Interview with John Harwood of CNBC

Harwood. Thanks so much for being with us, Mr. President.

The President. Thank you, John. Great to be here.

Harwood. You unveil your regulatory reform proposal tomorrow, and from what we know it's a little bit different than some had anticipated; less consolidation of agencies than had been predicted. We've heard about turf fights among regulators and committee chairs in Congress. Does that mean in the final decision making that you listened more to political advice about what you could get done rather than what made the most sense and was most efficient economically?

The President. No. I think that what we focused on was, number one, do we have the tools to prevent the kinds of risks that we saw back in September? And our conclusion was we didn't, and we had to make sure that we had a systemic risk regulator. So that is in place. We asked, do we have the resolution authority if an individual institution like an AIG breaks down, to quarantine them so that they're not bringing the whole system down? We didn't have that authority; we wanted to put that in place. Did we have a means of anticipating problems and properly regulating the nonbank sector of the financial system, which obviously has grown massively over the last decade? And we concluded we didn't have that power. So we got those things in place. Were we sufficiently focused on consumers? And it turned out that consumer protection, investor protection was scattered among a whole bunch of different agency; we wanted to streamline, consolidate and give somebody line responsibility for that. So what we've started off with was identifying what were the biggest problems that we had, and are we putting in place the tools to prevent the kind of crises that we've seen from happening again?

Harwood. But you don't...

The President. Now...

Harwood. ...have a single bank regulator, and some people have talked about judge shopping among banks for favorable regulation.

The President. This is something that we've been concerned about in the past. What we do have, under our proposal, is that for tier one institutions, the big institutions who, if they fail, require us to shore them up, for those folks they are going to be under a single regulatory body. When it comes to some of the smaller banks, community banks, the FDIC has done a good job on that, and we feel confident that they can continue doing what they do. So our overall concept has been not to completely abandon those aspects of the system that worked, but rather focus on those aspects of the system that didn't, try to close gaps. Did, you know, any considerations of sort of politics play into it? We want to get this thing passed, and, you know, we think that speed is important. We want to do it right. We want to do it carefully. But we don't want to tilt at windmills, we want to make sure that we're getting the best possible regulatory framework in place so that we're not repeating the mistakes of the past.

Harwood. We know that the dynamism of capitalism comes from the interplay of risk and reward.

The President. Yeah.

Harwood. With this plan, you want to achieve what you think will be a healthier balance.

The President. Right.

Harwood. You've talked about other interventions as--and used words like "temporary"...

The President. Right.

Harwood. ..."reluctant to do it"...

The President. Right.

Harwood. ..."surgical interventions."

The President. Right.

Harwood. But when you add it all up--AIG, Citigroup, Fannie and Freddie, the auto companies, executive compensation guidelines--do you ever wonder that it's just too much messing with the engine of capitalism, and that it's going to get hard to stop messing with it?

The President. No. And I'll tell you why. Most of these interventions didn't start on my watch. So the auto companies, let's take as a good example, when I came in, we had already put in--not me, but the previous administration had already put in $10 billion to shore up the auto companies and asked nothing for--in return. Now, I had three choices. I could continue giving them money without asking anything in return, I could let them liquidate in the midst of the worst recession since the Great Depression, or we could say, `We don't want to run your company. Would you show us a plan that allows you to stand on your own two feet, so that what we're providing is a meaningful bridge for you to get to a better future?' We chose option three. That's not something that we welcomed, and the sooner we can get out the better. I would contrast that with this financial regulatory proposal that we're putting forward. There what we're trying to do is increase the transparency and the openness that has been the signature characteristic of our--sorry. Sorry, I'm going to start over. I'm going to start at "I will contrast." Get out of here.

Harwood. That's the most persistent fly I've ever seen. (Slapping sound)

Nice!

The President. Now, where were we? That was pretty impressive, wasn't it? I got it. I got the sucker.

What do you think, Gibbs?

Harwood. That is very good. It's on--it's right there. Right there.

The President. You want to film that? There it is.

Harwood. You were contrasting the other interventions with...

The President. Right. So the--so with the autos, we want to get out as soon as possible.

Harwood. Yeah.

The President. And I would love nothing better than to let the auto companies operate, thrive, manage themselves without us being involved. Financial regulation, I think, is different, because what we've proposed is to essentially update those regulatory tools that existed back in the 1930s that were put in place after the Great Depression to increase transparency and openness. But I think everybody would acknowledge that if we've got rules of the road, that's what makes American capitalism thrive. That's why people invest in this country because they have confidence that, if they read a prospectus, somebody's made sure that what's in there is true. If they take out a loan, that there are laws in place to make sure that they're protected. And, you know, unfortunately the growth of the nonbank sector as well as all the complexities and financial instruments outstripped those old regulatory regimes. If we can get that right, that, I think, is a permanent improvement that will enhance and not impede the operation of the free market.

Harwood. Many people think that for major domestic reforms like health care, that for it to be durable and successful you need bipartisan support. Do you believe that? And is it important enough to you that you're willing to tell liberals in your party that they need to accept a compromise on the so-called public option, either a co-op alternative, a fallback or one of the things that's been discussed.

The President. Well, let's focus first of all on health care, and I'll talk about energy as well. My general principle is I always want bipartisan support. Whether I get bipartisan support or not for any given proposal isn'talways up to me, it has to do with the short-term political calculus and thetactics that the House Republicans and the Senate Republicans determine. WhatI do have control over is accepting bipartisan ideas, bipartisan policies. So on health care, for example, there are already a bunch of liberals who are disappointed because I didn't propose a single payer plan. What I have said is that without having, despite what's been advertised, a government takeover of health care, that's not what we're--we've called for. We've said that if you've got a plan in the private sector that you're happy with, you've got a doctor you're happy with, you keep that person. We are not going to be messing with that. What I have said is setting up a public option that would compete with the private sector, but, if it was offering a better product, would give a additional choice to consumers, that's going to keep insurance companies honest. Now, I understand why insurance companies wouldn't want it, because if they're making huge profits and there's no competition, then why wouldn't they want to keep that? I understand it, I'm sympathetic. But I think the average American says to themselves, `Why is it that all these members of Congress, including all the Republican members of Congress, they have essentially a public option, they essentially have the ability to look at a menu of choices and exercise those choices; why shouldn't ordinary Americans have that as well?' And I think that that kind of approach is sensible. But what I've also said is let's just make sure that, you know, we're open-minded. And if, for example, the cooperative idea that Kent Conrad has put forward, if that is a better way to reduce costs and help families and businesses with their health care, I'm more than happy to accept those good ideas.

Harwood. A lot of concern about debt and deficits, as you know. Bond vigilantes people talk about, but the ordinary American people as well. That's your problem, whoever created it...

The President. Yes.

Harwood. ...whether or not your health care plan adds a dime to the deficit. What can you say to reassure those people who are concerned about debt that after you've finished this round of legislating on health care that you're going to do something about that; and specifically, are you open to curbing benefits for entitlement programs, more means testing and raising the retirement age?

The President. Well, this is something that keeps me awake at night. There's no doubt that we've got a serious problem in terms of our long-term deficit and debt. I make no apologies for having acted short-term to deal with our recession. I think the vast majority of economists, conservative and liberal, felt that extraordinary interventions were necessary to prevent us from slipping into a potentially deep depression. But as soon as this economy recovers, and that means planning now and starting to take some steps now to deal with it, we're going to have to close that gap between the amount of money coming in and the money--amount of money going out. I have said before and I will repeat, I believe that we can reform entitlements in a way that makes it more sustainable. But most experts will tell you that the biggest driver of those deficits is health care costs. And no matter what else I do, if health care is still going up 5, 6, 7, 8 percent a year, if it's going up three times faster than wages, then we are going to see a federal government that is broke. So how do we do that? I'm open to Social Security and how we can make some tweaks to that. That's the easier challenge. I think when it comes to Medicare and Medicaid, the biggest cost drivers are ones that we can reform if we look at how we're reimbursing doctors and hospitals, if we look at prevention and health IT, if we look at the concept of comparative effectiveness. Those communities that are doing a better job providing high-quality care at low cost, let's duplicate that across the system. It turns out those are in fact exactly the things that we're proposing in our health care reform plan. So if we get that done, then we've gone a long way towards solving this problem. If we don't, we're going to continue to have problems.

Harwood. Couple things, quickly, before we run out of time. You took your time reacting to the protests in Iran after the election. What are you watching for in the handling of those protests and in the investigation of the results to--and how will that influence the dialogue that you seek to have with Iran?

The President. Well, I think first of all, it's important to understand that although there is amazing ferment taking place in Iran, that the difference between Ahmadinejad and Mousavi in terms of their actual policies may not be as great as has been advertised. Either way, we were going to be dealing with an Iranian regime that has historically been hostile to the United States, that has caused some problems in the neighborhood and is pursuing nuclear weapons. And so we've got long-term interests in having them not weaponize nuclear power and stop funding organizations like Hezbollah and Hamas. And that would be true whoever came out on top in this election. The second thing that I think's important to recognize is that the easiest way for reactionary forces inside Iran to crush reformers is to say it's the US that is encouraging those reformers. So what I've said is, `Look, it's up to the Iranian people to make a decision. We are not meddling.' And, you know, ultimately the question that the leadership in Iran has to answer is their own credibility in the eyes of the Iranian people. And when you've got 100,000 people who are out on the streets peacefully protesting, and they're having to be scattered through violence and gunshots, what that tells me is the Iranian people are not convinced of the legitimacy of the election. And my hope is that the regime responds not with violence, but with a recognition that the universal principles of peaceful expression and democracy are ones that should be affirmed. Am I optimistic that that will happen? You know, I take a wait-and-see approach. Either way, it's important for the United States to engage in the tough diplomacy around those permanent security concerns that we have--nuclear weapons, funding of terrorism. That's not going to go away, and I think it's important for us to make sure that we've reached out.

Harwood. Last question. When you and I spoke in January, you said--I observed that you hadn't gotten much bad press. You said it's coming. Media critics would say not only has it not come, but that you have gotten such favorable press, either because of bias or because you're good box office, that it's hurting the country, because you're not being sufficiently held accountable for your policies. Assess that.

The President. It's very hard for me to swallow that one. First of all, I've got one television station entirely devoted to attacking my administration. I mean, you know, that's a pretty...

Harwood. I assume you're talking about Fox.

The President. Well, that's a pretty big megaphone. And you'd be hard-pressed, if you watched the entire day, to find a positive story about me on that front. I think that, ultimately, my responsibility is to provide the best possible decision making on behalf of the American people at a time where we've got a lot of big problems. And, you know, we welcome people who are asking us some, you know, tough questions. And I think that I've been probably as accessible as any president in the first six months--press conferences, taking questions from reporters, being held accountable, being transparent about what it is that we're trying to do. I think that, actually, the reason that people have been generally positive about what we've tried to do is they feel as if I'm available and willing to answer questions, and we haven't been trying to hide them all. I do think that, you know, we can't be complacent, and that as long as we've got these tough problems in place that not only journalists, but the American people are going to keep on asking, you know, whether or not we're delivering. And they understand it's not going to take us just a few months to get out of the hole that we're in; but, you know, I suspect that as time goes on, with high unemployment, with the economy still slow, that, you know, people are going to be continuing to expect results. And I welcome that. That's why I took the job.

Harwood. Mr. President, thanks for making the time.

The President. Thank you so much.

Harwood. Appreciate it.

The President. Appreciate it.