'Meet the Press' transcript for Sept. 21, 2008

MR. TOM BROKAW:  Our issues this Sunday:  The American financial system in deep crisis.

(Videotape)

PRES. GEORGE W. BUSH:  Given the precarious state of today's financial markets and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential.

(End videotape)

MR. BROKAW:  Can a government rescue plan save our economy?  And at what cost to U.S. taxpayers?  What else do we need to know?  We'll ask the man in charge, Treasury Secretary Henry Paulson.

How can confidence be restored in the markets?  Is it going to get worse before it gets better?  An exclusive interview with billionaire businessman-turned-New York City mayor Michael Bloomberg.

Plus, what does the turmoil on Wall Street mean for Americans on Main Street? What effect will all this have on the race for the White House?  Insights and analysis from our economic and political roundtable:  Erin Burnett, anchor of CNBC's "Street Signs and co-anchor of CNBC's "Squawk on the Street"; Steve Liesman, senior economics reporter for CNBC; and Steven Pearlstein, award-winning business columnist for The Washington Post.

But first, joining us now, the man at the helm, Secretary of the Treasury Henry Paulson.

Mr. Paulson, welcome back.  We last saw you in Beijing, we didn't think we'd have you back under these circumstances quite so quickly.  There are a lot of tough questions out there, I know that you're fully aware of that.  Let's just take our audience through some of them.  This is the biggest financial play in the history of any economy, any time in the world.  You're talking about a 500 to $1 trillion bailout of mortgages and mortgage-backed securities.  There's no assurance that we'll get anything back from the banks for doing that for them; the taxpayers won't be protected.  The details are still to be filled in.  If you were in your old job as chairman of Goldman Sachs and you took this deal to the partners, they'd send you out of the room and say, "Come back when you've got a lot more answers," wouldn't they?

SEC'Y HENRY PAULSON:  Tom, I don't look at it that way.  This is not something that we wanted to do; this is something that is very necessary.  We'd had excesses building up for sometime in this country.  They played out first in terms of bad lending practices, irresponsible borrowing, irresponsible lending; then moved a chain reaction into the financial institutions, illiquid assets; that then has played out into the broader economy.  Last week there were times when the capital markets or credit markets were frozen.  American companies weren't able to raise financing.  That has very serious consequences.  So what we need to do right now is stabilize the markets, and this is for the, for the benefit of the taxpayers we're doing this, the American public.  Then, once we get behind this and get this stabilized, there's a lot we can talk about in terms of reform.

MR. BROKAW:  Well, let's talk first of all about how this happened.  Is it as a result of speed and the complexity of these instruments now, and the fact that no one really has their hand on the instruments that they're selling, they just pass them along?

SEC'Y PAULSON:  Tom, that is one of the reasons.  There have been excesses, I said, for a long time.  We have overcomplexity.  Mortgages are now securitized, sliced and diced, put into tranches, sold all over the world. There is a great deal of risk into this--in, in the system.  That is one of the reasons.  As I said, there's just been irresponsible practices.  Borrowers have done things that were irresponsible also.  But there's a lot of, a lot of mistakes made.

MR. BROKAW:  Let me show you how you're portrayed on the cover of Newsweek this week.  You're described as King Henry, the man who can make these calls. And this was the result of--this was the response of the ranking Republican on the Senate Banking Committee.  He said, "This could be the biggest bailout in the history of the country, ultimately costing 500 billion to $1 trillion. ...  Congress is not going to rubber stamp something.  ...  Up to now, I believe the Fed chairman, in all due respect to him and the Treasury secretary, have been jumping from crisis to crisis like putting out a brush fire rather than some comprehensive plan."

All of this will be borne on the backs of the taxpayers.  And I know that it's urgent to do something.  But don't taxpayers deserve more answers than they're getting about, first of all, the value of what you're going to have in terms of mortgages--it's very hard to determine what that value is--and what you get back from the banks?  Are you going to get warrants from these banks that will be converted into stock at some point as a form of collateral?

SEC'Y PAULSON:  Tom, there are a lot of questions, and I can understand there are a lot of questions.  This is an urgent matter, and we need to move very quickly.  But let me get to the first question.  Yes, the cost.  You know, I don't like the fact the taxpayer's being put in this position, but the numbers that are being used, which are--you know, we're talking about hundreds of billions of dollars--remember, this is not an expenditure, this is money that is being used to purchase these assets, as you said, these illiquid mortgage assets, which are very difficult to value.  They will be held, and then they will be resold at some time.  And so we can't determine what the cost is today.  That's going to be based upon how quickly the economy recovers, what happens in the mortgage market.  But I can assure you the cost won't be anything like what is put out to buy these investments and these assets.  And when the assets are sold, the money will come back into the treasury.

But, again, this in not a position where I like to see the taxpayer.  But it is far better than the alternative.  The situation we had last week, where credit markets were frozen--you know, the stock market, the average American watches the stock market.  They watched the stock market drop about 1,000 points and then recover on the news of this plan.  But what they don't see is what's going on in the credit markets.  And when companies can't borrow money and--this has a big impact on everyone.  It's difficult to get jobs, it hurts people's budgets, retirement savings.  This is a serious situation, and we need to avoid this.

MR. BROKAW:  The market did go up a record amount.  Since 1987 it went up more than 600 points in two days.  But that really is a false positive sign, as they would say in laboratory testing, isn't it?

SEC'Y PAULSON:  Yeah, I, I would say this.  It's not what we should be looking at.  It is not what we should be looking at.  The stock market going up and down is not what we should be looking at.  We need to look at what's going on in the credit markets, and they are still very fragile right now and frozen. And we need to do something to deal with this and deal with it quickly.

MR. BROKAW:  There is a big political debate about whether, whether the fundamentals of the American economy are strong or not.  Is it fair to say that the fundamentals of the American economy may not be strong, but, in fact, they're staggering at the moment?

SEC'Y PAULSON:  Well, what I should say is, I won't bet against the American people.  We're an entrepreneurial people, a hard-working people, and we will work through this, we always do.  I wouldn't bet against the American people, and I wouldn't bet against the long-term fundamentalists of this country.  But this is a humbling experience to see so much fragility in our capital markets and to ask how did we ever get here.

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