>> after ill lupl in addition of an interviewees character, qualities, substance, texture. if you're really after that you can ask very pointed questions. sensible questions to get them to talk. you can establish-- which you do

so well-- a chemistry of confidentiality that what comes across the table which, you dirty dog, you have done on a couple of cooccasions over the past when you got me saying things i had no intention of saying and, why? because you're two people who know a little bit about the same subject. if the interviewee has respect for the interviewer and feels that the interviewer knows a good deal and is well prepared you can ask anything and you'll find that the interviewee will be a co-conspirator with you. >> rose: mike wallace in a conversation with me in 2002. tomorrow night more appreciation of mike wallace from friends and colleagues and other interviews with me on this program. we continue this evening looking at the presidential campaign with evan thomas, mike allen, and john meacham. >> this is a 50-50 country and it's going to be decided by people between the 40-yard line,

the middle of the middle who aren't tuned in. so mitt romney has a chance to that none of us do, which is a second chance to make a first impression. they're starting to reintroduce him. we saw the easter pictures, the egg hunt, the egg coloring. we saw the body surfing picture i think we're going to see a lot of romney family photos in the next few days because it's all part of saying hey, it's not really what you've been inclined to think. >> rose: we conclude with a conversation of james gorman, the chairman and c.e.o. of morgan stanley. >> the most important thing with any professional service firm is to tap the d.n.a., to find out what it is that is the magic about the institution and morgan stanley 75 years old found it coming out of the great depression the magic of morgan stanley is the quality ofhe people dealing with exceptionallyly complicated

problems. helping clients find solutions to tough situations. so my challenge is to get us back to those roots, to. ly phi those roots and to let the organization run with it. >> rose: mike alan, evan thomas, jon meacham and james gormon when we continue.

captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: we begin tonight with politics. mitt romney strengthened his grip on the republican presidential nomination last week after sweeping victories in wisconsin, maryland, and washington, d.c. with a significant need delegates, romney appears likely to face president obama this november. over the weekend, newt gingrich, who remains in the race, conceded romney is far and away the most likely nominee. so far, romney's chief rival, rick santorum, has pledged to stay on and compete in the

pennsylvania primary in april 24. in a new, book, mike allen and evan thomas capture the drama of the 2012 primary season called "inside the circus." joining me the authors and editor mike allen, evan thomas, an award winning journalist and professor at princeton university and jon meacham, executive editor at random house. i'm pleased to have them all. let's assume romney's nominee, which everybody seems to suggest. how deep a hole is he in because of this republican primary fight? >> not as deep a hole as people think. this is a 50-50 country and it's going to be decided by people wean the 40-yard lines, the middle of the middle who aren't tuned in. so mitt romney has a chance that none of us do which is a second chance to make a first impression and they're starting to reintroduce him right now. just over the weekend we saw the easter pictures, the egg hunt, the egg coloring. we saw the body surfing picture

i think we're going to see a lot of romney family photos of saying hey, it's not really what you've been. >> rose: is that what they meant when they said we're going to reset this campaign? >> that's part of it. they also think they have a chance to appeal to people who haven't been listening. so unquestionably this process has hurt him as much as it help obama. >> mike, you picked up a fascinating thing from the democrats that the election may turn out about 50,000 people in the midwest. particularly middle-class and lower middle-class women who are independent and the democrats who have started their data mining operation on this started running focus groups and getting these key swing voters and they showed them romney's photograph. half the people didn't recognize romney. >> which is good for romney. >> it's great for romney! that's the best possible news.

>> rose: all they could say is he looks presidential. >> but remember in '92 the manhattan project, the reintroduction of clinton and the clintons in july of '92 which was... and, again... >> rose: after the convention? >> during the convention. it was the gores and the clintons coming into new york and mandy grunwald, harry... >> and the "newsweek" cover. "young guns." >> rose: >> but, charlie, here's where he's going to hold... is in a hole is in the physical operation. barack obama has more offices, more people in many states than mitt romney has in the whole country. something like 80 staffers versus 300 staffers. the obama staffers have had these months and months to quietly be in chicago building this incredible machine behind the closed garage door. people don't know exactly what they're doing.

they're about to role out some of their social media and technical tools but they've been able to... in the past the technical advance was to be able to identify exactly who you wanted to vote. they're finding people who through their profile should be obama voters if you can identify with them, communicate with them register them, turn them out. so they're saying you would be an obama voter if we communicated with you and we're going to. >> rose: that's what's the president's biggest weakness other than you might argue the obvious, that the economic recovery is not where he would like it to be. >> the middle of the country in a different place than he is. >> rose: what do you mean by that? >> i don't buy this idea that the supreme court striking down his signature achievement will be good for him. yes, literally the base, but the middle of the country is worried about this idea of overreach. that his priorities were not their priorities. and these people who are inclined to think that, they will be able to say "the u.s. supreme court says it." >> rose: and it's the whole idea he's trying to transform america in a way without saying in the a

way that they would find unattractive. is that it? >> they may go a bit far. >> rose: goes far? well, that's what romney said in his speech. >> yes, it goes a bit far. >> rose: (laughs) yes, it does. >> four presidents since truman seeking reelection have been below 50% in their gallup approval rating at this point. truman, carter, george h.w. bush and obama. one out of three that we've had the races won. now, obama as ever complicated the history because he's higher, he's at 46, the other guys were lower than that. but it's... mike just said a really important thing. it's a 50-50 country. the margin in '08 when you think back on it should have been much wider on the political science merits give wherein the economy was. >> also on the polling. you gave obama's polls. romney has the lowest positives and the highest negatives than

anybody since bob dole in '96. >> that's true. but people know who obama is. i don't think people have tuned into romney enough for that to be as significant as a president's approval rating. >> it was a measure of what a bad... he flipped his positive-negative numbers. last fall he was sort of 50 positive, 25 negative. he managed to in six months reverse that. >> and the damage with women and hispanics, undeniable. >> rose: that's what i meant by whether he was in a big hole because of his campaign. >> well, one of the things that mike and evan got in this book which i found so fascinating is the romney obsession with opposition resurge and going negative. i mean, this is... romney... there's the body surfing and the easter eggs and tag and trip and all that. >> rose: these would be the romney children. >> yes, the various romney children. but in the end what romney's really good at-- and there's a line in the book-- is kill, kill kill and, by the way, if you have an extra bullet or two kill

them again. >> every single big state romney won has been the colin powell doctrine. every one of them has been the application of overwhelming force. money. >> rose: who's going to have the money advantage in this political... >> i don't think it matters. >> it doesn't matter. that's one of the great myth wes perpetrate because journalists need stuff to measure. they need numbers. (laughter) >> rose: i don't need anything! (laughter) >> not you, charlie. not you. >> other less high-minded journalists. >> it is, in fact, the obama people are having more trouble raising money. >> rose: that's what i heard. >> that's unquestionably true and they recognize that on the other side it is going to be a billion dollars on each side. romney plus the republican party will be roughly $850 million.

american cross roads just one of the outside groups. it's $300 million. now some will be for senate races but there's a billion right there. >> rose: are they worried about where things were trending? was there an intent to do it so earlly. >> no, they weren't pro-romney but they were pro-having an end to it because they have all these great tools in the tool box. they're like that obama campaign. american cross roads has been building this fantastic machine of paid advertising, unpaid messaging and they're going to use it now. >> rose: what do we hear about the vice presidential sweepstakes? >> i think if romney has to be choose it would be portman of ohio. he likes him. he's sort of his style, he's a likable, genial nice guy. >> covers both ends of pennsylvania avenue. >> rubio if you're taking a chance, you get hispanics, and which hay really need. you get florida. but rubio has one of those pasts that maybe hasn't been fully plumbed and they're worried there's going to be something in

there that's going to cause a press flap. i'm sure they're vetting rubio like crazy. >> rose: how about paul ryan? >> they seem to get together. the only person that has less charisma than romney is paul ryan. >> i don't buy that. i don't bye that. paul ryan is... people have dismissed him because they say he doesn't help you with the middle. but it's the younger republican excitement. he may not have charisma with... >> people like me? (laughter) >> rose: but he would give romney a little bit of a reagan halo. some excitement for his base supporters who just aren't. and you add into that catholic, rust belt and a great vibe with romney on the road. >> rose: in other words a little chemistry there you can see the relationship. >> absolutely. >> i think that's really interesting in terms of base excitement because it isn't going to be god so it might as well be the chairman of the budget committee because it's going to be tough to make the

traditional evangelical base really excited. >> rose: the democrats would love ryan because ryan is the guy whose name is on dismantling medicare and if there's one thing they're going to run on as they always do it's scaring the old folks. >> rose: was it a mistake for romney to be identified with the ryan budget proposal? >> i think he had to. no, for one thing the... the thing i like about the ryan budget proposal is it goes after medicare. there's an honesty there. they're not so honest on the tax side because they're not saying which loopholes are going to close but they're pretty forthright about going after entitlements. that's going to hurt him with democratic voters but at least there's something principled and honest about that and romney needs to stand for something. this at least is standing for something. >> rose: is romney's religion an issue? >> i think it will be. it will be a whispering initially. they worry about this in the primaries. it wasn't that big a deal. they've already... they put axelrod... axelrod described

romney has "weird," and to the romney folks that was code for "mormon" or "cultish" or "eccentric." so they fear that but i don't think it's showed up yet in the polls. >> when the president suggests he's alien as well, the whole thing about making fun of him for using the word "marvelous. dwhats's part of the same threat. >> rose: nobody's marvelous, he said. the president. >> people don't use that word. two names on the v.p. that both have to do with reaching out the christians, one they might pick and one they'll just float. i think they might pick tim pawlenty. former governor of minnesota, the candidate. he's an evangelical christian, helps him there, extremely comfortable with romney and his team. the safest pick of all. someone they won't pick but will float and we'll hear a lot about mike huckabee. >> rose: yeah. >> romney's not done well in the south and he needs help with christians and over our longitudinal conversations about the v.p. with romney folks for two years they've been pretty

stable about what they've been saying, a lot of portman but they've said we need help with christians and that may mean a surprise. they haven't said what they mean by that but i think pawlenty and jindal down in that mix, too. >> the thing about pawlenty, he's extremely likable. which romney is not so much. he balances... he's one of the guys that want tofs a beer. >> rose: do we know if he would have been better off to stay in the race given the way the race was turned snout >> definitely! (laughter) >> rose: i think the president wishes he was in the race, too. >> i think pawlenty i remember asking him do you... governor, do you ever think about whether you should have snuck this? he goes "oh, no, just every night when i'm drinking alone." (laughter) any man who can say that, put him on the ticket. >> rose: is ohio 50-50 or what does it look like?

>> people say the president will carry it. i think we've been debating how the car issue going to fall. the car issue has fallen for obama right now and we're going to... >> rose: and why shouldn't it? give me a reason. >> i believe it was vice president biden who said g.m. is alive and bin laden is dead. (laughter) that tells the story of the campaign. >> that's good. >> rose: sounds like a man who's been around politics for a while. so foreign policy will or will not be an issue in this campaign? assuming nothing incredible happens? >> at this point... >> rose: go ahead. >> i don't think the president gives enough credit for the bin laden call and the operation to go in and do that. >> it's not just that. he has a very muscular national security record including the drones. he's bush plus in a lot of those areas. >> but what could happen, the israelis could have an attack on iran and all those kinds of

things... syria could... >> i think the white house is in minute-by-minute contact with the israelis begging them not to bomb iran because the election turns on that. if israel bombs iran, oil prices are going to go up. if oil prices go up, the economy is going to sink and that's the one thing that can beat obama. i think that's... the election is right there. >> rose: the obama people will tell you events will beat us, we won't beat ourselves. >> rose: is that what they say? that's the line "events will beat us but we won't beat ourselves." >> i think most reporters will tell you that there's a 55% chance of obama. >> i think that's the white-hot conventional wisdom right now. >> rose: 55? >> well, not 55% of the poll but... >> slightly better. >> it's amazing how incredibly local this gets. karl rove allegedly beat kerry by getting people living near i 40 in ohio a great turnout of

exurban voters in ohio made the difference and so it... they can parse this mighty fine. throughout in chicago they have kids at computers. they're going to find every single one of those voters. >> rose: what has the advantage in doing that? >> it's an arms race. rove invented a lot of this stuff. the democrats kind of took it over and got a little bit more social networky new agey about it. but i'm sure the republicans are going to spend a go zillion dollars figuring it out. so who knows who will win? they'll both have saturation coverage. >> and the romney campaign has been very clever about how they've used marketing media. both campaigns they know if you click on something, they know the optimal number of times to e-mail you. they know when to e-mail you and romney is up on that. he doesn't have the sort of vast ma machine right now that the

obama folks do. >> and what's so great about this is while all these are new means. the end itself sr. very old because nixon used to say "run for president as if you're running for governor of ohio-- always stop the plane." until the day he died gerald ford could name the four counties in southern ohio-- the pro-life counties where he lost and therefore lost the election. it's always some pocket in one of these swing states that so's so important. so for all the 30,000 feet, the national polling and all that, it's the state polling. the stuff that mike's so good at. >> reporters always want to find out what the new ohio is. it could be virginia, it could be colorado whenever i ask people that they're always like "don't forget about ohio." (laughter) >> rose: ohio's the new ohio. >> true. >> rose: what's different about this campaign that was not true in 2008 in terms of whether

access to candidates... whatever it might be? >> a big part of it is that the voters are experiencing in the realtime. much more so than '08. they're seeing the videos. the camigns are interacting with them. romney tweeting from his vacation is part of the strategy of, like, reintroducing their father. like so many new ways that people can see the campaign and it's why this new format and why we're so intent on pioneering new formats like this e-book "inside the circus" you can go to www.mitt romney.com and watch the events. you can go www.barackobama.com and read his papers. so what we've found is that voters, people who have been turned in and are tuning in and people who are involved they like the chance to hit pause and step back a bit >> one of the things we say in the book-- this is pro-romney--

he may be a terrible politician but he's a good boss his campaign isn't leaking like crazy. you don't hear stories about backbiting and remember the hillary clinton campaign in 2008 was just non-stop internet warfare. >> rose: you didn't hear a lot about that in the obama campaign either, though. >> well, there are a lot alike... >> no drama obama. >> that's... and romney has that that same strength that helped obama in 2008. but that... you know, he's a fairly even handed fair minded boss. >> rose: so the one conventional wisdom is that if, in fact, it's a referendum on the president then the president is more likely to be in trouble than if it's a referendum on the future. >> the way the romney folks would say it is they do want to make it about the president. they think that if the president's able to make it about individuals on them, if he's able as my grandmother was say to nickel and dime them on all of romney's faults they'll

lose. they have to make it about something big and there's nothing bigger than barack obama. >> rose: you have a lot of access to people who are talking. if they are that can dit about how they see their chances, it looks like this is a lot of inside information. >> i talk to mike... (laughter) >> it's not the same level of hanging around in the bar. it used to be early... i remember flying around next to walter mondale and jon glen in 1984 and just hours... you'd run out of stuff to talk about because you had tremendous... they weren't bothered by that. they were happy to sit there with you. i was just a young reporter for "time" magazine but they'd do it for any member of the organization who would pay the plane ticket and go out with them. that's not true today. >> the president's always been reserved and governor romney is just so concerned about being burned by something casual he says. there was that great "new york times" story a few weeks ago

about how on spring break there's less bad behavior because there's so many flip phones around and people don't want it on their facebook page. same thing for the candidates. they know that everything they do will be caught by someone. >> rick santorum makes a good point here where he says... you all say... >> and he used that word. >> yeah. you all... you say you want authenticity, you say you want someone to speak their mind and then you kill them the moment they do. >> there's a lot of truth to that. >> rose: does have a lot of truth, isn't it? >> we want authentic as long as it fits in within the guardrails. >> and we caught anymore a moment real frustration by santorum. who could have imagined him getting this far. very bitter about his treatment. the fact he'll give a speech manufacturing and then get to question about a social issue. >> it used to be they were traveling around with political

correspondents and folks they trusted now it's kids with mini cams who are going to catch their every malapropism, their every gaffe. every time they speak the truth, the definition of a gaffe is when you tell the truth when they say something true about a difficult issue, bam, that's suddenly controversial and you have to spend the rest of the day trying to put out the fire. >> thanks. >> thanks for the conversation. >> 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 provides financial services around the world to companies, governments, and investors. it's a market leader in asset management and securities. morgan stanley has repositioned its core stat ji in recent years. today it's poised to continue building a client-focused model with less risk. the constraints of financial regulation are two of its biggest challenges ahead. i'm pleased to have james gorman at this table for the first time. welcome. >> thank you, charlie. >> rose: i've interviewed you

before but not at this table. >> delighted to be here. >> what do you foresee as the journey you're going to take this firm on? >> well, the most important thing with any professional service firm is to tap the d.n.a.. to find out what it is that is the magic about the institution. and morgan stanley 75 years old found that coming out of the great depression, the magic of morgan stanley is the quality of the people dealing with exceptionally complicated problems. helping clients find solutions in tough situations. so my challenge is to get us back to those roots, to amplify those roots and let the organization run with it. >> rose: you will no longer be doing what as much as you did in 2006 and 2007? >> we won't be doing proprietary trading. that was sort of a stray off the reservation right there. >> rose: because the benefit was so exciting that you could not resist it?

>> well, i think there were a lot of firms making money doing proprietary trading. morgan stanley had always made money serving its clients. that was our reason to be. that was the... as i said, the d.n.a. >> rose: asset management, mergers and acquisition. >> corporate finance advice, bringing companies public, raising debt for companies and advising on wealth management. we got envious. a lot of firms got envious and it's the problem with corporate strategy. you have to stick to what you're good at. just because somebody sells good at it doesn't mean you'll be good at it and we started trying to be somewhat somebody else... >> rose: well somebody else was goldman sachs. >> there are a lot of "somebodies" out there. a lot of somebodies. so that's number one. number two, the regulatory world has just changed and the punitive capital requirements for engaging in a lot of businesses and the dodd-frank legislation have made it prohibitively difficult and number three the power in the

markets has just made these less attractive businesses from profitability. put it all together, why would we want to do that. >> rose: do you then say to your stockholders we cannot make the kind of investment we used to make because we won't take that kind of risk. >> we say we can make a consistent return on investment which is more predictable and durable for which you'll give a higher value to when you're pricing the stock. what investors want is they want to know the strategy you're on. why it is you will succeed on it and they want to see consistent returns. in the proprietary trading businesses they're very volatile they don't know if you can repeat it the next quarter. >> rose: and they found out you couldn't. >> we couldn't. that was one of the problems the firms had. >> rose: what other lessons did you learn from that experience? >> from being in the financial crisis?

>> rose: of 2008, yes. >> well, liquidity trumpets all. you remember the jimmy stewart film "it's a wonderful life" and the lady comes to the teller's window... or i think the gentleman and he says "i want my $100, please." and jimmy stewart says "i'm sorry, mr. sdwrons, we've lent that out to your next door neighborhood to make sure she could buy a house, that money is tied up for 30 years." and he says "but i want my money back now." that's called not having liquidity. the bank doesn't have the money. they passed it on and got a spread on the two. if you run out of money, you go out of business. you can't fund yourself. and the firms in the '80 crisis, the rest that went under or were forced to merge were those that ran out of liquidity. they couldn't fund themselves. they would literally stop dead on the spot. so the overwhelming lesson

liquidity matters more than anything. the second lesson is if you're going to have a lot of assets on your balance 'sheed they better not be... you better be able to find a buyer and they better be qualities a sets. so risk management over the kinds of assets that you put on that will be stuck with you for a long time had better be very strong. >> rose: what level of capital requirement do you think are appropriate? >> boy, that's a tough question. where the industry was, many banks operating... >> rose: 40-1 or something. >> exactly. the rev raj was 30, 40. some of the banks 60-1. they're more operating at 10-1 to 20-1. now remember wachovia i think third or fourth largest depositor in the country, $400 billion in deposits. wachovia bank obviously was forced to merge with wells fargo

and wachovia's problem was that because of the assets it picked up in the california bank, the troubled mortgage assets, it world cuped out its capital. it only operated with ten times leverage at the times. some european banks are 50, 60 times leverage. they're still around. so leverage itself is not the issue. what are you levering? if you're levering something toxic and bad, off problem. if you're levering treasury bonds, it's fine. >> rose: and subprime were toxic. >> subprime were toxic. >> rose: so whatever leverage... >> it didn't matter. all the real estate assets throughout were unsalable. >> rose: do you think we learned the lesson or will they kind of atmosphere come back somewhere else? not housing but maybe somewhere else. it was once technology in 2001. housing in 2007 and 2008. >> in the financial sector alone there's been a crisis every 14 years since alexander hamilton founded the first national bank. >> rose: why 14 years?

>> if you just add them up. sometimes it's five, sometimes it's eight but they run like that. what you're dealing with is the fundamental, human nature of fear and greed. and if you give people cheap money and assets are inplayed in thed, greed overwhelms. you make money expensive lid wicktys tight, assets are depreciating, fear overwhelms and we swing from side to side to side. so the role of the regulators and our governments is to be the moderator in the middle. the moderator so say to the asset generators, the banks, gee guys, you're going to have hold a lot of liquidity against that stuff. you're going to have hold a lot of capital against it. say to the consumeer we need you to have better disclosure so you know what you're getting into because you might harm yourself and try to provide these moderators. you're not going to take fear and greed out of the market but you can do a better job moderating them.

>> rose: do you approve of dodd-frank as we now know of it? >> we don't know what it is! >> rose: i know that. that's why i added the last frayed phrase. >> this is the problem. and at the heart of dodd-frank is the volcker rule. there are many parts of dodd-frank but the real stick her have the volcker rule and i had breakfast with paul volcker and my understanding coming away from that many, many months ago was what he was trying to do was ensure that individual's deposits wouldn't be soaked up and used by institutions for trading. fair enough, they shouldn't be. >> rose: and if you were a depository institution they didn't want you taking that kind of proprietary risk. >> and they shouldn't be. >> rose: so reading the volcker rule like that, you approve. >> absolutely! snft we shut down our proprietary businesses before volcker started coming into effect. before the volcker rule got... >> rose: but after the crash.

after the crash because we learned ourselves. so i always felt a much more elegant solution to the volcker rule was not to try and legislate what you can and can't do. so we'll make it so punitive nobody will want to do it because your shareholders won't let you. so let a market mechanism drive it rather than a legislator trying to write the rules. as a result there's 390 pages and it's very complicated. >> rose: is too big to fail still with us? >> well i think that there are big bank which, if they failed, would cause major systemic problems. >> goldman sachs and morgan stanley have gone down and there were questions in them for a moment there. what would it have done? >> well, i think it would have wreaked havoc in the financial markets. >> rose: havoc? >> havoc.

the new york fed president, now treasury secretary, gigter in, and chairman bernanke were incredibly courageous in innovative in crafting a set of firewalls against an absolute catastrophe. another f another institution had gone down, all the rest of the banks would have gone down because everybody would have said my money isn't safe, gave it to me now. you're back to the jimmy stewart film. >> rose: but that's what happened to bear stearns at the beginning. >> they were the starting ones. >> rose: do you think the administration and the financial community has explained that well enough to the public? so that the public thinks look, they rescued the banks but will they rescue he? >> the interest thing... no, it hasn't been explained well and there's been a demonization of the banks for some good reasons and now not so good reasons.

banks are essential to raising capital in fact, they're essential to capitalism. you can't take capital out of capitalism. they help you fund through equity and debt. >> rose: they lend it to banks so banks can create companies and grow and hire people and sell products and have a sustainable economic mission. >> rose: that's what you need. this is what china is dealing with right now. they need a banking sector that's able to lend and stimulate growth and provide the funding for these businesss to get out there and do what they need do to keep the chinese economy growing at the pace they wanted to grow. banks are the backbone of the economy. and right now we've lost that in the whole dialogue about compensation, about who done it back then, lehman brothers and so on. which is unfortunate and it's a collective failing. >> rose: you've been out front on compensation. >> a little, yes.

>> rose: yes, you have. (laughs) where are you on that? what is your speech on compensation today to the financial community and to your own firm? to your partners and associates and colleagues who helped you make money? >> it's pretty simple which is if you're going to pay yourselves you better make sure you pay the guy who gave you the money. in other words, the shareholder. so i put myself in the economic rationalist bucket. if i think about it... if you think about a linear line, you start off and and the people who are... you know, we pay ourselves the maximum we can possibly get away with. the sort of pigs of the system. and they've been through our industry and other industries. then you've got the economic rationalists who are the people who say, you know what? at some point if we keep paying ourselves too much the share holder is going to walk away from the party. then you're really toast. then you've got the folks who are real hawks. who say, fine, even if the

shareholders are getting a return there's a maximum amount of money that you should be able to earn because it's just not fair. right? there's sort of this... it's not balanced. then there's true moral situation which is, you know, true wealth redistribution. i think we... i start always from the basis of you have to be able to convince your shareholders it's a fair deal or you don't a business. then you have to step back and stay from a prudence and risk management is it right to pay all of compensation day one so the person walks away and can take their money or do you have for example clawbacks so if they did something wrong toer than money you can get it back. or do you defer that xe sags so you ensure they're trying to play for the long-term... this is what we've done. we've added callbacks, we've deferred compensation. we've limited amount t amount of cash you can take out in any given year so there's a longer term mentality.

>> you are running a huge financial institution with lots of employees and lots of impact. you have earned and thereby lead underwriter for facebook. tell me what you've learned and what are you learning and how we should understand the thing that we expect from a c.e.o.? >> this is a very important conversation. it's one i think about a lot c.e.o.s have a tremendous potential to actualize the company and themselves. they morph into each other. they talk about the company in "my." and lose your objectivity. it's actually not yours. it's thousands of shareholders giving you the right, the privilege to help drive it. so you've got to be very careful on that front and c.e.o.s also have a potential to... in either

impatience or kulsiveness to be dissinceive or envy to do bold things. and they have a great potential to mess things up as a result. most corporate disasters are driven not by market force bus c.e.o.s messing things up. >> rose: how much greed is somehow knowing that if they take this chance and if it pays off it will also pay off big for them in terms of other opportunities and in terms of... and also good terms in terms of return for the stockholders. >> i don't think often in terms of what it can do for them financially. i don't think... i think... but i think in terms of making an impression, making... i mean, there's... i mean there are thousands of books in the bookstores with c.e.o.s' pictures on the cover and that's what we do is that it becomes a very elevated position. >> rose: is that a good thing or simply a fact of life?

>> it's a bit of both. in our industry, in the media industry and certain other industries you are more visible, you're dealing with the public. we got seven million accounts in our business. you're dealing with regulators. you've got to be visible. but there has to be a separateness. but my main concern is not to try and do something because somebody else is good at it. i give you a concrete example. a lot of people look at standard charter bank based in the u.k. wonderful institution. many, many years ago standard charter as a small institution went all the way across asia dropping little management teams in thailand, malaysia, the philippines, indonesia, korea, china, of course, and so on. and they built a grounds up emerging marketization business which, as you can imagine, in the last 20 years has been a boom and their market cap is extraordinary, they've done a great job. everybody says why don't we do that. and you get companies that start landing and putting all sorts of infrastructure in these

countries. it's too late. they did it because they had a culture, they got time, they got licenses. >> rose: that's the question i would ask. what was it about standard charter that enabled them do that? what kind of leadership did they have? what kind of philosophy did they have? what kind of decision-making culture did they have? >> firstly i think they were very entrepreneurial. they were almost like a federation of institutions. and they were prepared to allow and had seen the benefit of having local management prosper in these far-flung countries. a lot of other organizations that have been centralized will do a terrible job of that because they would take a new york mind frame and plunk it in thailand and say "this is the way we do it" rather than letting the entrepreneurial spirit. so you have to stay within your culture, you stay within your boundaries. so that's not screwing up by trying to do somewhat somebody sells doing. the second piece and exciting piece for me is find out the thins you're really good at.

be objective about it and go aggressively with those because that's what other people look at you about and say we wish we could be more morgan stanley doing this. well, you are. >> rose: and for morgan stanley that is wealth asset management and mergers and acquisitions and public offerings? >> it's originating, managing, distributing capital. so we bring originators and investors together. that's what we do. we do it through trading and our mergeersing a wigss investment banking and then our wealth and asset management business. so for an example, we owned discover. we weren't so good at that. there were other companies that were very good at the credit card business... >> rose: and disdiscover came about because of a merger. >> but we honed it and my predecessor john mack decided to get rid of it. great call. focus on what you're good at. we owned m.s.c.i., the market

index firm. great institution, doing very well as a separate public company but not something that we were uniquely positioned to manage, it wasn't consistent with what we were doing. we owned a smallish wealth management business and we said, hey, we can be very good at that. let's make that really big. so we went out and we're bayh smith barney. >> rose: which is the largest. that's aakin to steve jobs when he came back to apple. he looked at the product mix and he said "no, i want only four products. we're going to do what we know how to do and do it well, we won't have 125 products out there." >> that's focus. and it's resisting the urge of everybody telling you what. they say "what's your strategy?" it just makes major strategic moves like we have done in the last couple years and the audience is still not satisfyed. they want a new one every 15 minutes. you say what about if we just drive this strategy and execute it very well? now that we've made our bed, lie

in it for a while. >> any skill developed that you don't have enough of? this is back to the management philosophy and understanding what a c.e.o. does that you did not get. because you are interesting in that you started as a lawyer. you went to mckin zi, the gold standard for management consulting. then you were with a big brokerage firm, merrill lynch. have you acquired most of the skills one needs or would you have been better if you have a you spent more time, say, in asia? even though you fear from australia? >> i've actually spent a bunch of time in japan and hong kong and spain. i lived in different parts of the world. the clear deficit that i had coming on to the job was i never operated inside a sales and trading business which is a huge part of what we do. we have these massive trading floors and that's a deficit for two reasons. someone credibility. are you credible with the traders when you're telling theming? do they want to believe you?

and the second is just understanding of how risk management and the appropriate levels of risk to apply and how to talk to your risk managers and the traders, people telling you one thing, how to moderate those discussions. so it's been harder. i've had to run a little faster to pick it up. i certainly haven't mastered the pieces yet but i've learned a heck of a lot in the last few years. >> rose: there's also something interesting i read about you and john mack. it said john mack was the great leader for war. is it true that certain people are perfect for certain times in running an institution? >> i think you have to be able to draw on different strengths depending on what's going on in the world. >> rose: at the moment. >> at the moment. so, for example, we were in... there was a lot of discussion about morgan stanley last fall and our exposure to euro. that was a mini... it wasn't the war but it was a big battle and

you had to be battle ready and battle tough so you have to turn the dials up and down. john is, by the way, a terrific guy, a friend of mine and we've had one of the few truly bloodless transitions on wall street so we're both very proud of that. >> and you're the guy he hand picked. >> and we've worked very well together and he is more intuitive, i'm more analytic. we came from different backgrounds. but you still have to be able to play in each other's space. >> rose: let me touch on europe and china. was it an exaggeration of your exposure to europe or an exposure you had to deal with? >> it was a gross exaggeration and i said... and i spoke... my father called me up about this, he just turned 90 last november. he said "i like that comment." my comment was... i got a little

frustrated, you try and keep your cool but i was frustrated with one journalist but i said if you look for a problem long enough and you can't find it one of the possible reasons is because it doesn't exist. it may be you can't find it but it might be it doesn't exist and everybody said "disclose early, tell marketplace all is well." we were all getting... ruth parra, a c.f.o., senior leaders in our business, we're all getting incoming saying tell the market what your real exposure is. and we said we're a bit like the roman gladiators in the film "glade@or" we said "we'll hold the line." "we're holding the lines against the barbarians and we won't be dragged into that pit. we'll disclose when we disclose and we'll do in the a way that's convincing to everybody." and that's what we did. >> rose: where do you think europe is today and what are the dangers that are there and remain there? >> well, europe is in a

multiyear work around. i'm not an economist so i don't know if it's two or three or five or ten but it's a multiyear work around. and it's brought about by the fact that we... in europe you've got 17 countries sharing a currency but they're not sharing fiscal rules as to how to raise taxes and how to spend it. that's a problem. you can't share a currency and not share the basis upon which the currency operates. they've got away with it for a long time and through the financial crisis and all the leveraging it became apparent that the banks were highly stressed, there was sovereigns that were stressed. this just couldn't keep going on. so one or two thing had to happen. you had to either separate the currency or move to closer fiscal integration and they have in my view correctly chosen to do the latter. which means that everybody now has to play by a similar play

book. what does that mean? that means countries that didn't collect tax now have to start collecting them. count these ran egregious deficits, particularly in the south, have to make major fiscal cuts. >> rose: china. what's your take on china today? its economic place and whether it's going to be suffering as it tries to transition from an export economy to a demand economy. >> rose: there you go. almost everybody who leads any kind of international institution is on china on thursday or friday. >> second biggest economy in the world. and growing... we talk about it as subdued growth of 7.5%. we would dream of having 7.5% growth here. >> rose: it's double. but for them they worry a lot about it because they need that growth in order to maintain the kinds of expectations that have developed. >> that's right. and they've got to buy time before they build a true consumer-driven economy. true consumer driven demand

economy. >> rose: it's a large middle-class. >> and it will happen. it will happen. so it hasn't happened yet at the scale they needed to happen. they recognize that it's going to take multiple years. fortunately the government has many assets to continue to drive growth, building out the infrastructure, driving demand, stimulating demand for the consumers while they work their way into a more traditional developed economy market with a much broader base of consumers contributing across the country. >> rose: africa going to be huge. >> no. >> rose: no? >> i don't think so. not in my lifetime. there are pockets of it that will be but just in terms of absolute dollar value, it's china, china, china all the time so so that's... now interestingly though the counterpoint to that the individuals most active on the

african continent are not the europeans. they're the chinese. >> rose: morgan stanley, what you expect to do and what you have to do in order to meet your own standard for yourself and for the company is to do what? stick to your in theing is one thing. >> start off with... clean up the debris a the financial crisis in a disciplined, thoughtful, deliberate way. we are basically done on. that it's taken several years but we're done. number two is no new mistakes. essentially what that means is have the risk management mechanisms have the structure and the organization where there is nothing that can occur on our watch which can jeopardize the mother ship. you're going to have problems in organization of 40 countries and 80,000 people and $800 billion balance sheet, but they've got

to be manageable problems. they've got to be sized to our aggregate size which means, frankly, more top-down management, more controls put in place, and it's consistent with being a fed holding company. frankly having access to the discount window. thirdly, to understand our real strengths and double up. be very aggressive when you think you have a natural competitive advantage and finally don't get distracted by trying to take advantage of what somebody else is good at. let's focus on what we're doing. >> rose: if you do that you'll be happy? >> i think we're doing it. i don't think the market has caught on but that's okay. >> that's why you think your stock is undervalued. >> all the financials are but the market got a horrible shock. they went through some crisis where the firms disappeared. and we haven't shown consistency. i feel... i said to our employees i feel a lot better about the way the company is

performing than the way the stock is performing. i'd much rather... >> rose: you'd rather bit that way than resflers >> it will catch up. >> rose: you don't want high stock in a company you don't think is on sound footing. >> no. >> rose: there is this, too. you are an athlete, you run. on a rather programmed basis. you play tennis. you box. what's boxing about? because you didn't grow up as a boxer, you came to it late. >> well i'm athletic, i don't know that i'm an athlete, to be honest. >> whatever the difference is. >> boxing is... i just train with a guy and it's enormously... >> rose: there afternoon or today? >> no, sundays. enormously aerobicly... it really gets everything going and you're moving the top half of your body continuously so it physically makes you stronger. just more agile and the guy who does it is a great guy. >> rose: and he has these things

that you can... >> yeah, we work at it. >> rose: it's great exercise. >> it's fantastic and in these jobs... it's the same with you, charlie. i know you play tennis almost everyday. we have to be physically as well as mentally in line but we're not going to get through the tough spots. >> rose: thank you for coming. pleasure to have you here. >> thanks for having us. >> james gorman, c.e.o. and chairman of the board at morgan stanley. captioning sponsored by rose communications captioned by media access group at wgbh access.wgbh.orgere can only be.

boiling with indignation