrated as they are in the global economy if and to continue to do things as well as they have been doing if they don't speed up the pace of reform. so, i think it is a challenge everywhere. but to get to your specific question. i don't think there are -- i

don't believe in silver bullets. i think we need fundamental reform. so, the questions really is and our political system adapt. so, the kinds of reforms we need -- i talked about taxes a little bit. so, we clearly need -- if we had a tax system that incentivized savings and capital accumulation and let us raise revenues in a way where we can still be competitive and raise revenues that we need, it would make a big difference. there are a couple of ways we could go but it takes tax reform. i think trade is very important. i believe in trade and i think it is disgusting that we haven't had a wto agreement. but we have not even passed the free-trade agreements we had before congress -- with allies like colombia, where everyone knows that would add jobs and growth. colombia, korea, and so on. so, getting trade agreements. immigration. my gosh, immigration. the idea that we've got all of these bright people from all over the world coming into the united states, and rather than

adding a visa or a green card to the diploma, we send them back. we send a job creators and innovators out of the country. how stupid is that? the energy policy -- we could talk about what we need to do in energy policy. and i've got one -- and i think you have to wait awhile to figure out how to fund this. but when you look at unemployment, and you look at unemployment among males 20-50, and you look at the danger of young people being out of work, you can afford anything when you are young other than not to work and not to grow. so, dealing with that -- and i think we just need to think out of the box. this is a great country, maybe there should be universal service for everybody -- not just for military, but peace corps, habitat for humanity, so

everybody gets training and maybe an equivalent to a gi bill where you get the skills training or the training you need in this world. there are a lot of things that need to be done. but i think the reason it is hard for politicians to talk about them is because they are not that difficult conceptually, but as judd and i were talking, they are not easy it issues in washington did if they are analytically easy like social security, they are politically difficult. there is not low hanging fruit because it is hard for democracies to the fundamental reform that we need. but there are things that can be done that create jobs and growth, but we are going to have to be competitive to do that. >> some students -- a question down here. then we will go back to the audience. >> and i did not get to

education, which is huge. >> secretary paulson, in early 2008 when you were brokering the deal between bear stearns and j.p. morgan, a famously asked j.p. morgan to decrease the price they would pay from $4 down to do doubt -- to $2 a share in the name of moral hazard. why did you think that the shareholders should take responsibilities and take the punishment for moral hazard and not the managers? >> let me say, managers -- let us just talk about moral hazard. i really believe in moral hazard because no matter how good regulation is it is unrealistic to think regulators will uncover the problem is that the banks and didn't uncover and themselves, and which you

thought -- unless he thought the banks were intentionally tried to blow themselves up. what you need is every customer, if every lender to the banks, every shareholder, every bar were, to be focusing on that bank -- moral hazard. so, i believe in that. we didn't have our emergency authorities to deal with bear stearns. it was either bankruptcy or being taken over. if you don't think management lost their jobs -- let me tell you, they are not running. management was gone, etcetera. there is no one at bear stearns who thought there was a bailout. but when i looked at it, i was conscious of the fact that the fed, the united states of america was assisting that transaction. so, we got a call thursday night that said, you know what, we are going to fail. there will be bankruptcy if the government does not come in. there is something wrong with the picture that says the

government is going to come in -- if there was more room, then the government should provide less incentive, ok? why should the government became more so the shareholders would get something? so, i felt that. if but later, the deal could not get done. it was not going to get done without raising the price. and number of others said, you are right, let us not get that in the way. it is not that i was mean- spirited or i wanted people to have the equity wiped out. it was the same thing -- aig was structuring -- look at fannie and freddie. the bill was criticism we wiped out the equity shareholders of fannie and freddie and the preferreds we structured the deal. the government was taking big losses and big risks. and you imagine if -- and people called it a bailout. could you imagine what would

have been done if we had taxpayers, and to pay for the shareholders. in those companies, management went at bear stearns as part of the takeover. fannie's at aig and at and freddie. we did not have all the tools we need it. >> a question over here. >> thank you very much. i have a follow up on moral hazard within the firms. you talked a lot about regulations of firms themselves, but as someone who ran goldman, it seems henceforth we will always have a situation where traders and managers and the firm are doing extremely convoluted and, but things and nobody at the top can fully understand what they're doing with the firm's money, and since those people are paid on commission, heads i win and tails, the farmer loses. within the firm how the man is the risk?

-- how can we do a better job of managing the risk? >> that is a huge issue. people focused on the compensation and the amount because of some of the amounts are obscene. but more important is the system. this is something we focused on and i focused on very hard at goldman sachs. first of all, people paid traders formulaic compensation and give them a percentage of the trade and profits -- i would say get what they deserve, but they did not deserve it. the taxpayers got it, too. what happens is if traders get a percentage of the gain on the upside and did not pay for the losses, it should not work. should not have formulaic compensation. the form in which you get compensation. and we were very careful of that. we gave a big part of the compensation in equity that had

to be held. and the other big protection you have in these firms is having experienced people on the trading desk who were shareholders and really had every incentive to look out for the firm overall. and the last thing, which i think many firms ignored, is it they would think as the control side and operations and look at cutting costs. what you need to do is put really experience, capable people -- former traders, former bankers -- in the control side. you've got to pay them the same way. you've got to have great people. and if there is an argument between them and the traders or the front office, they've got to win. these institutions are not easy to run. it and disk management is very important -- and this management -- and risk

management is very important. >> sir, i think we started essential in with a fairly balanced balance sheet for this country. i did not go to dartmouth, so i am a little slow. but i don't understand why we did not have a war tax -- why aren't we asked to pay for the two wars rather than out of our debt on an ongoing basis? >> a lot of people ask that question. what i come back with is, is the answer i gave before. we clearly, in my judgment, need more revenues. if you look at revenues, over a 40-year period, they have been roughly -- i don't know, 18.2 of gdp or something like that. and expenditures are 21% or 22

percent -- ok. now revenues are about 15, right? an expenditure is give >> 22.5 deede >> -- >> 22.5. >> ok. we need more revenues, but we have a tax system that is really broken. it is filled with loopholes, which is just one form of social spending or another. looking at something as sacrosanct as the mortgage deduction. i don't happen to have a big mortgage but if i had a million dollar mortgage, why should i be able to deduct that? and a renter not get something? there are huge loopholes. on the corporate side, we have a system that really doesn't let us, in my judgment, be

competitive, in terms of the way we tax corporations. we are out of step with the rest of the world. but again, it is filled with loopholes. a different industries pay different amounts. all kinds of crazy incentives. we have a situation where almost half the people in this country don't pay federal income taxes. they pay other income taxes. it is a system where we need a fix -- yes, taxes are very, very important. i tend to not focus on should there be a war tax, because i look -- this is a bad analogy but -- because we are not the titanic -- but it is like moving the deck chairs around. but what we need is fundamental reform. we need a tax system that lets us get the revenues in an equitable way so that we can be competitive. if i am repeating myself, sorry. >> down here with the students.

if we can take a question here. do you have to sit in the front row as a student to get a question? >> secretary, i have a question about another one of your passions, the environment. given what seems to be it -- divided very much in a partisan basis, what can we do to raise awareness about environmental issues and what role can the federal government play in trying to create awareness and resolve the issue? >> to me, this is hugely important. let me just tell you what i am doing. my interests personally have always been and wild and beautiful places -- biodiversity, working to help create diverse national parks in a province in china or in chile, or things in the u.s., or the rain forest.

that is fun for me because when i was here i would like to go to places like that. but i am very concerned, very, very concerned about global warming. i am very concerned about all of the issues with energy efficiency, alternative sources of energy. so, the paulson institute at the university of shocked -- chicago, when wade engage with china one of the major issues will be environmental because we are the two biggest economies, the two biggest emitter of carbon, the biggest importers of oil. we've got common interests. my view is the only way we solve this problem is developing new alternative sources of energy that are cost effective

on this scale. and government are not going to do it. there are a lot of things that need to be done there. china is well ahead of us in terms of what they are doing. but they need to be. they have all large issue. they have 1.2 billion chinese, and we have given them are really bad model here. 1.2 billion chinese cannot live the way we do in the u.s. there is not enough resources in the world. they realize we need new models of growth, energy efficiency. so, one of the first things i will do is on sustainable urbanization. is not because i love cities.

trust me, i would rather be anywhere besides new york. but look at where the problem is. look at the issues are around water, which are just huge, huge issues. look at energy is -- energies, and if we want to get things done, we need major breakthroughs. if it does not get done in countries like china, it will not get done. the kinds of things i am being pushed on are these. i often talk with people in india, china, other developing nations, and they say, when you guys went through your development phase -- i said, we sure did. two things are different. now we have the a science to know how bad it is and we have the technology. it is wrong not to be using the cleanest, commercially-

available technologies. it is important to have clean technologies. there are a whole series that i push on. i think these are very important issues. i.t. -- i want to be an optimist because i believe experts are often wrong in technology and development. i love to tell the story that years ago i was working with motorola, and they had a consultant to a study as to how big the market was for mobile telephones. they came back and said 900,000. because t-mobile cell phone are about this big, the battery last this long, and they did not see the huge upside for

technology. sir, you got me going on something. >> actually, we are out of time, but you will take a couple more questions, right? let's go up here. then we will come back to the students on the left. >> first of all, thank you for sharing with us this afternoon. my question, secretary paulsen, you say the united states must be stronger economically than china. can you expand on how we get stronger? >> how do we get stronger? i think a little bit almost the way i answered the last question. it certainly is not spending more money on military. ok? we spend multiples of what other countries spend on the military, and even their there is room to cut and still be strong. it is very hard to cut military spending, because part of this is jobs in politics and

everything else. what i think we need to do, we need fundamental reform, because i do believe the chinese and everyone understand economic strife. i think that bob reich's question about wall street was a good one. at a time when people looked at us, and looked at us as having been pixie dust. in our capital markets were the world. they wanted to work like us. when i talk to the chinese about opening their capital markets, because i believe they needed to open the markets for

their growth, and they were not able to make the kinds of changes they needed in china unless they performed and allocated capitol and had investment products for their consumers so they were not ripped off, putting deposits in banks, inflation, and so on. when i was making that case to him, he said, listen. you used to be my teacher. my teacher does not look so smart anymore. look what happened at your capital markets. hours drink has got to be, i do believe, -- our strength has got to be, i do believe, in our economic power and all the things america represents. all that is still here. we just need policies. the chinese are no different than anyone else. they understand strength. ok? and right now come up we looked stronger than they are. -- and right now, we look

stronger than they are. we have great underlying strength. leadership and some policy reforms that are going to put our economy back on the right footing. it is going to take a while. >> last question? we are a little bit over time. >> sari. thank you for coming and talking on the china issue. i think i recall mobil, it may be another american company predicting it china's economy would overtake the united states by 2012 or something. how do you think we can compete, not just at the base -- at the basic level?

>> let me come back to so- called experts. when people just draw lines and assume this kind of thing can continue, there is a lot. first of all, china has significant challenges. significant challenges. not the least of which is continuing to manage an economy with a pace of change that is so relentless, and using this mixture of administrative measures. no economy just goes like this and defies gravity forever. ok? there will be issues with their economy. i hope they continue to grow, because that is a big benefit to us. let's talk about their workers.

enormous challenges. the idea that there are huge issues in terms of big inequities, and they are working hard to deal with the. they are dramatically increasing wages. wages are going up very quickly. they realized they are too big for exports. wages would of 20% last year. they cannot continue to grow unless they develop new energy models, new models for growth. so, they have got -- one of the other issues they have got is here in the middle is the political. to understand china, recognize the last leadership change, almost 10 years ago, when they

went to hu was the first time that a sitting chinese premier did not pick his successor. the party apparatus did that. this is the second time. there is all kinds of tooling and throwing -- toing and froing. every decision they make in china, whether it is economic, personal liberties, all these things is going to be what gives us the most domestic stability. i happen to believe what will give them the most domestic stability is pacing -- is speeding up the pace of reform and he's personal freedoms and liberties. that is the case need to make. they have challenges. do not bet against the united states of america.

for that to happen, you can " that china -- quote that china line forever. they cannot keep growing like that forever. they need to change the growth curve, and we need to get our job done. china is an interesting foil, because there's a question about china. it is not going to be determined by china, trust me. is not going to be determined by any other country. it is going to be determined by us. the decisions we make, the policies we put in place, that is going to be done by america. if china has problems -- and i hope they do not -- our challenge is greater, because we are integrated into a global economy. >> thank you, thank you very

much, mr. secretary. [applause] [unintelligible] [applause] that is a pretty good place to stop. do not that against america. you have to asked jeff immelt, the next speaker. >> to begin with, i will say jeff is the answer to the question, not bob reich. [laughter] i can only imagine what he would ask. our big need in this country is economic growth and jobs. jeff, you are serving as chairman of barack obama's jobs council. my question to you is what can

be done in the short term to create jobs in this country, and more importantly, what can we do to regain our competitiveness and create jobs in the united states of america. >> we all would like to hear the answer to that. [applause] >> several live events to to you about this morning president chun to -- presidential candidate newt gingrich will be on c-span2 at 9:00 a.m. eastern. secretary of state hillary clinton and defense secretary leon panetta will be at the defense university to look at international challenges facing the u.s. had opt-in 30 eastern. -- at 10:30 a.m. eastern. >> in a few