>> rose: welcome to the program. tonight we begin syria and the geopolitical and military implications with robert kagan and michael gordon. frankly, no one knows exactly how assad's likely to respond. but one of the challenges that they have is that this is one of the most heavily telegraphed military operations in modern history. decision making process has been reasonably open on the part of the white house. this is not a surprise attack. if you really wanted to have the greatest military effect you would have done this earlier as a surprise action. >> we've all sort of allowed the national mood to drift into this sort of "why does any of this matter" type of sentiment and it takes a lot to push hit in the other direction and, of course, politics intrude. a lot of republicans who i think would normally be on obama's side on this issue are, of

course, for political rps and also because they fear their constituents' reaction are now on the other side. this also happens a lot in american politics but it's having a negative impact on the present situation. >> rose: and we conclude with a conversation about the global economy with james gorman, the chairman and c.e.o. of morgan stanley. >> i was with another c.e.o., i think it was last august, september, very prominent fellow and i said i thought this was the first time many years where maybe the best place to invest in the world is the united states. and he said "well, you're the only person who's thinking like that right now. at a minimum, you're at an extreme point. and i just feel that unemployment is coming down. i think the quantitative easing has worked. i think confidence is growing on the corporate side and confidence is growing with

consumers. >> rose: syria and the global economy when we continue. captioning sponsored by rose communications from our studios in new york

city, this is charlie rose. >> rose: word leaders are gathering in st. petersburg this week for the g-20 summit. while the official agenda concerns the global economy, the subject on everyone's mind is syria. on august 21, a qepts chemical weapons attack in damascus apparently killed 1400 people. since then, president obama has been beating the drum for military action against bashar al-assad's regime. the president has been making his case before congress who will vote on whether to authorize strikes next week. in the divisive atmosphere of st. petersburg, president obama's arguments are likely to fall on deaf ears. russia, china, the european union and even the vatican have argued against a military solution in syria jing me from washington, robert kagan, he is a storeian. he also sits on the advisory board at the state department. with me in new york, michael gordan, he is a national security correspondent for the "new york times" and the author of a number of books.

i'm pleased to have both of them here. i begin with robert kagan. where do you think today the state department sees this crisis and this conflict after making their arguments to the congress? >> well, i think they recognize it's a tough flowed the congress. i think that, you know, for a variety of reasons having to do with the mood of some portions of the country, is partisanship, dislike of president obama, it's going to be very hard to get a lot of republicans so i think if the focus on the core of republican internationalists-- people like senator john mccain and lindsey graham and senator kelly ayotte and convince them that this is going to be a robust enough action as to have some effect on the ground in syria, that's what those republicans are looking for. >> rose: but it's even more difficult in the house, isn't it? >> i think the house is very

difficult because i don't know that you'll get more than a couple of dozen republicans and you may lose -- they may lose a lot of democrats. one thing that's pretty them talk about another iraq and i think everybody sees sort of -- i don't know what you want to call it, an irony, that president obama is about to engage in a military action in the middle east there response to allegations of weapons of mass destruction without a u.n. mandate and probably a smaller coalition than president bush had for iraq and i think this is causing democratic -- people in the democratic party a lot of heartache. >> do they see a clear national security interest? >> "they" meaning the democrats? >> rose: yes. >> well, a lot of americans-- and i've heard this on both sides of the aisle doctor-assisted suicide lot of them don't see what the clear national security interest is. i don't know how that's possible. i don't know why anybody would want to move into a world disorder in which the use of

chemical weapons is eventually winked at by the international community but some americans are in an isolationist mode. they want to know how it -- they don't see syria attacking the united states tomorrow, just like no one saw mussolini attacking anybody in the united states in 1935. and so they think it doesn't matter to them. and i have to say when the public is in the mood, a president has to push back against it. but i think president obama for understandable reasons has encouraged it talking about nation building at home not abroad and it's not clear that they're ready. >> rose: there is clearly the need for the white house and the department and the state department to convince those republicans. that this is more than one strike that they have some interest to use secretary kerry's words an ability to degrade the regime of bashar

al-assad how do they think they're going to do this? >> as a military proposition? well, first of all, i should say they're trying to figure out if it's going to be robust enough that it will actually is an effect and it will hurt the regime. but yesterday in the house foreign affairs committee concern was that if the strike might lead the an escalation -- so they were simultaneously trying to assure the house members that it will be robust you have no do damage to assad but that it wouldn't provoke retaliation on his part that would lead to a conflagration in the region and then further attacks by the united states and that they could somehow contain it. so they're trying to say we can do enough to hurt them but don't worry, as secretary kerry says, it's not going to become a war. and franally no one knows exactly how assad's likely to

respond. but one of the challenges that they have is that this is one of the most heavily telegraphed military operations in modern history. decision making process has been reasonably open on the part of the white house. this is not a surprise attack. if you really wanted to have the greatest military effect you would have done this earlier as a surprise action. >> rose: earlier like a month ago or two years ago? >> right after the transgression. right after the chemical weapons attacks. >> rose: the next day? >> well, wherever -- and you would have targeted it -- from a purely military standpoint, i'm not taking an editorial position here. but for greatest military effect it would have been -- occurred more quickly. it would have been aimed at the very units that carried out the attack and now they've given him weeks to get ready and he's already doing things. he's dispersed his forces, you can assume buildings that will be hit will be empty and

yesterday general dempsey said he's taking prisoners and putting them at sites he thinks we may attack, sort of human shields in effect. so, of course, the americans are going to have adjust their targeting plans in the week ahead. >> rose: and do they expect response from syria? or hezbollah? or iran? or someone else? >> i would say that they think a major response by syria is unlikely for the following reasons: a, he didn't respond to any of israel's attacks. b, he would be basically getting himself into a war with the united states when he seems to have his hands full dealing with his own internal rebellion and civil war. and also that whatever the obama administration's about to do to him, the united states could do a lot worse. that said, nobody can say for sure there won't be some sort of response. and the sort of things general dempsey said could occur would be, for example, he could launch

scuds toward jordan or turkey. he mentioned cyber warfare as a possibility, some of that's probably already going on. he could intensify attacks at home. but i would think if i was assad i think his wisest course of action is to ride it out, receive additional arms from the iranians and the russians and after a bit of a lull proceed with his war. >> rose: robert, you assume that the bt has to go notwithstanding what the congressional vote is because of the principles he's laid out as to -- in his argument for congressional approval? >> this is a key moment in history right now. if the united states does nothing after making that kind of declaration-- and it's true, it's not just what he says, it happens to be true, that the risks of not acting are very high-- i think that it will have a very, very big impact on the whole world order. as we look at what's going on -- just look at the g-20 right now. the democratic liberal order,

the nations that represent that order are in a very weak position at the moment. britain has opted out for the time being, the european union seems indecisive and weak. it's really all the united states at this point and if the united states were to look like in a certain sense it was out of the game i think we would begin to move into a period of pretty serious disorder. >> rose: and doesn't nature abhor a vacuum? >> nature abhors a vacuole and i think it will be filled by smaller bad act actors. there's no adolf hitler like germany but there will be bad act pors who will obtain weapons like chemical weapons and in the case of iran nuclear weapons and we'll begin to a more dangerous world. thinking about it historically, americans have gone through this cycle before. after world war i they decided that was a terrible mistake, they never wanted to do it again they went into a very isolationist today in the '20s

and '30s and the consequence, because america was the strongest power in the world then, too, was a complete breakdown of an international order which eventually came back to bite the united states. and that's the argument the american people need to be hearing now. that this will ultimately affect them even if they don't see in the an immediate sense. >> rose: why do you think the president had been unable to make that argue some that it resonates? >> well, again, he's a little bit turning on a dime here. he really has been spending much of the last few years saying we got too involved, we're too involved in the middle east, too many conflicts and we have to redial into the whole situation. now he's going to turn around and say "wait a second, the world order is at stake." now, i think he has been saying it and i'm sure he'll say it some more, but we've sort of allowed the national mood to drift into this sort of why does any of this matter type of sentiment and it takes a lot to push hit in the other direction and, of course, politics intrude. a lot of republicans who i think

would normally be on obama's side on this issue are, of course, for political reasons and also because they fear their constituents' reaction are now on the other side. this also happens a lot in american politics but it's having a very negative impact on the present situation. >> there is another argument which follows on bob's point which is that the iran issue really looms large here. and if you think back over the last -- and it looms very large for the white house. if you think back just over the last two years, president obama and his aides have repeatedly said "we want a negotiation with iran, we want to work things out, we don't want to go to war, but the military option is on the table and iran cannot be permitted to have a nuclear device." any military option vis-a-vis iran would be far more challenging than anything the americans are about to do this month in syria. and so if president obama can't enforce his own red line the

concern in the white house is that the iranians may say, oh, well, these options are on the table and that's exactly where they're going to stay. and the negotiations with iran which are already very problem mat rick will basically not get anywhere. so basically the argument they might make would be you need to stand firm on syria so that you don't have to necessarily engage in hostilities with iran. anyway, they see a connection between two and i think a lot of national security experts do as well. >> rose: i come back to this point. so where are the russians in all of this? and what is their motivation? is it simply to feel much more that having the power that they used to have before the breakup of the soviet union and putin has famously expressed since the worst day of his life is when the soviet union exploded or imploded. what drives their strategic

argument? even to the point of saying there's no evidence here and that it's absurd to believe that the assad regime did this? >> i lived in russia for four years for the "new york times" and i never thought that there was much prospect of a fruitful collaboration with moscow on this syria issue. maybe it will happen, we'll just have to see. >> rose: so you can have detente but no collaboration. >> well, they're certainly not our enemy but in many context they're working at -- we're working at cross purposes. i think it's great power politics. they have a naval base in syria. assad's government has been one that they've long had strong relations with. they sell a lot of weapons to syria and i think that they fear the islamic element there just as they did in chechnya and

other parts of the world and they're actually supporting one snide the hostilities. they're very much supporting the assad government so when a chemical weapons attack occurs and they immediately rush out and blame it on the rebels before anybody knows much of anything i think it pretty much tells you which side they're on. and samantha power, our ambassador to the united nations today, it was a striking statement she made. she said "the security council we have now not really a security council that's able and up to the task of dealing with a crisis like this because of the russian veto." and i should say the chinese have not been helpful as well. so so they've worked to protect the regime at the united nations and they're trying to work to protect them now, just to protect their own interest there is and their own vision of the problem. there is something to their argument in the sense. they'll say, well, look at libya now. or they might say look at iraq now, although i don't think it's as bad as they say it is. what happened there. but i think primarily they're

protecting their own interests. >> rose: okay. this there's this argument in part of the discussion of syria and certainly increasing in the last 18 months. it's the nature of the rebels why doctor v those weapons that the president said that he wanted to send not made their way into the hands of the so-called rebels that we like? robert? >> well, to hear the administration's version of the story they only got around to authorizing the increase phenomenon march then congress actually held it up. the house intelligence committee i believe, maybe also the senate intelligence committee raised some concerns so they're only just getting around to it. that may be partly true, but the bottom line is that the administration has been dragging its feet for two years in not wanting to really arm these --

this opposition. they've had their complaints about the opposition but most of them haven't wanted to get dragged into this serial imgrowing leo. now as a result of the chemical weapons attack that assad carried out they are involved and i would expect that you're going to see a great deal more flowing to the opposition now as a result of this. but, again, let's not forget, president obama has been trying to stay out of syria for two years. now all of a sunday we're trying to address this problem. so that's the main reason why the opposition doesn't have anything until now. >> rose: do you think that history will say that was a mistake? >> i think history will say it was a mistake. i mean, you had two ways to go here, it seems to me. you could have taken the position the russians are taking which is whatever bad things assad is doing let's stick up for assad. but quite -- over two years ago president obama said assad must go which i think reflects the general view of the united states and other countries who share our values but then he proceeded to do nothing to make

that happen. i don't think there's any way histories will look back on that and say that was the best possible option. and i think that the fact that we're now arming the opposition or trying to arm them suggests that we should have been doing it for the past two years and for all we know we'd be in a very different place right now. but this is all -- people keep bringing up iraq and there's no question that a lot of this goes back to the bad taste in everyone's mouth that iraq leaves, but i think at the very least even if you think iraq was a mistake we've overlearned the lesson. we've gone from doing too much to doing nothing. and we can't as given the role the united states plays in the world we cannot renounce active engagement in the middle east or really in any other major strategically important area. and that's the lesson now coming back to us. i i if assad was overthrown, robert, what would be the result you think? >> probably chaos.

and no one should be under any illusions that there are good solutions out there. we are going to have assad in power, increasing chemical weapons and other things, killing more and more people, spilling over into into the region, potentially drawing into a large war or we're going to have the messy situation that will follow assad's departure. now the administration, secretary kerry has hoped and believes he has reason to believe that if it ever got to the point where assad knew he couldn't win we might get the assistance from the russians and others to ease him out. i think that's a little bit optimistic but that's the solution everybody would prefer to see, which is a political transition of the kind we have seen in some other countries. my concern is that assad will go down fighting and using every weapon at his disposal and the result will be a very big mess. >> rose: are the radical islamists most likely to be in a power position if assad is overthrown or not?

i mean, arguments are made by others have said we are much stronger thaner in the end and we'll be okay. >> look, i think they've clearly been strengthened. the jihadists-- michael, i'm sure, has real expertise on this. but it seems the jihadists have been strengthened by our noninvolvement because insofar as there are multiple factions in syria the jihadis have been getting weapons and the people we want to see in power have not been getting weapons. i do think from what i'm sable able to see the people we would rather see in power outnumber the jihadis and if they were the ones who were delivering the victory would gather a great deal more snort syria in a way our non-support of those more moderate elements has tipped the balance in favor of the jihadis. so i believe that we could step in and do what needs to be done now. we still have the opportunity to have an outcome that is not simply says lam i can terrorists taking over in syria.

but the longer we wait, the more that chance increases. >> rose: one thing on the arming question -- >> one thing on the arming question, charlie, just this past week, a colleague and i at the "new york times" had a story apparently in the meeting at the white house that president obama had with senators mccain and graham. apparently he conveyed to them that the first 50-man cell trained -- c.i.a. trained and equipped trains of rebels has entered syria just this week and that there's more to come. so this arming program, you're absolutely right, took a long time to get under way but apparently it's just beginning to occur. and american officials are looking for ways to expedite that because the president -- the argument he accepted was that not only do you have to degrade assad's forces, particularly his delivery systems, but you have to upgrade the effort to arm the moderate opposition. >> rose: my imsuppression that's taking place within c.i.a.

initiation inside jordan. is that correct? >> that's my understanding. >> rose: and that's what's taking so long for them to establish the path so that they cannot only equip those troops but -- and train those rebels but also make sure that the weapons they provide stay in their hands? >> well, that's been the argument -- >> rose: creating a pathway. >> well, i think it wasn't the top priority for the administration and they didn't push it as hard as they might have and they themselves had some reservations about what would happen but they appear to have sort of a newfound religion on arming and the apropos, the point bob made there is a bit of a vicious cycle here having what secretary kerry argues that if you arm -- the moderate opposition is armed and part of his challenge has been qatar and saudi arabia to arm the moderate opposition and not jihadis, he's

trying to create that discipline. we all arm the moderate -- >> are the saudis and the qataris responsive to that argument? >> he says they are, kerry does. and his argument is that if this operation doesn't happen than -- >> rose: he'd be less likely to do that. >> cut already go back to armying the jihadis and you'll have a situation -- people are getting arms in syria but they'll be exactly the people you don't want to see getting the arms in syria. >> rose: you heard that, robert? >> i did and that sounds right. and if we don't take the action that's contemplated other players are going to take their own actions and we're unlikely to be happy with that outcome. >> rose: on the ground today, is it simply a stalemate or the assad regime a bit tilting in their favor because of a range of things, including supplies

from the iranians and the russians and certainly the influence of snz. >> i defer to michael who has greater expertise but it does seem the fact that assad felt it necessary to use chemical weapons doesn't suggest he's that confident in victory and it's a desperate move even far guy like him. and so my sense is that it is stalemate. >> rose: okay. finally there's aningment-- even though we had this terminology by secretary kerry-- there's the argument that this is about punishment. that they're doing this because they don't want -- teach a lesson and so he will neither have the inclination or the equipment to use chemical weapons again. do you accept that, robert? >> that's certainly administration's argument and i think that that's also a legitimate goal. but, again, what a lot of -- what the conservative republicans like senator john mccain, internationalist republicans like senator mccain

want to see is that it really makes -- if you want to affect assad's calculation you will make it clear to him that he's going start losing. but i think the administration's took place that-- which is a legitimate one, is that anything they do that degrades assad's capability to degrade the chemical weapons degrades his capability to fight in general but, again, what senator john mccain and others want to see is a real commitment on the part of this administration to change the balance of power on the ground, because at the end of the day we are not going to have a good solution in syria while this guy who is now a proven user of sequence in power. and i believe that he is capable of anything. so that's the larger strategy that some people are looking for. >> rose: robert kagan, thank you so much. is. >> thank you. >> rose: back in a moment. stay with us.

>> rose: james gorman is here. he is the chairman and c.e.o. of morgan stanley. the firm has been one of wall street's most respected and profitable institution since its founding nearly 80 years ago. the financial crisis of 2008 changed the landscape for the nation's biggest banks, forcing many to rethink their strengths within the industry. morgan stanley has planted the firm's flag on the future of its wealth management division. in june it completed a four-year quest to acquire the remaining 35% of citigroup's retail brokerage, its institutional services remain a mortar mid-able force as well. it helped lead the financing of the meg deal involving verizon's $130 billion purchase of vodafone. i'm pleased to have james gorman back at this table. welcome. >> thank you, great to be back. >> rose: let me begin this big deal. the third-biggest merger. tell me knew happens. >> well, firstly, it doesn't happen quickly. >> rose: yes. >> these things grow over a long period of time. they've been in a partnership for many years and there was a certain inevitability that this

was going to come to closure at some point. we've been fortunate enough to serve verizon for many years and you put the deal together both in terms terms of the structuring but also the financing. can it get done? what's the market appetite for the paper coming from the deal and that's the process we're in right now. it's very exciting and frankly, it's a sign, i think, charlie, of continuing recovery of the u.s. economy. >> rose: the mergers and acquisition business. i'll talk about the economy in a minute but the mergers and acquisitions are growing. more and more people are looking at healthy acquisitions. >> conversations i'm having with c.e.o.s have gone from "is this the right time"? " to "this is the right time, how do we start to get things in motion?" and my test is i ask the young analyst and the elevator coming up and down every morning and evening, you know, you're working on real deals or are you working on pitch books? and they're more working on real

deals so the wheel are turning reflecting the broader economic growth. >> rose: let me talk about the vodafone thing. so verizon is buying $420 billion, what it didn't own, what vodafone owned. how did they pay for it? >> well, they're going to pay for in the cash and stock. this is a deal that's now -- that will be played out with a huge syndicate over the next couple weeks and as you said it's the third or fourth largest deal in history. >> rose: so give me your take on the economy. >> i was with another c.e.o., i think it was last august/september, very prominent fellow, and we were talking about the economy. i won't mention him by name but he said "i was very optimistic about where the u.s. is. and i said i thought this was the first time in many years where maybe the best place to invest in the world is the united states." and he said "well, you're the

only person thinking like that right now. at a minimum you're at an extreme point." and i just feel that unemployment is coming down. i think the quantitative easing has worked. i think confidence is growing on the corporate side. and confidence is growing with consumers. >> rose: and you factor in compared to what? compared to europe? >> exactly. >> rose: even better. compared to emerging nations? better. compared to china? well, they're going through certainly a tightening. >> rose: and to your point, i was in brazil a couple weeks ago and brazil was growing 5%, 6%, 7% for the last several years. it's obviously slowed dramatically related to china, related to some of the domestic issues. the u.s. has -- what does the u.s. have? it has population growth. it has tremendous entrepreneurial zeal. it has a healthy financial system. we have recovered and recapitalized faster than most

parts if not all of the world. and it has a consumer market which it's worth noting folks' 401(k) plans were up 12%, 14% last year. every dollar that goes into the housing market now in appreciation of housing prices is a dollar of equity. there's barely a market in the country where people aren't above water now. so you've got the wealth impact of housing equity 40, 1k, people getting jobs again. if the heart of the u.s. economy is back in action. >> rose: and then you have the energy equation now. >> well, that's a very interesting shift. is the whole shale gas. >> rose: how do you see that? >> very, very long-term transformational. short term i'm not as bullish as others. there are regional differences of how each state is allowing drilling or not allowing drilling. there's a bit of a naive assumption that it's going to accelerate in the very near term

our ability to get off the necessity of middle east oil. that's not going to happen for a long time but it's a very important stimulus and if you -- you know, you talk to someone at dow chemical, for those kinds of companies, transformation, and for the broader economy, listen, cheap energy and alternate sources of energy are a necessary part of us moving forward. >> rose: let me talk about the composition of morgan stanley. take me to the depth of the crisis when john mack was you should enormous pressure from people in washington to merge in a dramatic moment and said a lot about him and his courage at that time. he was not going to have his company and your company go down. and it didn't. it survived and it got financing but it has a certain product mix at the time. how does that point compare with today's point in terms of all

the metrics of other companies? product mix now as well as its projection of the future. >> to give john credit for having the guts at that time to tell then treasury secretary hank paulson, new york fed chairman tim geithner and chairman bernanke that, no, he wouldn't do a deal that he felt didn't make sense for the employees of clients and shareholders and he was right. they were doing the right thing. they were trying to take risk out of the system. so how we transform -- i try and look back and say this internally to our folks when anybody worries about changes. we've been around, as you said, nearly 80 years. we were once a very small investment banking boutique, very high end exclusive advisory

firm. we morphed into an equities trading house, a fixed-income trading house and asset manager and then in what really was the pivotal change at morgan stanley was the merger with dean whiter in 1997. then you're in the brokerage business. >> then we're in the brokerage business. the difference was the vision was still the same put together by the leadership of that time which was to create a balanced wealth and asset management firm with a balanced institutional security sales and trading firm. we never really executed it. we ran them into two firms. so what we've done in the last words is we've brought it together as one firm and we've strengthened what was at that point the weak leg, the wealth management business, by buying smith barney and making it now fully 50% of what we earn. >> rose: when you say "wealth management" what do you mean? >> providing advice to

individuals, their families, foundations, not for profits, helping them manage their money. so providing advice and helping them invest in the right way. we do it now for seven million accounts. i think three million families across this country through 800 locations. and that's a transformative change in morgan stanley's profile. for the better. >> rose: but is it also -- does it also limit the upside of pro fit potential because trading, as you know, delivered enormous profits and caused everybody to say everybody else is in this business, i better be in this business and all of a sudden everybody's in trouble. >> well, we're still in the trading businesses in a very large way. we have a large fixed income business. so we still have very large trading businesses. the difference is we were, precrisis, in a lot of proprietary trading where the only reason we did it two make money for ourselves.

now i would argue those profits were a little ephemeral and as the crisis showed they can turn on you pretty quickly. so the limbs that we cut off were ones that we actually weren't good at, were too volatile or required too much capital. and the strengthening to the organization that we've made are those that are not volatile, don't require much capital and are highly predictive. so it's a much healthier business mix now. >> rose: it was obviously for a while and perhaps still every smart young man and woman coming out of harvard business school or a huge percentage of them wanted to go to wall street, go to a hedge fund and go to pry pry tear trading and all that where they can make tons of money. has that changed? is recruiting different? >> i think -- well, there are a couple parts of that that are interesting. first of all, our acceptance rates on college campus this is year, i don't have the exact numbers, charlie, but they're in

the 80% range. i think it was -- >> rose: and it was 88% of people you offer a job to accept. >> they come. it's as healthy as i've ever seen. now, there have been ebbs and flows. for a period during the internet boom everybody wanted to work and everybody wanted to be a hedge fund person. >> rose: during watergate everybody wanted to be a journalist. >> it goes in cycles but there remains a fundamental base of young folks who are attracted to this interest not just because it's remembered as a success -- >> rose: because? >> it's extraordinarily challenging and stimulating. you're dealing with very complicated problems around sophisticated folks and the financial industry is the backbone of the economy. you can't have the economy without a financial industry. >> rose: when you look at all the issues that caused the problems that happened in 2008 have they been -- are we beyond the risk of that happening again?

>> have there been curative measures taken in terms of regulation and lessons learned so it's a lot less likely to happen? because you yourself have pointed to liquidity as a principal issue. >> yeah. i would say the probability of it happening again in our lifetime is as close to zero as i could imagine. >> rose: you say that because? >> because the way these firms are managed, the amount of capita they that they have, the amount of liquidity that they have, the changes in their business mix, it's dramatic. we have constant connections with our regulators about what we're doing across all of our businesses. the transparency of information that flows between those who regulate and those being regulated is tremendous. the amount of capital we have -- we entered the financial crisis with $31 billion of capital. today we have only $60 -- over

$60 billion of capital and we're a third smaller. >> rose: and your ratings are much, much better? >> everything's dramatically healthier and this is one of the contrast with other parts of the world. if you look at europe now as playing catchup where the european financial system is beginning to raise the capital liquidity and cut their levels to approaching to where the u.s. was a couple years ago not where they are today. >> rose: should there be an international set of rules about that? >> there are and it's done through a curious -- not curious but they're applied somewhat differently and there are different arbitrations and different domestic concerns and priorities. we're getting to a global standard but frankly much of the rest of the world isn't ready to catch up to the u.s. standard. the u.s. has, i would argue, the largest financial institutions. the u.s., they're as healthy now

as it's ever been. >> rose: how do you come down on the question as to whether c.e.o.s should be chairman or chair women? >> well, i admit to a little bias because i am a c.e.o. who's a chairman. >> rose: i know. >> in talent driven organizations it's much easier to have one single point of authority as it relates to a lot of the -- for example, how the you set compensation for the organization? can you run the risk of the chairman and the c.e.o. having different philosophies, different views? how do you set promotion criteria? so when an organization is very talent driven i think it's very important to have that centering of control but with one caveat. you better have a strong board and a great lead director. >> that was my point. if it's separate, the argument is that you'll have more supervision of management. >> in some ways it's semantics.

we've had a great lead director for a number of years, that sets the board agenda, provides me personally with my feedback and evaluation, meets an executive session without any management, including myself. they run themselves very independently, as they should. i think when you have a chairman c.e.o. separate structure you run the risk that the chairman will be involved in the operations of the business which in a talent driven organization cybill and can be confusing. >> rose: as your risk factor -- has it changed how you view risk? >> we view it carefully. it has changed, yes. >> rose: how has it changed? >> well, you learn? >> rose: how does it calculate? >> well, for a start, we had across -- if you look at product region counterparty, the number of limits we had precrisis was in the dozens. the number of limits we have is in the thousands meaning that

before you can do a certain type of business in a certain country you've got to revert back to the risk. previously it might have been all country risk, now it's by product line risk, by count party risk. we have a board risk committee. we didn't have a board risk committee. it's chair bid sir howard davies, the former head of the f.s.a. in the u.k. who does a phenomenon not job. everything about the organization is designed to put in place a series of barriers and checkpoints to make sure that no individual, no trading with the business, no business can take enough outside risk where they put the whole corporation in jeopardy. >> rose: i want to go around the world with you and we talked about the global economy. europe. what's the risk in europe and where do you think the euro zone is going to remain intact? >> oh, i think euro zone remains intact. i always thought it would remain intact because i thought it was -- >> rose: you never thought there would be some division between north and south and -- >> that was concern but the history of the euro zone wasn't

built for financial reasons, it was built post-second world war. it was a community of interests to ensure we never have another great war. having had a second great war, let's not have a third one. so social military -- i always thought it would stay intact. i think europe is on a slow recovery. northern europe obviously recovering better. germany not surprisingingly, us ay, switzerland, scandinavian countries recovering stronger than the mediterranean where unemployment is higher. but journal on a slow long recovery. they have a couple fundamental problems, a social welfare structure that they can't properly afford. very high unemployment in southern spain and southern italy and a number of fringe countries that are struggling with very narrow economic bases. tourism or real estate. >> rose: where is the weakness? >> well, i think the european weakness is in those pope francis y'all countries. >> rose: greece and spain and italy? >> but europe's a big place. 350 million people, very large

economies. germany, france, northern italy. these positions of strength. so i think long term europe is going to recover, is recovering. it's a three to five year recovery, not a one to three year recovery. >> rose: has there been a pullback on austerity among those governments who were only prepared to go so far? >> had to be. the population spoke. >> rose: but did the economic reality speak too? >> you know -- >> rose: is the jury out as to whether too much austerity is a good thing? >> i think it's always a judgment call. the ultimate -- >> rose: in a crisis where you need to stimulate and you need growth in order to come out of the crisis and then you -- >> you have to get through the crisis. but as it became increasingly apparent 12 months ago that europe had got through the crisis and european union was not about to break up and greece

and these countries are not about to be carved off then people start to look at in portugal, in spain, in the u.k., have we gone too far with the austerity measures? are we sufficiently cutting back on economic growth that we're digging a hole we can never climb out of? the people came to the streets and this's what ultimately started to moderate the austerity programs. the population said "it's too much!" >> rose: and politicians responded when they hear "that's too much." >> that's right! >> rose: or they may not be there by the time of the next election. g.o.p. to china. morgan stanley has had a huge interest and where do you think they are and what is the risk of their economy as they see it? >> well, i think you have to again look at history. china's now in its i think 12th five-year plan. >> rose: and the most recent one is geared to shifting from export to consumer-demand economy. >> which is going to be hard but it is in the 1289.

and 11 plans so far have gone pretty well. >> rose: (laughs) it's hard to argue with it. >> it's a good track record. it's a planned economy that's working. here's the challenge: at the same time china is trying to build domestic demand-- which is hard to do, to cause people to move from savers to consumers-- >> the best way to do that is to build up the middle-class, don't you? >> that's right. but that takes time. so at the same time they were trying to do that, the export market or the international demand was slowing. so the international demand was slowing at the time domestic demand wasn't rising fast enough to offset it, hence we had a slowdown from the 8% growth rates to a 5% to 6% growth rate. secondly, in place of that domestic demand, china in the absence of demand internally had been building a lot of the infrastructure from the government. so i know you've been to the second tear cities in china. they have great highways and airports and housing complexes

and they don't have anybody in there. >> rose: they have all these housing and know one is living there! >> they will get there. the population shift is continuing. >> rose: is it easy in-to-do business in china today? obviously they had a long tradition of favoring state-owned enterprises to the detriment of their own private enterprises as well for sure of international companies from abroad coming in. >> i think it's -- >> rose: a level playing field the way -- >> i think it's becoming increasingly more liberal. the chinese would argue that the u.s. and other count around the world are equally protectionist. if you look at my home country are i grew up, australia, they have a lot of control of what have the chinese can't buy in the mining industry in australia. >> rose: do you still run into this feeling that somehow even top-level chinese business people think that the united states sds principally its government-- is trying to contain their sdploet or do they

believe that america looks at china as -- not as a sere ree-sum game but what's good for china's economic development is good for ours because if they develop their domestic demand perhaps american companies, either service companies or manufacturing companies can find a market? >> it's a great question. the business in government elite in china are very sophisticated. they're really good. and that's one of the things in many trips i've had to china i've yet to be disappointed by the quality of leadership. they have a sophisticated view of the world which is much more along the lines of the second approach there. i'll tell you something, though. one of the chinese leaders said to me a year and a half ago when i was -- and i was asking and he said the funny thing about you americans, he said you spend all your time worrying about china. he said you know what the chinese are worried about? china? >> rose: (laughs) exactly. >> he said we're not -- there

are incidents, disputes, but we really focused on how do we take a population of over a billion people of which a very strong percentage belong to the party, billion four people, 70 million people in the communist party. >> rose: and india? >> you know, india -- wherever i'm talking to folks in india they say ten years from now x-y-z will happen. and the problem is you go back two years later and it's the same. ten years from now, it will happen. it's always ten years away. india became a democracy when it was very young and it's got a bureaucracy befitting a very large developed country and a democracy befitting a very young underdeveloped country. and i think that tension has meant many things take a long time to get put in place and the mass of people you're dealing with in trying to build the infrastructure. the indias have a lot of

intelligent, well-trained engineering culture which, like china, is hat the back burn of their development. >> rose: people -- we've all been fascinated by people like dan lobe and others and what they do because they're now running hedge funds, having a huge amount of money that they can invest and go in and get out and we see them fight among themselves and hackman and loeb are fighting over one thing and they all get involved. dan loeb came and invested in morgan stanley. >> yeah. >> rose: so what do you do? you realize he made this big investment you call him up and say "hey, glad to have you, we prix appreciate your interest in our company and your belief in our country"? >> i called him up. >> rose: did you really. >> i called him up. i don't know what price he got in, i think it was $16. and i said "you're a smart guy. congratulations, you're going to make a lot of money."

and he made 50% -- >> rose: it was 32% or something -- >> no, i think he was out earlier than that but he made 5 15-% and he got out about 24 in five or six months. >> rose: five or six months? >> our stock -- when we spoke a year ago, charlie, our stock was at 18. ten months ago it was at 12. so we've had a great recovery. i was always confident we'd get there and it was frustrating that more people were seeing it. so when you see a dan loeb coming you say thank god there's a smart guy. the smart money is now waking up. we had a number of hedge funds come into our stock not as activists but constructivists. >> rose: people want to make a productive ins snugs and when they do that do they say let me tell you how i think you ought to run your business? or what? >> if they have a great idea for how they can we're all ears. i'd take them all. tell me what you're do. pretend you're me for a day.

if you have a great idea we'll do it. we haven't heard a lot of great ideas. they bought the stock because they think the rest of the world hasn't figured out of it. that's what dan loeb did. >> rose: but you also like the people who say nibble the florpl morgan stanley. go to it, i like what you're doing. >> that's right. >> rose: and a number of them wanted to trade. >> and they came into our stock middle of last year and they'll continue to do very well. >> i was on a television program yesterday someone said, you know i can't believe that five years now as we celebrate five years or take note of five years after the crisis in 2008 that no one has gone to jail. what do you say when you hear that? >> you go to jail when you commit a crime. there's a difference between incompetence or mismanagement or

poor judgment or excessive risk taking from actually breaking a law i have a good fortune or not of being a lawyer once upon a time and much as we like to find people to put in jail you have to also find -- that's why -- you have to break the law so -- >> rose: are you saying that during the worst of this-- and we're not talking about insider trading disease but you're talking about in the worst of this and all that took place and all the things that led us in there no one broke the law? >> i'm -- well, obviously i don't know the intimacysys of every institution but there's nothing i've seen that would suggest that any of the major participants in the financial crisis should be in jail for their actions. now should we have had a structure in advance where you can call that xwen sags for incompetence or gross error? sure. >> rose: in fact, that's what you want to do. >> rose: and we have it now and when people -- >> rose: you claw back.

>> we find something that bites us two years later we claw back. should we as an industry have had that before, yeah? should people be in jail because they got it wrong? because they were too bullish? we had members of government who were pumping up the economy. if unfortunately this is -- >> rose: if we start putting people in jail for incompetence they'd be full. >> there'd be a full jail! >> rose: (laughs) how's your tennis. did you tell me you played some young morgan stanley -- >> like you, i love the game and i always sign up for our club men's singles and i always look at the draw and decide if i'm going to lose in the first round or the second round and this year i got a 17-year-old kid and squeaked passed him. so age adjusted i'm feeling good. >> rose: you used to box, you don't box as much now. you're into rowing. >> rose: >> i like rowing. great exercise and -- >> rose: you can build up a heart rate pretty fast. >> it's a good all-body exercise but it's anything.

these jobs are stressful. tae take a lot of intensity and energy and you need an outlet for that and i don't want to kick the dog, we love our dogs so that's my outlout. >> rose: (laughs) thank you for coming. great to see you. thank you for joining us. see you next time. captioning sponsored by rose communications

captioned by media access group at wgbh access.wgbh.org

is this is nig"nightly busis report" with tyler mathisen and susie gharib brought to you by. >> sailing through the heart of historic cities and landscapes on a river you get close to iconic landmarks, to local life, to cultural treasures, viking river cruises, exploring the world in comfort. three is the magic numbers, stocks had gains for the third straight day but the yields on the ten-year treasury zeroed in on 10%. >> eyeing tomorrow, that's what wall street and the federal reserve are doing to the august jobs report as the key to the question, when will the fed start to taper? and the economics of alzheimer's, the race is on to find a real treatment for the disease. it coulde