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First on CNBC Interview: Erin Burnett Speaks to Treasury Secretary Henry Paulson on "Street Signs" (Transcript Included)

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WHEN: FRIDAY, DECEMBER 7th AT 2:00PM ET
WHERE: "Street Signs"

The following is the unofficial transcript of a First on CNBC interview with Treasury Secretary Henry Paulson on CNBC's "Street Signs" today. All references must be sourced to CNBC.

CNBC's Erin Burnett speaks with Treasury Secretary Henry Paulson about a broad range of topics including his upcoming trip to China, his housing rescue plan and overseas investments in America, among other topics.

BURNETT: IT HAS BEEN A VERY, VERY BUSY WEEK HERE IN WASHINGTON. THE NATION'S CAPITAL. THERE'S BEEN A PLAN TO ALLEVIATE THE SUBPRIME MORTGAGE MELTDOWN PUT FORTH BY THE WHITE HOUSE. TREASURY SECRETARY HENRY PAULSON WAS THERE. HE, OF COURSE S HEADING TO CHINA AS WELL TO CONTINUE THE STRATEGIC ECONOMIC DIALOGUE BETWEEN THIS NATION AND THAT ONE. FOR MORE NOW ON THE MENU OF WHAT IS GOING ON IN CHINA AND WHAT'S GOING ON WITH HOUSING, SECRETARY PAULSON JONES US NOW ON CNBC. THANK YOU SO MUCH FOR MAKING THE TRIP IN THE SLEET AND THE SNOW AND EVERYTHING MANY THINGS TO TALK ABOUT AND I WANT TO TALK ABOUT CHINA BUT FIRST BECAUSE THE NATION HAS HAD A NIGHT NOW TO DIGEST YOUR PLAN AND WE HAVE HAD A NIGHT TO UPGRADE OUR SERVERS BECAUSE WE'RE GETTING SO MANY E-MAILS ABOUT YOUR PLAN. I WANTED TO PUT A COUPLE OF THE BIG QUESTIONS TO YOU. THE FIRST ONE IS PEOPLE PERCEIVING THIS AS GOVERNMENT INTERVENTION, NOT SUPPORTING A FREE MARKET WORK THREW OF THE PROBLEM. WHAT'S YOUR RESPONSE TO THE PEOPLE WHO JUST INSISTENTLY KEEP SAYING THAT'S WHAT THIS IS.

PAULSON:I WOULD RESPECTFULLY SAY THEY'RE WRONG. THERE'S NO GOVERNMENT MONEY IN THIS. THIS IS THE PRIVATE SECTOR COMING TOGETHER TO DEAL WITH THE COMPLEXITIES COMING OUT OF THE SECURITIZATION PROCESS. GOVERNMENT NEED TO FACILITATE THIS. WE NEEDED TO FACILITATE IT TO BRING IT TOGETHER SO THAT THEY WOULD HAVE THE CAPACITY TO DEAL WITH THE COMING WAVE OF RESETS THAT WE'RE GOING TO BE FACING. BUT AGAIN, REMEMBER, THE PRIVATE SECTOR, INVESTORS DON'T BENEFIT FROM FORECLOSURES. THEY WANT TO AVOID FORECLOSURES WHENEVER POSSIBLE AND THEY'RE GOING TO NEED SOME SIMPLE CRITERIA TO STANDARDIZE THE PROCESS AND TO GIVE THEM ESSENTIALLY THE SAME RESULT THEY WOULD HAVE WITH THE WORKOUTS ONE AT A TIME AND THEY WON'T HAVE THE FLEXIBILITY TO DO THAT.

BURNETT: ISN'T IT TRUE THAT SOME PEOPLE ARE OUT THERE SAYING, OKAY, SECRETARY PAULSON, YOUR PLAN IS INTERFERING WITH CONTRACTS AND YOU'RE SHOWING PEOPLE THAT CONTRACTS CAN BE BROKEN IN THIS COUNTRY, BUT IT WOULD APPEAR THAT IF YOU LOOK AT IT YOU CAN ADJUST CONTRACTS IF THE INVESTORS SAID THAT'S A BETTER WAY TO GET MORE MONEY

PAULSON: THEY TRADITIONALLY DO THIS. THEY DO MODIFICATIONS. SO THIS ISN'T -- THERE ARE PLANS IN CONGRESS THAT WOULD INTERFERE WITH CONTRACTS AND WE WANTED TO AVOID THAT. WHAT THIS PLAN DOES IS LET THE PRIVATE SECTOR HAVE THE FLEXIBILITY TO DO WHAT THE SERVICING AGREEMENT GIVES THEM THE FLEXIBILITY TO DO TO ADJUST THESE MORTGAGES, MODIFY THE MORTGAGE FESS IT'S IN THE BEST INTEREST OF THE INVESTORS TO DO SO.

BURNETT: I KNOW YOU'VE BEEN WORKING WITH THE REPRESENTATIVE ORGANIZATIONS OF MANY OF THE INVESTORS OUT THERE.OBVIOUSLY AS THE CEO OF GOLDMAN SACHS YOU KNOW MOST OF THEM PERSONALLY. BUT I HAVE TO SAY OVER THE PAST FEW DAY, PIMCO, BILL GROSS, ALL OF THEM I'VE SPOKEN TO, THEY'VE ALL BEEN SUPPORTERS OF THIS PLAN. HAVE YOU BEEN SPEAKING TO INVESTORS, THOUGH, OUTSIDE OF THE UNITED STATES SINCE MANY OF THE PEOPLE WHO HOLD THE MORTGAGES AREN'T HERE.

PAULSON: ALL OF THE INVESTORS I'VE TALKED WITH HAVE BEEN GENERALLY SUPPORTIVE, BUT THERE'S A LOT OFCOMPLEXITY HERE AND IT'S ONE THING TO HAVE INVESTORS BE SUPPORTIVE AND IT'S ONE THING TO BRING EVERYBODY TO THE TABLE AND MAKE SURE IT WORKS AND I'VE ALSO SEEN CRITICISM FROM THE OTHER SIDE WHERE PEOPLE SAY, HEY, THERE WILL BE SOME OUT THERE WHO ARE NOT GOING TO GET THE BENEFIT OF THIS MORATORIUM ON INTEREST PAYMENTS.

BURNETT: PERHAPS SOME WHO REALLY NEED IT.

PAULSON: WHAT I POINT OUT IS, FIRST OF ALL THIS, IS NOT ABOUT -- IT'S NOT DRIVEN BY THE OBJECTIVE OF FREEZING RATES.THIS IS DRIVEN BY THE OBJECTIVE OF AVOIDING FORECLOSURES, OKAY? SO I THINK THE RIGHT UNIVERSE TO LOOK AT IS, I THINK ABOUT THIS, THERE ARE GOING TO BE THOSE FACING RESETS THAT ARE GOING TO HAVE NO TROUBLE MAKING THE PAYMENT. THIS IS NOT TO DEAL WITH THEM AND THERE ARE GOING TO BE THOSE THAT HAVE DIFFICULTY HAVING THE CAPABILITY TO OWN A HOME AND THEY NEED TO BE DEALT ONE OFF AND THERE MAY BE AN FHA PRODUCT TO PUT THEM INTO OR THEY NEED TO BECOME A RENTER.

BURNETT: ESSENTIALLY, IT'S STILL A CASE BY CASE.

PAULSON: AGAIN IN THE MIDDLE GROUP, WHAT THERE ARE ARE SOME SIMPLE CRITERIA TO DEAL WITH THOSE WHO WILL VERY QUICKLY GET A RESET AND THEN THERE'S ANOTHER GROUP THAT HAVE STRONGER CREDIT RATINGS THAT WON'T IMMEDIATELY GET A MODIFICATION BUT WILL BE DEALT WITH ONE OFF AND THEY OBVIOUSLY ARE NOT GOING TO BE PUSHED INTO FORECLOSURE AND IN MANY INSTANCES THEY MAY GET THE SAME MODIFICATION THAT THE OTHERS GET, BUT THEY'LL HAVE TO BE A NEED FOR THEM TO GET THAT.

BURNETT: RIGHT. SO ESSENTIALLY DO YOU THINK IT'S FAIR TO SAY THAT YOU ARE THE MAN RIGHT NOW WITH THE RECESSION ON THEIR SHOULDERS, WHEREAS F YOU CAN PUSH IT OFF WITH THIS PLAN --

PAULSON: I DON'T THINK THAT'S FAIR BECAUSE I DON'T -- AGAIN, I THINK I'VE BEEN PRETTY CLEAR IN SAYING WE HAVE AN ECONOMY IN THEU.S. THAT IS FUNDAMENTALLY HEALTHY. I THINK THE JOBS NUMBERS TODAY SHOWED AN ECONOMY THAT IS FUNDAMENTALLY HEALTHY. WE'VE GOT VERY STRONG DEMAND OUTSIDE OF THE U.S.WE'VE GOT EXPORTS GROWING, EMPLOYMENT IS STRONG, INFLATION IS CONTAINED. THERE ARE SOME RISKS AND I'M FOCUSED ON THOSE RISKS. THAT'S MY JOB AND THE BIGGEST RISK WE HAVE IS HOUSING AND HOUSING IS A BIG DRAG ON OUR ECONOMY AND STILL, WE'RE GOING THROUGH A TURBULENT TIME IN THE CAPITAL MARKETS. THAT'S A RISK SO WE'RE FOCUSED ON THE RISKS, BUT LET'S NOT FORGET THAT WE HAVE A HEALTHY ECONOMY.

BURNETT: I WANT TO TALK ABOUT YOUR TRIP TO CHINA NOW.YOU'RE GETTING READY TO GO TO CHINA AND I KNOW YOU'VE BEEN 80 OR 90 TIMES OVER YOUR CAREER IN CHINA.

PAULSON: I STOPPED COUNTING.I'VE BEEN A LOT.

PAULSON: YOU'VE HAD THE DIALOGUE, THE FORMAL, STRATEGIC ECONOMIC DIALOGUE GOING OVER THE PAST YEAR. GOING THIS WEEKEND, WHAT ARE YOUR SPECIFIC -- THIS IS MY TO-DO LIST.

PAULSON: LET ME STEP BACK AND SAY THIS WILL BE THE THIRD MEETING WE HAVE -- THE THIRD BIG MEETING.BEE DO THESE TWICE A YEAR, BUT WE HAVE MULTIPLE DISCUSSIONS THROUGHOUT THE YEAR AND, AGAIN, OUR FOCUS WITH THE STRATEGIC ECONOMIC DIALOGUE IS ON THE VERYIMPORTANT BILATERAL RELATIONSHIPWE HAVE WITH CHINA, THE ECONOMICRELATIONSHIP SAY VERY PART OF THAT. MANAGING IT ON THE LONG-TERM BASIS, KEEPING IT ON AYE AN EVEN KEEL DURING TIMES OF TENSION AND DEALING WITH THE MOST PRESSING, SENSITIVE ISSUES ALONG THE WAY. THE REASON I STARTED THERE IS BECAUSE WHEN WE SET THIS UP LAST SEPTEMBER, PRESIDENT BUSH AND PRESIDENT WHO, I DON'T THINK ANY ONE OF US AT THAT TIME SAW PRODUCT SAFETY, FOOD SAFETY, THEWHOLE INTEGRITY OF TRADE AS BEING THE KEY ISSUE THAT IT IS TODAY.

BURNETT: RIGHT.

PAULSON: BUT RIGHT NOW, IF YOU WOULD ASK THE AMERICAN PUBLIC, WHAT'S THE BIGGEST ISSUE ON THEIR MIND, THAT'S WHAT IT IS.

BURNETT: YES.

PAULSON: IT'S VERY IMPORTANT TO THE AMERICAN PEOPLE.WE HAVE HIGH EXPECTATIONS AND IT'S IMPORTANT TO THE CHINESE, AND I BELIEVE THE FACT THAT WE'VE HAD THE STRATEGIC ECONOMIC DIALOGUE IN PLACE HAVE THOSE CHANNELS OF COMMUNICATION HAVE HELPED AND MIKE LEVITT IS THE SECRETARY OF HHS IS LEADING THIS EFFORT. HE'S BEEN VERY ACTIVE AND I WOULD THINK THAT WOULD BE THE TOP AGENDA ITEM THAT WE HAVE.

BURNETT: THE PRODUCT SAFETY.THIS IS INTERESTING BECAUSE SURVEYS LOOKING OVER THE WEEKEND, I WAS READING ON THIS AND MOST AMERICAN COMPANIES BY A HUGE MARGIN ARE CONFIDENT WITH THE CHINESE SUPPLIES AND THEY'RE CONFIDENT WITH THEIR TESTING AND CONFIDENT WITH THE PROCESSES IN PLACE, BUT THE AMERICAN PUBLIC IS NOT CONFIDENT AND THEY'RE WORRIED. SO HOW MUCH OF THIS IS A SAFETY ISSUE AT THIS POINT AND HOW MUCHOF IT IS AN ISSUE OF PUBLIC PARANOIA AT THIS POINT?

PAULSON: AGAIN, AMERICAN PEOPLE HAVE VERY HIGH STANDARDS AND IT'S NOTJUST AS IT RELATES TO TRADE WITH CHINA. IT'S A TRADE WITH EVERYONE AND GLOBAL SITUATION HAS BROUGHT IN NEW OPPORTUNITIES AND NEW CHALLENGES AND THERE HAVE BEEN MANY MORE BENEFITS THAN PROBLEMS AND AGAIN, THE WAY I LOOK AT IT AND I'LL COME BACK TO WHAT YOU'VE SAID ABOUT THE AMERICAN COMPANIES THAT ARE IMPORTING. I THINK INSPECTION IS IMPORTANT, BUT BUILDING QUALITY IS REALLY WHAT'S IMPORTANT. THAT'S WHAT YOU'RE FOCUSING ON. THAT'S WHAT MIKE LEVITT'S FOCUSED ON AND THEY WERE ALL FOCUSED ON, AND I THINK IT'S IMPORTANT TO BOTH SIDES THAT WE HAVE CONFIDENCE IN THE PRODUCTS THAT WE IMPORT BECAUSE THEY ARE VITALLY IMPORTANT TO OUR ECONOMIC GROWTH IN MAINTAINING LOW LEVELS OF INFLATION MAXIMIZING THE CHOICES FOR THE AMERICAN PUBLIC.

BURNETT: NOW, WHEN YOU ARE GOING TO --I KNOW THEY'RE OPENING A NEW OFFICE FOR THE NEW YORK STOCK EXCHANGE.AMONG OTHER THINGS. I KNOW YOU'RE NOT DOING THAT, BUT YOU'RE PRESENT AT THAT. WOULD YOU SAY THAT THE CHINESE MARKETS RIGHT NOW ARE FAIRLY OPEN TO AMERICAN COMPANIES? AMERICAN BUSINESS?

PAULSON: NO, I WOULD NOT SAY THAT, BUT WHAT I WOULD SAY IS THIS, THAT THE CHINESE HAVE AGREED TO A CERTAIN SET OF STANDARDS AT THE TIME THEY GAINED ACCESSION TO THE WTO, AND A LOT OF PEOPLE IN THIS COUNTRY ARE FOCUSED ON WTO COMPLIANCE. I THINK THAT'S VERY IMPORTANT. WE HAVE AGENCIES RESPONSIBLE FOR THAT IN THE U.S.WE HAVE DISPUTE RESOLUTION MECHANISMS. WE HAVE DIALOGUES RESPONSIBLE FOR THAT. WHAT I'M REALLY INTERESTED IN IS ENCOURAGING THE CHINESE TO SPEED UP THEIR PROCESS OF OPENING TO FOREIGN INVESTMENT AND TO TRADE AND TO COMPETITION BECAUSE IT'S IN THE BEST INTEREST OF THE CHINESE PEOPLE.IT'S GOING HELP THEM DEVELOP THEIR ECONOMY IN A MORE BALANCED WAY AND AGAIN, I LOOK AT THE OPPORTUNITY ALSO FOR THE U.S. THAT THIS IS OUR FASTEST-GROWINGEXPORT MARKET.IT'S GROWING QUICKLY AND IT'S VERY IMPORTANT.

BURNETT: NOW, IN TERMS OF THE UNITED STATES. IS THE UNITED STATES OPEN TO INVESTMENT FROM CHINA. SPEAKING TO THE CHINESE EMABASADOR RECENTLY HE WAS VERY PASSIONATE WHEN DISCUSSION THE EXTREME DIFFICULTY THEY'VE HAD IN HAVING CHINESE BANK BRANCHES AS AN EXAMPLE OPEN HERE.

PAULSON: WELL, LET ME SAY THIS. WE HAVE THE SAME STANDARDS FOR CHINA THAT WE HAVE FOR EVERY OTHER COUNTRY IN THE WORLD.WE ARE OPEN AND TOTALLY OPEN, BUT THERE ARE STANDARDS THAT NEED TO BE MET AND THE FED SETS THOSE STANDARDS AND THE FED HAS VERY RECENTLY GRANTED A LICENSE AND I THINK THE CHINESE ARE PLEASED WITH THAT TO, YOU KNOW TO COMMERCE BANK AND SO THEY'VE GOT ANOTHER LICENSED APPLICATION PENDING, BUT WE ARE OPEN TO INVESTMENT AND WE'RE AS OPEN AS ANY COUNTRY IN THE WORLD.

BURNETT: TWO MORE BRIEF QUESTIONS FOR YOU.THE FIRST IS OVERALL, A LOT OF INVESTMENTS HAVE BEEN COMING INTO THE COUNTRY FROM OVERSEAS, NOT JUST WITH CHINA BUT FROM THE MIDDLE EAST AND ABU DHABI GETTING A LOT OF COVERAGE, BUT IT IS ONE OF MANY DEAL, BUT OVERALL THERE'S BEEN THIS ISSUE OF OVERSEAS COUNTRIES OR THE SOVEREIGN WEALTH FUNDERS ON COMPANIES CAN TAKE STASHGS FINANCIAL STAKE, BUT IT'S HARD FOR THEM TO TAKE MANAGEMENT STAKES.IS THAT SOMETHING WE NEED TO CHANGE? IF YOU'RE GOING TO BUY IN, BUY IN THE REAL WAY.

PAULSON: LET ME SAY THIS.THERE IS, AGAIN, I BELIEVE WE ARE AS OPEN AS ANY COUNTRY IN THE WORLD TO INVESTMENT.IT'S MY JOB TO KEEP IT THAT WAY.THERE IS PROTECTIONIST SENTIMENT HERE AND THIS IS NOT NEW.FOR AS LONG AS I CAN REMEMBER, CERTAIN MEMBERS OF THE PUBLIC, MEMBERS OF CONGRESS ARE THIS EARLY OPPOSED TO FOREIGN INVESTMENT. NOW, SOVEREIGN WEALTH FUNDS ARE AN IMPORTANT PART OF THE GLOBAL CAPITAL MARKETS.THEY REPRESENT ROUGHLY THE SAME PERCENTAGE OF GLOBAL WEALTH AS THEY DID A NUMBER OF YEARS AGO, BUT THEY'RE PROJECTED TO GROW QUICKLY AND THERE'S A LOT OF FOCUS SOVEREIGN WEALTH FUNDS. SO ON TREASURY, WE'RE WORKING ONTHIS FROM TWO PERSPECTIVES.NUMBER ONE, WE'RE WORKING WITH DEVELOPED COUNTRIES AROUND THE WORLD. OECD MEMBERS, JC MEMBERS TO COME UP WITH GUIDELINES AND PRINCIPLES FOR INVESTMENT BECAUSE WE DON'T BELIEVE THAT THOSE WHO ARE PROTECTIONISTS CAN USE SOVEREIGN WEALTH FUNDS AS A BOOGIEMAN OR AS AN ARGUMENT AGAINST INVESTMENT AND WE'RE WORKING WITH SOVEREIGN HEALTH FUNDS TO COME UP WITH THEIR PRINCIPLES AND GUIDELINES AND BEST PRACTICES TO ASSURE THE REST OF THE WORLD THAT THEY ARE DRIVEN BY LEGITIMATE ECONOMIC GOAL SAYS AS OPPOSED TO POLITICAL OR STRATEGIC, BUT, YEAH, WE WELCOME AND WE LOOK AT INVESTMENTS AND I SHARE THE PROCESS AND WE LOOK AT INVESTMENTS WITH AN EYE TOWARD NATIONAL SECURITY AND WHEN THEIRINVESTMENTS BY GOVERNMENT CONTROLLED ENTITIES, WE LOOK AT THEM PARTICULARLY CAREFULLY, BUT WE AGAIN WELCOME THAT INVESTMENT.

BURNETT: SECRETARY PAULSON, THANK YOU VERY MUCH.WE APPRECIATE YOUR COMING BY AND GOOD LUCK.SAFE TRIP TO CHINA.




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