had the crisis over the debt limit because you had large part of one party threatening to default, first time in history. >> rose: geithner for the hour next. funding for charlie rose was provided by the following.

captioning spoored by rose communications >> tonight the special edition of charlie rose. >> rose: tim geithner is here the united states secretary of the treasury, the longest member of obama's economic team, part of the nation's response to the crisis dating back to his tenure of his tenure a at the new york federal reserve he has seen a range of measures to both protect and stimulate growth, today the economy sits in a precarious position underscored howunemployme and decelerating growth,he deb

crisis in europe and the approaching fiscal cliff will continue to pose difficult challenges in the months ahead. i am pleased to have tim geithner back on this program. >> nice to see you, charlie. >> rose: we have many things to talk about, beginning with the u.s. economic recovery, how are we? because for a while people thought it was moving forward, and now will is a sense to we hear a sputtering. >> it is definitely slower than it has been and that is not a good thing, slower for the reasons you said, we had oil price rise earlier the year and europe's cris asrting growth everywhere, government spending is really falling across the, all levels of the government and slowing the recovery, there are big head wind now and that's why the economy is slowing. if you talk to most economists, most business people they still see an economy expanding, still healing, still repairing the damage and making progress, growing maybe a little faster than it did in the first half of the year but two big risks you referred to, europe's crisis, which is a very significant

risk, and you have got this broader concern about if washington is going to find the will to govern again and not just defuse the mix of tax cuts and spending cuts but replace those with a sensibly designed balance package of reforms that can help the economy grow and restore balance. >> rose: if you look at europe it is beyond your control and the fiscal cliff comes later, is there anything this administration can do to get the unemployment rate below eight percent? >> under the constitution, where our country is designed, the big powerful ecomic policy tools we have as a nion are the control of the congress. now, there are lots of things congress could do now that we can certainly would be good for economic growth right now, they could help states put more teachers back in the classroom, first on the job help get more money to infrastructure, repairing a very broken infrastructure and pass incentives to help get

businesses the incentive to hire, tax incentives and to invest in capital equipment and help homeowners refinance their margins, a, mortgages, a lot of things they could do in the near rm,our basic view is you need to do that, that is necessary but not sufficient. >> rose: you say leader of the republican party on the house and senate side say that you have had campaigning and he is not there with new initiatives to fix the economy. >> well, i think all i can do charlie is tell you what we are for and what we are pushing and why, what the president's view is the best thing we can do for the economy both in the short-term and long run is do some more things to make growth stronger so you have more people back to work and repair the damage from the cry disand the economy is sti suffering from effects of the cris, sll a very tough economy, but alongside those things, you need to put in place a balanced mix of reforms to restore fiscal sustainability, that means tax reforms to raise revenue and spending savings that cannot

just assure the solvency of medicare and medicaid, social security for the long run, but make sure that we are using the taxpayers money more wisely. >> and this is not like it happened between now and the election. >> long-term reforms aren't likely to happen before the election because as you can tell the president's opponent aren't willing to compromise yet but there is no reason why congress can't ac now, again, t hel homeowners refinance, get, give business tax incentives to hire and make sure states can avoid the need to put more people out of work, more teachers out of work, cops out of work, those are sensible things to do for growth and no reasonable reason not to do it, we can't control what happens in europe, europe is having a big effect on the global economy and right now. >> rose: so what is the role of this administration in the european debt crisis? >> well, again, you struggle with the recognition this is europe's crisis and the solutis have t be designed and found wiin eope becae for them to work politically and financially, they have to have the support of the governments and can't be imposed from the outside but what we have done

and what the president and i have done from the beginning for the last two and a half years we worked very hard with european leaders mostly in private to try to bring them together and support a more powerful set of reforms to restore some stability and get growth stronger and put in place a more durable set of institutions to make this work. you know, we did that with a huge amount of humility because we have a crisis -- that caused a lot of damage to the world and we still bear the scars that cris, b we learned a lot in that crisis about how to do things well in this context and they were very interested in hearing from the lessons we learned in that context, we worked very aggress sifg to civil to rescue the economy from a broken system and did so forcefully and quickly and got the taxpayer's money back quickly and restored the ability to provide credit to the economy which is very important. so what we have done is work quietly behind the scenes and what they have done is y to engage usin heing get their

own internal debate in a better place. >> rose: when you look at what they have done, you have had the european community bank, european bank has acted, groggy has acted, they are trying to keep banks afloat in spain, do you believe they are on the right path and do you believe it will work? are they simply kicking the can down the road, to use the term they often use? >> well what they are trying to do is two very hard and important things. one is try to get those onomies wkinggai impve competitiveness and keep them growing again and that is a very difficult and tough process and requires really hard reforms in these countries but also trying to make sure they put in place the institutions to make monetary union work, they have a common currency, a single monetary policy but unlike thees you, national governments in response to how much they borrow and how much they spend, and they have national control over their financial systems, so what they are trying to do alongside

those economic reforms. not. >> rose:. >> rose: they can't print money. >> they need to work toward fiscal union, fiscal fromism and they give control over how much they borrow to a central authority and give up control over their financial system to a central authority and have a broader central back stop to the financial system. those two things, those economic reforms for long-term growth and those government reforms are necessary, absolutely the right thing to do but they will take a long time to work, and for them to work, for that process to work, they have got to provide more immediate short-term support forrowth and for inancial sbili, sohat they get those interest rates down in countries like italy and spain, and that is very important to recognize because you are not going to solve these just with those long-term reforms, you need to do some things to bridge those reforms. >> rose: that's the same problem we have here, balance between austerity and growth and dealing with the long-term debt issue? >> true, but our challenges are

very different in there are, they are much more manageable challenges, we don't face the kind of competitiveness problems, we don't face the same exact fundamental wrenching change in the rule of government. >> rose: but do you believe the governmts, r example, e gek gvernnt is now coming to grips with some balance between austerity and growth? do you believe the italian government is doing that? do you believe the spanish government is doing that and do you believe those banks that own a lot of that debt, will survive? >> well, the europeans have basically committed to do what it takes to hold their financial system together, and they have to make sure they can make that commitment credible to people in the markets, investors, the banks, and as you can tell they have some work to do on that process, they have not been fully successful in making that commitment. >> rose: to create the kind confidence. > that right. t the govrnments in tho countries you referred to, spain and italy are two god examples are doing very hard, very tough, necessary things to make it easier to start a business, for example, to restructure their financial system, bring capital into their financial systems,

and reduce the long-term dynamics that make their fiscal position on the deficits unsustainable, they are doing very difficult political things and for this to work politically for europe and economically for europe those reforms need to be more financial suprt, if you leave euroe, wl is, there is a good way to think about the challenge if you lead europe to the edge of the abyss and leave it just teetering on the edge of financial disaster, it will be much harder for the strategy to work. >> rose: some say the chancellor merkel believes she can always come in and rescue at the last moment. >> that's right. >> rose: and that's her operative philosophy. >> that's right. now, to speak in her favor, as a strategy, she is very worried about is that if they relieve too much of the pressure, the incentive for reform will fade, a theyillave spent a bunch of the taxpayer's money in germany without any real return to make europe work better, so

he is right to be worried about that, if you were in her shoes you would think the same way, the balance is if you leave europe on tej of the abyss as your source of leverage your strategy won't work because you will raise the ultimate cost of the crisis, much more expensive to fix and you a lot of damage to the politics of those countries because the human costs of what is happening not just in greece but across europe now are enormously high and you are seeing that reflecte in much more political extmis >>rose: ectly and huge, huge, really remarkable he was of deprivation for what were, you know, pretty modern, mature economies. >> rose: now you think the euro zone will survive with the 17 members intact? >> i think it will, but, you know, that is something that is in their hands, and what they have said to the world is, they will do germany too, they said we will do everything it it takes to hold the european unit together and that's what they are trying to do is make it viable for the long run, long run. >> rose: so what is the future possess the chinese economy and is the bloom over? >> i think yo you have to separe the problems th face, you

know, ten years, 15 years from now when their demographics really move against them, because they have, you know, as you know they have the population growth is slowing really dramatically and will be -- >> rose: the one child policy. >> exactly n the short-term, economic growth is us is, unsustainably fast and excess in real estate and what they have been trying to do is tame the pressures, to moderate them, but they get hit with slow growth in europe and a little more in that, than they thought in that context but as iia, brazil, many other countries too. >> rose: are slowing down. >> because growth is slow those governments are trying to provide more support for growth so in china they are moving to loosen the reigns of it the and relax some of the constraints they put on the credit because they are trying to get growth stronger. >> at the end of the day you think this crisis will come out okay? your are optimistic they will find and answer. >> in china? >> rose: yes.

no i'm sorry, back to europe because because of the demand issue. >> in europe it is a very tough, challenng crisisand ill be withhemor yrsnd years. there is to realistic prospect of a quick yes, sir lowtion to this. >> rose: and how will china change because of this lowered gdp growth? >> well, china again the short-term, what china is trying to do is make growth a little stronger. >> rose: right. >> but what they are doing, they are playing for the long run, what they are trying to do is shift the way their economy growth growth, they are relying more on consumption and domestic demand, less on exports because they have woken up and recognized they are too big to run the economic strategy based on export like growth so they are trying to shift the economy and we ha encouraged this shif itis very much inur interest toward more domestic demand and consumption so when they are looking to provide more growth in the short term they are looking at things like providing tax cuts on consumption of good for consumers, things like that which is a good change. >> rose: they have new levels of wage demand too. >> wages are rising, which is inevitable.

and exchange rate is higher as you know and that is shifting the competitive playing field in our favor, in what is necessary and fundamentally a good direction. >> and you expect them to be more amenable to our arguments on the currency? i think, you know, chinas like most contri they wil do at i in their interests as a nation and what they decided, of course we encourage them to come to this direction and view, they decided it is in their interest to let the exchange rate move in response to market forces and have been moving steadily to make that happen and have seen quite a bit of change. as you said wages are growing and inflation is still higher than it is in the united states, so that relative shifting of competitiveness is moving more than the exchange rate implies, their external, their trade surplus i down dmatilly really has com down quite a bit, but they are doing these things because they recognize it is in their interests we are encouraging them to do it. >> that brings us to the united states and the question of confidence in the economy. do you think the confidence today, the u.s. economy is more

influenced by expectations of what happens in europe and the global economy or expectations of what could go wrong in dealing with the fiscal cliff? what is driving the confidence factor in the american economy? >> i think there are two clouds over us, one is the impact o europe on gwth here d aund the world and concerns about how they manage this crisis and the second is a broader concern about whether the political institutions of the country are going to find a way to move again, to govern again, become unstuck and do some things that are good for the economy in the short run and long run. i think this concern about washington being stuck got much more scary last summer when we had this crisis over the debt limit because, you know, you had a large part of one party threatening to default, first time in history, deeply irresponsible, unacceptable, it caused a huge amount of damage to confidence and one of the

reasons people look at the end of this year and the expiring tax cuts and the automatic spending cuts they look at that with more concern is not because they look at europe but because they wonder, given what happened last year an you hear some people to default again, they wonder whether washington is going to be llg to make the compromises -- >> rose: my question is wandering and not knowing causes you not to make investments you might have made, including venty an employees >> yes. rig nw, y know that europe is starting growth and you know government spending is falling and you know that the concerns you referred to means it is under likely than bys hold back a little, the consumers spend a little less. right now i think europe is the dominant effect on growth right now but these concerns about the europe as you say could cause people to pull back a little further and that would be, would make growth weaker than it is today. >> rose: a couple of things come up, one let's talk about the bush tax cuts. the president has said he is prepared to see oneear

extension with respct the middle class tax cuts. >> right. >> rose: bush tax cuts. he is not prepared to do that for tax cut for people above $250,000. >> that's right. >> patty merius stepped forward and said perhaps we should let them both ex-point and see what the republicans do, is that a good idea? >> we have heard just to be fair in the debate you heard a lot of republicans say the same thing, they say, you know, we can't ever vote for a tax increase, so let something expire and vote for a tax cut, but that is an unavoidable option, outcome for e uned states, notrom - what weant to d is ain bring both sides together and try to negotiate a carefully designed balance, mix of tax reforms and spending savings so that we bring those, and increase, create some room for us to invest in infrastructure, education indication, things important for the long run and our challenge in this area are very manageable challenges, relative to what almost any major economy around the world is facing on the fiscal side,

but we can't put them off forever, how we do them is very important, but we can't delay this. >> ro: a you know the resint has be criticiz by democrats for saying he did not stand up hard enough. these criticisms you do hear within the party with respect to the negotiations on the debt ceiling and raised questions about that, that he should have been prepared to stair into the abyss, that question comes up again, is the president this time saying to the republicans, don't think that i am not prepared to -- i am not froapd extend this deadline beyond january 1st? i am not going to offer some type of extension so we can work on i >> that's right. >> rose: push comes to shove on janryst. >> let me again slain what the president is trying to. do he is trying to balance two things what is important and necessary and fundamental to do for this economy in the short run, so that we heal the damage cause bed at this crisis, that is very important. >> rose: that's the growth factor. >> and what he is trying to do is make sure we break this basic

stalemate in washington an get both sides to come together and put in place that restore fiscal sustainability, because even know that is not affecting the economy now in the long run if you leave it unaddressed it could hurt the strength of america in the long run, we try to do both of tose o things so what e psident said let's extend the middle class tax cuts, those go to 98 percent of taxpaying individuals and 97 percent of small businesses. if we do that, that takes away most of the uncertainty, that is damaging the economy from this end of the year, fiscal debate, it takes away most of the uncertainty, go do that now. that is a good responsible hinge to do. and then come with me and negotiate a balanced package of fiscal reforms that as i said raise revenue through tax reform andnclung spendin savings hatyou ow, exte the solvency of medicare, medicaid, social security and create room for us to help the economy with infrastructure, education, things like that. and. >> rose: and where does the administration say this is our

line, here and no further? >> and that is where we are and again think about think way. if we say right now to the world we are going to extend all those deadlines, push back those tax increases for the top two percent of americans, delay he defense, and things like that andon'tdo anything to aress these two critical things which is how to get the economy more growth now, how to improve our long-term competitiveness and how to lock in fiscal savings if we do that, what is that going to do for confidence, charlie, atime when people are so worried about the basic ability to watch the governed and we have europe, you know, burning because of dope concerns about political will in this context. it would not be responsible to put those things off and think about it another way, if the president were to say now, i am prepared to extend the taxes for the top two percent of ericans, iis a deeply irresponsible thing to do fiscally and economically now. if you do it, it cost as

trillion dollars over ten year, a trillion-dollar over ten years. which we don't have and we are not going to if out and borrow from other countries to support in that context and we try, what we try to say to people is life is about alternatives and if you don't want to do that, where are wow you going to find the trillion dollars? are you going arto raise somebody else's, defense cuts? we don't think there is a plitically viab alteativto tt, tt iwhy he is being so strong and so firm on this right now,. >> rose: because -- >> because to delay would be pensive and irresponsible. >> rose: i hear you saying and that the president will say to the republicans, i will not delay. there is no pension to that, this is a firm position. that's what he said, he will stand by that, and i can tell you i talked to him about, a lot about this over the last weeks and months and years, and he is absolutely committed to that for the reasons i said, because to not be committed to letting those easy ex-piure would be

irrespsible, it would hurt our credibility it would leave with us no capacity to address the fiscal problems and be irrelevant responsible and have to g go out and borrow that money which we can't do. >> rose: although you va karl with some of it there was a rating agencies last time on political dysfunction as much as economic consequences. >> absolutely, and again if you look back at what happened to the united states, in last august, you saw a huge damage to consumer confidence, to business confidence and confidence around the world in the united states because you had pele inubli ffice threatening to default on our nation's obligations and demonstrating a complete lack of willingness and responsibility to come together and find a path through this. >> rose: okay. >> i want to take -- this sound kind of dark can i kind of take the more optimistic side of this? there has been a lot of foundation laying to try to figure out how to bridge this divide, a lot of quiet conversations underway on the hill 20 democrats and

republicans, a lot of important work going into looking at the alternatives in that context and what is divi that is iorta, whh is ones it is just this deep sense of responsibility that the american people want to see washington start to put in place these kind of reforms, but also it is a sense of the basic, cold hard fiscal reality that you can't do this without balance. >> rose: why butn't the administration more supportive of simpson bowls from the get go? >> the president in april, four months after the initial bowls simpson was presented in settlement of the following year .. and in febrry, in each of those important moments did lay out a comprehensive, detailed plan for how to raise revenue and how to provide some station, yet even in medicare and medicaid, and other programs and -- hold on -- that would generate the amount of fiscal savings you need and you asked why didn't we embrace it more

fully. at that time, in december and i will give you, there are just two reasons and i think you know these reasons, one was, one is he chose their mix in order to get support in the commiee, they gnt enoughf a memory at is but ey cse t mix that when, went too deep. >> on simpson and bowls. >> simpson and simpson-bowles. >> for a commander in chief to embrace at that point, they designed some of the savings on the entitlement side that are very hard to support in that context and ultimately they did not get any republicans in the house, so they couldn't get a majority necessary to adopt the report and therefore, this is important, and, therefore, at that point, we thought the best thing to do was to use that excelle wo as the foundati for ting to build a broader consensus on that, as you know we worked very hard, really throughout the --, you know, throughout last year with the

leadership in the republican -- in congress trying to build that support and we got -- we got pretty close, not that -- not all the way there, but as i said, you should take some comfort in that too, because that shows a gooder recognition that this debate began with simpson-bowles in some way and end on terms broadly similar to that whe you have tax reform that raises renue and spending savings across -- >> rose: boehner told me two things, one is simpson-bowles was the menu that you are operating from. >> yes. >> is that fair? >> yes, that is fair. >> rose: secondly -- >> the menu is a bit, i don't think it is quite complimentary. >> rose: my words, but he also said that in the end, when push came to shove, he was prepared to give up his own position on the revenue side. >> right disbho although he didn't want to, however the adminiration cme back and wanted more on the reven dede and th's wtkilled the deal and he accused the president of losing his courage. >> i know he say that but, you

know, people say all sort of things i will tell you my impression on that and i was involved in almost all of though those talks is we got very close and in the end, when he decided to -- he couldn't continue the negotiations, there were two things left open on the table, one is we wanted tax reform that went beyond where they were to raise more revenue glo. >> rose:. >> rose: is so he went back and said we need more revenue. >> they now there we things they kn whch were unacceptable to us and things they didn't pull off the table, like for example completely undermine the structure of healthcare reform, so they knew those were unacceptable to us, so we weren't quite there yet and, you know, as you know, and this is a, there are a lot of reasons for this, people said from the beginning, he was getting, he was under a lot of pressure in his caucus not to do anything with the president, and certainly not to explicitly embrace anything that raises revenue and made it untenable for both sides he put on the table a proposal that had some revenue increaes in it, but

they weuote mest relative to the scale of our problems and some things -- >> rose: did you grow to what he proposed at that time on revenues? it was never agreement -- >> in an agreement -- we were hear and moved together but didn't get all the way, but this is something, the basic shape of that outcome is where this has to end. >> rose: why did the republicans always come back and say he never showed his hands on entitlements? why do they say that? >> no, they say that but there is no truth to it. >> rose: in other words you could sit here and say this is where th president wasbrepd to t enties i can tell you exactly -- >> exactly we put out a much more detailed plan for entitle. savings than anyone has done, what they said is they want to go dramatically further? why do they want to do that, one reason is, they don't really want to commit to raise any revenue which means they have a big problem. >> rose: and that includes reducing deductions? >> many people say that is not enough you need to do a mix of,

ideal think you want to lower rates and broaden the base which is to remove these deductis and you have to raise revenue, but i will give youn example, in the republican budget people call the ryan budget they don't raise revenues at all in that context so they have a big problem, they have to find a trillion dollars or trillion and a half or $2 trillion and they took that out of medicare. >> rose: a premium they call it a premium. >> they really believe the right way to reform medicare overtime is transform medicare into what you might called a defined contribution program, which won't cover your costs and their hope, their belief in that context that will make people change how they use healthcare. >rose: peoe are talkg about the role of government and talking about the nature of capitalism and outsource ago whole range of things. tell me how you define this debate. >> >> that you think is essential to our future. >> well, i think what the president's view is, and i completely share this view, and i think history supports it, and

i think the challenge that the country -- the best fit to the basic strategy is to make this economy stronger overtime, make sure we are growing and the -- game is more broadly shed you need to have t government not just proving hlthreo our citizens but providing much better education out comes, training out comes so businesses can hire people with the skills they need to compete. you need zero have a financial system that is safe, more stable, more resilient, providing capital who need capital, not the things they did in the crisis and that as we bring our fiscal deficits back towards balance, we are not leaving retirees and low-income americans without a basic commitment to retirement security and health security in that context. those ar the core of wt we believe ne toake this economy 35 overtime. >> rose: do you think there is anything in dodd frank that was an impediment to growth by the financial sector? >> very good question.

there is no doubt that the reforms we have supported and that we are putting in place, many of which were already in place, are, will change the economic of finance, there is no doubt about it, we did consciously in the interest of the country is to make sure we were taking out of existence big partof the financial system where it was just the wild wes the wa noositive value to it and very damaging to the country in that context, and for the core institutions remaining, we were forcing very tough changes on them so they have to hold more capital to support the risk they take, the loans they provide, and those things are consequential and if you dealt with the people numb blink listen to the fights we are facing on financial support, financial reform. >> rose: putting growth in the financial sector -- they argued in the opposition if you put the capital requirement too high .. wean't generate the cochlear rowth. >> again, i don't believe there is any merit to that, i think of it this way, look at the things

we can observe so you can't debate them, loans are increasing. look at europe. loans are falling off the cliff. credit is expanding here in the united states because we force banks to hold enough capital to make these loans -- >> rose: making the loans -- and they are restricted in terms of the number of loans they are making because they have some uncertainty about the future of the economy, a because of europe and b because of the coming fiscal cliff. >> well, there are lots of sources, i am certain, but the pact of financial reform is t onof theignificant factors holding back growth, the answer to your question is, is it hurting growth, i don't believe so now, is it making finances more stable and safer? absolutely it is. are the banks, would the banks like a weaker set of constraints of course they would ask that in the interest of the country? i don't think so. >> rose: financial regulation eliminate the possibility of too big to fail? >> financial reforms. >> rose: or reforms, whichever. >> significantly reduce the risk that the government would ever

have to come in again and rscue an institution from its sins from its mistakes, and it deprived washington of the ability to come back and do that again, because people were so understandably concerned about not even the, leaving taxpayer expose pod the risk. >> rose: why did it take so long to get these regular applications and should you have given them to the people who have -- who are writing these regular regulations to do it? >> you had to do that, there is no way congress could have written those regulions, i think they decided in their wisdom - >> rose: itas taken an enormously long time. >> not really. you know, this is complicated stuff, as far as stuff to do, and you have sometimes five agencies writing similar rawles, and they have to write them together and coordinate and that takes some time and we are very careful to make sure we are bringing the world along with us because if we raise standard here and the rest of the world

doesn't move it will hurt us. so things are moving a little slower than some people thought but, charl, 90 percentof these res a eiter in place day or have been proposed and when they are proposed, the market can see the broad shape of them too look at the lie boring crisis libor crisis, that was a failure of what? >> oh it is a failure of many things. it is another terrible blow to people's basic confidence. >> and basic institutions. >> and the integrity -- no and artificially -- >> you had a system in london gofnd which the -- governed by the banks th was vulnerable to institutions miss reporting the price they were paying to borrow and that was very consequential, and that is why when we were, when we became aware of this in early '08, we moved quite

quickly to try to get the british to address it and make sure that we brought it to the attention of the full complement of u.s. regulatory agencies so they could take a careful look at it and to their credit they have done a pretty strong enforcement actn right nw,. >> rose: is that questn being raised as you sort of step forward to answer some criticism saying, look, you had early knowledge of this. >> right. >> rose: what did you do? and should you have done more? >> re, well,. >> rose: go ahead. >> what i did and what we did. we took the initiative of briefing the entire complement of u.s. regulators about this, that is important to do because they needed to be aware of this and had all interests at stake in this context. >> rose: -- one bank had articily suggested ineresrate that was not -- >> let me say it different. what we knew is, and this is broad public concerns about this at the time, no mystery to this, we, what we knew is the way this process was run out of london,

created the incentive for banks to miss report. >> rose: right. >> or underreport and it created the opportunity for them to do it. why they gave the incentives in the report because we were in the midst of a financial, significant financial crisis and they didn't want to show the stigma of showing they were borrowing at rates higher than the piers, so facith that knowledge or concern wt we did is we brought it to the attention of the people here in washington who has the enforcement authority and we pushed the british to move on it, and what you see now is that the reform process to fix it is incomplete in and looking back, do you believe you did exactly what was necessary or should you have done more? >> i believe we did the necessary and the right thing and we did it very early, and i think the test of any system should be what you are seeing today, which is is the enrcement response, is the enforcement strong enough and it looks strong enough, they put

together a very careful case and exposed deeply offensive, unaccessible things, the reforms we started in that process in '08, the reforms we started obviously there is more to do on that process and what we are going to do is we are going to, having been exposed to what is done, we are going to wet the central banks and market of the major financial centers together and try to provide a stronger pusfor reform this time. e british have be invved in that of course t th re of us all have sex in that. >> rose: this goes back to the beginning when you were chairman, president of new york fed. there is a new book called bailout by neal barofsky and while he suggest it is top program was necessary to deal with a possible financial collapse, the foreclosure part of that was not properly administered, you were not as enthusiastic about that as you

should heeen. wel obviously i don't share those -- >> rose: what would you say zero to him that you got it wrong. >> let's go to the substance of the basic debate. again if you look back to that time as you know we talked about this a lot, we had an american economy falling off the cliff, shrinking at the end of 2008 and a financial system where you faced the real prospect of banks failing across the country and people bulge their money out of banks and complete clams, you know, like the grid going dark for a long period of time and at we didre things you nev want to do, you never want to he to do, but with the authority gave zero to two administrations and along a very aggressive federal reserve including when i was there and with the recovery act of force that congress authorized we pulled the economy back from the abyss, stabilized the system, got the economy growing again, and those things were absolutely necessary. there are no alternative to

those things, no things would have been possible without those basic acts and many people locked at that and still felt it as unfair and unst -- >> rose: in a conventional way, what they said is you bailed out wall street but didn't bail out wall street. >> our job was to protect main street, the average american from the failures and the failing financial system is what we did and that is a just and necessary thing, to have let it burn would have been much more damaging to main street, the average american than what we did, it is very important, because remember, people saw the spectacle of the government doing things we had never done before, making, putting hundreds of billions of dollars into the banking syst, t it is imrtanto rognize that we are going to earn a positive return to the taxpayer on those investments we made. >> rose: the so-called tarp funds. >> right now it is $20 billion we earned for the taxpayers, very carefully designed. >> rose: $20 billion that is the interest on the money -- >> on the bank investments, most

of sit back in the treasury. >> rose: 85 percent? >> yes. and we still have some out there still. some risk in that still, but this was an incredibly carefully run program, i think if you look at the history of fincial crises you look at how japan did, the for dk's did, emerging economies -- >> rose: that is one thing. >> but that is important to start with that. now, on housing, housing very tough, the most frustrating, most discouraging thing, because the damage was so -- >> rose: and mortgages underwater. >> and still acute, it is still very tough, but we operated at the frontier of our authority, we did everything we thought would be effective with that authority and there are millions and millions of americans in their homes today because of how we used that authority, about, ten, 20 million people have lower interests today and refinanced because of what we did, but it is still very, very hard, we have billions of dollars to help directly support

homeowners in crisis in that context, we were as creative as we could be, we did constant innovation, adaptation as the nature of the problem changed in that context and awgz we operated at the edge of our authority, now we didn't have complete authority, we asked congress for more authority, they are sitting on this now, again to help people that a underwater and get people lower interest rates aeep pushing forhat and keep pushing, but the people who felt lake we should have done more have to carry the burden of explaining what would they have done with what authority? and i don't believe that they have a credible alternative that would have been feasible for us at that time, i just don't believe it. i mean, again, ask them what would they have done with what authority, and could they have gotten that authority from the congress at that stage and i don't think there is think basis -- >> rose: as, i lk to the author this morning and he basically pointed more toward

the foreclosure and housing aspect and the argument he was trying to get, he raises this question, was tim geithner her too friendly to the banks? because he knew them from his years on the new york fed. >> i find that deeply offensive, you know, the result of an urban myth, significantly. a lot of people thought and wrote in publications of record that, goldman sachs rather an a publicervant whi is what i have done for that, i thought it was a private bank rather than the fire station of the financial system. and people were deeply misled about the basic choices we faced and the alternatives we confronted in that context. a lot of people including many of my critics said we went out and gave and lost trillions of dollars of the american taxpayers money at that time, deeply misleading, terribly damaging the confidence and the cost of that has been very damage okay the president and i think damage okay the integrity of the basic effort, again what

we ted to do is protect -- >>rose why do uhin that is true, though, why do you think that urban myth is out there? >> because it was convenient for the critics. i don't know. >> rose: he has a pulpit and you have a pulpit? >> but it was a clean and verifiable factual thing and not fair to the president and not pair to me and often based, again, i get lots of advice from people, listen to -- i do all the time and i listen to -- >> rose: period bankers included? >> well, not as much from bankers, but -- >> rose: that's what you meant -- academics -- >> -- from the right,from the let. >>o i think that -- i agree with you that the perception is damaging. i think it is dopely unfair and unjustified, again, if you think that what we did was ineffective or better alternatives, i don't know, look at the history of financial -- look at what new york is going through and, europe is going through now and ask if you can find an example as effective and powerful as the strategy we designed over that

period of time, i don't think you can find an example of that, would other things have been available? absolutely, ask this question, which is housing as an example. >> rose:whatould you have do? >> what wouldou have dne th whose authority, with what money and how would you have implemented it? and i don't believe you will find them able to articulate to you a coherent alternative strategy. >> rose: what is the standard, do you think, in terms of when the government should bail out? what is in the interests of the objective of protecting the innocent, the average person in the economy from their basic failures? and in a crisis like with what we faced alan greenspan said this crisis was caused by a stock, like a storm larger than what what caused the the great depression in that conte ever you don't proct the ability of people to protect their savings of the power grid which is, to function, to stay alive then you will kill the economy and the damage will be much more great to the meant. it is a difficult line to innocent, to the innocent, i think if you look at what the president did he took he more mouse political risks dawrg very

difficult time to do what was the right thing and the mess thing. remember, most people of that time, many people of that time said he should sit back and let it burn or heshould nationalize the ban and whatever -- >> rose: you are referring to t natalization? >> all of those things, he gets a lot of advice and he took -- he did -- and this is why our country is in a financial crisisable this is why they do them, they sit there and they stare at what what you have to do and they see the political cost of that is too great for me to bear under the weight and i hope it will burn and -- i will sit back or do the tentative thing, the politically easy thing and that is what -- that is why countries mismanage financial crisis and in president to his enormous credit he dn't sit there and date the options indefinitely an look for politic advange,e ditheeally hardenings in the automobile industry in the financial sector, in the recovery act to save an economy that was falling off the cliff, and that was just the beginning,

it was a mess thing, it wasn't going to solve all of our problems but without that nothing else was possible. >> rose: this thing about foreclosure and the housing is there more the administration could have done in housing, clearly what you had is you had more housing than you had demand, that's the bottom lynn of the housing problem? >> you had two things, you had more houses than people wanted. >> re: right. >> and you d peop who borred me tan they could afford. >> rose: right. >> and those two things take time to work through. now, you asked is there anything else we could have done. >> rose: yes. >> if we hadn't complete, if we had complete control, complete authority over that the gsa was doing, fanny and freddie is a large part of the housing market and can't control what they do and congress acted earlier to give this authority to allow people to refinance, then we would have been able to reach more people more quickly in that context but we did not have that authority and our job is to make sure that we are operating at the frontier with the tools we had and beeve we did that, i reallyelieve we did at and of courswead a huge interest in doing that. not just a political interest

because of how powerful and compelling this was to the average person, but we had a huge milk interest in doing it because if we could have eased some of the pain more powerfully that would have been good for the overall economy. >> rose: some people say it is a lehman moment for europe. >> hopefully not. >> rose: hopefully not and what it might be. >> they say they won't let it happen. >> rose: and they say they won't let it happen. this is the lehman moment inamerica avoidable? >> i dot thk so. lehman itself, we had no authority to touch. >> rose: no matter what paulissen says. >> and chairman bernanke was a part of that process. >> rose: is there a consensus among you and bernanke and paulson, the three principal figures. >> without a willing buyer and you tried to find one and we got pretty close but not close enough. remember the world was burning at that stage so everybody was running for cover and trying to protect themselves and not come in and take a lot of risk. >> rose: because of the question of government and the role of government -- >> can i comment on that, it is

an excellent question. lman was importa in th coext zz lehman was just the leading edge of a huge storm that was going to put at peril and ultimately did a vast number of other institutions. >> rose: beyond agi, there was goldman sachs and morgan stanley. >> and wachovia failed after that. so you have to deal first with the ones that have the most risk and vulnerable but there was a much more wider and powerful storm. >> rose: the banks have made enough money to -- >> we forced them to raised $400 billion in capital so they would be stronger. >> rose: they rayed the capital. >> and make sure they pay back the taxpayer quickly and did that much quicker than had been thought we could do it and that's one reason the government earned $20 billion on the investments in the banks. >> rose: wow would do that again in a second? >> every country around the world when they look at the experience in that context. >> take bill clinton, bob reuben, larry somers, tim

geithner, they are very different men, with different experiences, one academic, you government, bill clinton from politics, bobuben from wall street, dyou think both of you have the same view about where the growth of the government, where the role of the government in the economy that barack obama does or is there any difference? >> i think on the core values of what we think is important to make choice work better and more just for people, you know, how you design a safety net to protect low income, and retirees, on those core things, i think that group of people are very, very close together, much more in common than they ve any dfferences they all have a eep appreciation to make the market economic workable and what you need to make the market economy work is a framework of protections. >> rose: the president's attitude about these fundamental questions is to different than these people you worked with? >> i need to be careful about that because i would say on the

core values of what views we all bring to the role of government and economic policy, i think we are very chose encore values. now, this is a differenttime an when thoseen were i office, different challenges. i would say, not to be unfair to them, much tougher challenges, much tougher challenges governing, you know, financial crisis, you know, just still devastating effects on the economy as a hole whole and a much more challenging global environment. so, you know, i think it is a little hard to drawing the comparisons and i think the political challenges we pace today to those core bipartisan commitments to medicare, to medicaid, to social security, even to, yo,ou know, basic thins lie shouldhe gornment finance infrastructure and science, core commitment to that which was bipartisan for a long period of time is harder to find these days because so many of

the president's opponents have walked away from that. >> rose: tell me if this is a part of urban mythology or not. that the congress, that this president behave the congress in terms of the stimulus program and in terms of healthcare, he left it to them to do most of the writing of those two monumental legislative proposal, and probably should have given more direction. >> people say that, charlie, but let me say it this way, i have a lot of experience with the choice made on financial reform we made a different choice, and none of this is the same president and we gave congress a detailed blueprint, detailed language for how to draft this, and this same president on healthcare made a different choice on what would be the best path of legislation and remember on his team, he had, i would say, some of the most talented legiatorof their gerati, not just in achieve staff that time, rahm emanuel but the

best experts in healthcare policy, drawing on the best ideas there to and those two groups together recommended the strategy embraced and that strategy was successful. i mean, again, a moment of incredible challenge congress, legislated healthcare reforms and 30, 40, years that will provide healthcare to 30 million americans and help make sure you get protection even if if you have preexisting conditions, all of those core things, that was a remarkable accomishment. >> rose: even though some cus more on the economy at the time, the president believed that that was the essential time to go for healthcare and it was important as a piece of legislation? >> absolutely. >> rose: in order to -- >> huge moral case for doing it. >> rose: and the economy suffered because he went there and didn't focus just on the economy? >> of course not, and if you look at what the president was doing at that time, he was spending a huge amount of time in addressing the financial crisis, the economic crisis and made a sustained effort every

month, every week aftethat to try to gve congress more proposals beyond the recovery act to help the economy get stronger over that time. >> when you look at where, what we have gone through, how long would it be before we get back to what it was before at 2006 and 2007 levels? >> well it is going toe different, hopefully dramatically different than it was then. even then, even then before the crisis, you know, a crisis, it was pro stroked by just unsustainable levels of borrowing a across the country, anyways, and even then youad alarmingleve of children born into froth poverty even before the crisis in that context. >> rose: the level of poverty in this country, the figures that just came out is the highest it has been -- >> the deepest recession in many decades necessarily resulting in not just high unemployment but high levels --

>> your question is how long it is going to take. it is going to take a while still, years still not just to repair the damage, direct damage of the crisis,theousg for emple or the people -- that will, unemployment, that will take you years, but of course even at that point, we still have a range of other problems facing the country, middle class americans, no growth in the real wage for a long period of time, the levels of poverty, huge income inequality, huge erosion of people's confidence, the level of education, those are daunting long-term challenges and it is going to take a while for us to address those. >> rose: some say there is a new normal. >> i think aboutit a little fferently whichs i that period, you could say from 2004 to 2007 f we grew faster than what was sustainable and not in a really healthy way because much of the growth was financed by borrowing, too much went into housing, you wouldn't want to go back and recreate that so it is

going to have to be different and you want it to be different, but the u.s. economy and maybe this is a good way to end with a little perspective, we are much more productive than we were before the crisis, we made a huge amount of progress in address ago lot of the causesf th crisis, so people reduced the amount of debt they hold, they ld t financial sector is smaller, much less leveraged and we are moving through most of that challenge in housing and absorbing all of those excess homes and helping people get to a better basic place. and people call this deleveraging the, the great deleveraging challenge, we were very advanced in that process and much more advanced than any other country and that means growth ahead of us will be better than will be the case if we were further bin, those will encouraging. >> rose: secretary of the treasury, tim geithner, a conversation abo america and the future i the ntext of a globe at lks very different today than it looked eight years ago. thank you for joining us. see you next time.

captioning sponsored by rose communications captioned by media access group at wgbh access.wgbh.org >> rose: funding for charlie rose has been provided by the coca-cola company, supporting this program since 2002. and american express. additional funding provided by these funders.

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