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

MR. BROKAW:  You want this all to be run by the Treasury Department.  There are a lot of that people say, "Wait a minute.  With all due respect, Mr. Secretary, you and the Fed and the SEC have been wrong up to this point.  What we need to do is create something like FDR did in the 1930s, a separate agency." Warren Buffet says we need a nonpartisan czar to run all this so that we can go from one administration to the next without any kind of political interruption.  His first choice would be the man who will join us later in this broadcast, Mike Bloomberg, the mayor of New York City.  Why isn't that a better idea than having Treasury run it?  Because you're going to leave office in January 20th.

SEC'Y PAULSON:  Yeah, Tom, what I'm doing is reacting to deal with a situation we, we see in front of us today.  And to do so in a way that, as I said, protects the American taxpayer.  And I think what we need to do is have authority to move very quickly to purchase these assets, these illiquid assets from banks.  And the plan we have, I think, is, is one that will work and will help us stabilize the market to get through this period.  And then future administrations, there will be flexibility to run this any way they would like to run it, but what we need to do is have something that will work and work quickly.

MR. BROKAW:  But once you get past the credit crisis, why not start now the process of creating the agency and simultaneously creating a new structure of regulation for Wall Street?

SEC'Y PAULSON:  Well, let me deal with both topics, OK?  First of all, a lot of people talk about the RTC.  The RTC was set up after a broad group of savings and loans failed.  And, in those days, there were whole loans, and the government owned the real estate, and you needed an agency to work out of the real estate.  Here, we're preventing failure.  We--the financial institutions are clogged with illiquid loans, so what we need to do is quickly buy those loans.  They won't be giving us control of real estate, but this--we need to manage these assets and manage them quickly, and that, that is what we have in front of us today.

MR. BROKAW:  And simultaneously develop new regulations that go into effect immediately?

SEC'Y PAULSON:  Oh, oh yeah.  Oh yes.  Note that, Tom, that's not doable, to do that immediately.  But we very much need new regulations, new policies. What has gone on here is terrible, it's unexcusable, and we need to deal with it.  But that is going to take some time to figure that out and do it, do it carefully and well.  Some time ago, months ago, I submitted a regulatory blueprint because we have a patchwork regulatory system that's outdated, outmoded.  It's not a credit to our country, and it doesn't match the financial world we're dealing with today, but we can't deal with that in a week, and we need this legislation in a week, because we have a--we have a problem in our capital markets that's urgent to deal with, and we can deal with it when we get the legislation from Congress.

MR. BROKAW:  As you know, Mr. Secretary, a number of people have been critical of your ad hoc approach to all of this.  Senator Shelby said a "brushfire" approach to it all.  You let Lehman, a venerated Wall Street firm, fail, but you got heavily invested in AIG, which is a large, complex insurance company.  You bought 79.9 percent of it for $85 billion.  Hank Greenberg, the man who really built AIG into what it is today, says that he and other major shareholders could save that company for $20 billion if they were given the opportunity.  They could raise the money.  And he also says that what you're going to have as an asset at the end of the year, that won't be worth anything because all the good AIG employees will leave if the government takes it over.

SEC'Y PAULSON:  Well, a lot of people are saying a lot of things, Tom, and a lot of people want to rewrite history, but we've had some tough situations to deal with, and let me take them one at a time.  There were no buyers for Lehman Brothers.  It, it was a very sad situation to see a venerable firm like that go down, employees lose jobs.  Again, it was, it was a tough situation. It would have been, in my judgment, unthinkable to have AIG declare bankruptcy.  And you know, Tom, they were a few hours away from declaring bankruptcy.  And what the government did was come in in a senior position, senior to the senior debt, well ahead of the shareholders, with, as you said, an $85 billion funding facility to allow the government to liquidate this company in a way in which it--we avoided a real catastrophe in our financial markets.  AIG was so interconnected, it, it touched money market funds, it touched individual savings.  This is a classic example.  Insurance regulated by 50 different insurance regulators, and, and a holding company with just scant oversight at the federal level.  Very much a hedge fund on top of insurance companies.  Something like this, in my judgment, should never have happened.  But again, we did this to protect the taxpayer, and this was--and it's something we're going to need to deal with in the future in terms of a regulatory system.

MR. BROKAW:  Final question, Mr. Secretary.  A number of investors, as you know, among the most sophisticated in this country, are pulling their money out of mutual fund money markets, and then the funds are having to go to the commercial paper, and that paper has been used to finance credit card companies and auto plants, and now Main Street banks, which finance Main Street businesses and auto dealers and agricultural farmers and so on.  I'm wondering if there's going to be any money for them.  The domino effect of this is going to be a no-growth economy, isn't it?

SEC'Y PAULSON:  Tom, you made my case for me.  That is why we need these answers.  That is why we need Congress to move quickly.  We, we had a situation last week where there was--there were instances of people pulling their, their funds out of money markets, and so we moved very quickly.  We, at Treasury, used the estate--exchange stabilization fund to come in with a guarantee at--for money markets, to prevent that from occurring.  The Federal Reserve moved very quickly to take steps to keep the commercial paper market operating.  All of this is being done.  And I would say to you, we need to deal the--with this situation to prevent what you just discussed.  And, again, it pains me, it pains me tremendously to, to, to have the American taxpayer be put in this position, but it's better than the alternative.  And you know what?  We're going to work through this situation.  We always do.  We're going to stabilize the financial markets.  It won't happen immediately, there're going to be bumps along the road, but we need to do it.  And this'll be far less costly to the American taxpayer than the alternative, and that's why I'm confident that Congress is going to move and move quickly.

MR. BROKAW:  Mr. Secretary, thanks very much for being with us.

SEC'Y PAULSON:  Thank you.

MR. BROKAW:  Coming up next, restoring confidence in Wall Street.  I'll have an exclusive interview with the mayor of New York City, Michael Bloomberg. Also, our economic and political roundtable right here, only on MEET THE PRESS.

(Announcements)

MR. BROKAW:  An exclusive interview with New York City Mayor Michael Bloomberg after this brief station break.

(Announcements)

MR. BROKAW:  Mayor Michael Bloomberg of New York City, welcome back to MEET THE PRESS.

MAYOR MICHAEL BLOOMBERG (I-NY):  Thank you for having me.

MR. BROKAW:  You're in a three-way intersection.  You're the mayor of the city that's at the epicenter of this Wall Street implosion, you're a very wealthy investor, and you're also the founder of Bloomberg Financial Services and Bloomberg News.  You just watched Secretary Paulson.  Were you reassured by his answers, or do you think we need to know more?

MAYOR BLOOMBERG:  Well, I think number one, Hank's the right guy for now.  He knows what goes on on Wall Street, he understands these complex financial instruments in a ways most people do not and most Treasury secretaries do not. So if I had to have one person at the helm today, I would pick Hank Paulson. But I think you got to step back and say what's the real problem here?  There are two crises.  One is the crisis in the financial market, a lack of confidence that almost closed down the financial system this past week and that Hank has to address.  And it's up to the Treasury with the acquiescence of Congress, but to do something quickly.  And nobody knows exactly what they should do, but anything is better than nothing.  You've got to restore the public's belief and the market's belief that we will go on.  And this is not just an American problem, it's financial markets around the world that are all interlinked and they're all collapsing.  The second problem, which is up to Congress, it's a much longer-term problem and may be the genesis of the problem that we have today in the financial markets, and that is that people are losing their homes, deserted homes are destroying neighborhoods, people are losing their jobs.  We have some industries that Congress tried to protect, and instead of protecting them they've caused them to not keep up in a competitive world with new products.  We have an education system that isn't preparing us for the future, and we have a retirement system that's just not going to be there when we need it.  So there's two things here:  One you got to do quickly; one you really need a lot more thought about and that Congress should spend that time debating.  But I don't know that there's time for a lot of the debate now.

MR. BROKAW:  I'm wondering if there is a system, however, that you can build in that is a kind of fail-safe system for getting some of those answers once you act with alacrity.  This is a country now that has watched us go to war with, in the judgment of a lot of people, not enough questions being asked and being answered.  The Patriot Act was passed very swiftly.  A lot of people, Republicans and Democrats, believe that was a big mistake, that it needs to be restructured.  Same thing with Homeland Security.  But how do you build that in to getting the passage that needs to be done this week so that the taxpayers can be assured that they're not just carrying Wall Street on their backs after all this irresponsible lending?

MAYOR BLOOMBERG:  You can put some safeguards in, but you don't have time to build in the safeguards that you should have for long-term.  And we're paying the price for the last years where we all wanted something for nothing, where we took risks because we were convinced that we would never have to pay, somebody else would pay on the downside, but we'd keep the profit.  Congress has been unwilling to address the fundamentals of this country--an energy policy that makes sense, infrastructure, health care, all of these kinds of things.  So you want something that overnight we can do, what Hank Paulson's been arguing for a long time.

Regulation's a good example.  Our regulation in this country is designed for the world of 50 years ago.  We have separate regulation for different industries, except today those industries all do the same thing.  Also, our regulation isn't consistent with regulation around the world.  And every company, every bank, your job, my job, all our jobs depend on commerce and what happens elsewheres in the world.  And we have to find a ways to, to pull together, in Congress not have all of the different oversight committees, in the executive branch not have all the different agencies, and not just think that we're the only ones that can do this, but pull it all together. Paulson's been talking about it for a long time.  But I think it, Tom, it comes out of this instant gratification.  We all were happy when the stock market was going up, we were all happy when there was all this money sloshing around in the economy, and everybody could get a loan whether they could pay it back or not.  When companies went out and bought other companies and people got great bonuses, it was great.  And nobody wanted to say, "Wait a second, this can't go on forever." I'm happy to say in New York, at least, we didn't think it was going to go on forever and for the last couple years we've been salting away money.  I don't know that we've salted away enough, but we've been saying again and again nothing goes up in a straight line forever.

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