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CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S "SQUAWK BOX" INTERVIEWS GOVERNOR JON CORZINE TODAY

WHEN: TODAY, MONDAY, SEPTEMBER 15TH

WHERE: CNBC'S "SQUAWK BOX"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Governor Jon Corzine today on CNBC's "Squawk Box."

All references must be sourced to CNBC.

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KERNEN: NEW JERSEY GOVERNOR JON CORZINE, THE FORMER CHAIRMAN & CEO OF GOLDMAN SACHS, IS TALKING ABOUT THE STORM ON WALL STREET ONLY ON "SQUAWK" THIS MORNING. THANK YOU FOR JOINING US THIS MORNING.

CORZINE: THANK YOU, JOE.

KERNEN: YOU LIVE LONG ENOUGH, I GUESSYOU SEE JUST ABOUT EVERYTHING, BUT ON A SCALE OF ONE TO TEN, HOW SHOCKED, HOW SURPRISED ARE YOU THAT THIS JUST PLAYED OUT BEFORE OUR EYES OVER THE PAST SIX, EIGHT MONTHS AT THIS POINT.

CORZINE: RIGHT OUT THERE CLOSE TO TEN. I DO NOT UNDERSTAND HOW WE GOT INTO THIS SITUATION, ALTHOUGH I THINK THE LAIZE FAIR DEREGULATORY MODE WE HAVE EXPERIENCED OVER THE LAST DECADE HAS BEEN PRETTY SEVERELY RESPONSIBLE FOR THE BUILDUP OF THE IMBALANCES. YOU COULD HAVE ASKED ME TWO YEARS AGO, FIVE YEARS AGO, WOULDYOU EVER SEE A DAY LIKE THIS, AND I THINK, NOT JUST ME, BUT MOST PEOPLE WOULD SAY THAT'S NEVER GOING TO HAPPEN.

KERNEN: FOR YOUR BEDROOM COMMUNITIES,AND I LIVE IN ONE AND THERE'S A LOT OF NEW YORK, IT IS NOT A SEPARATION BETWEEN WALL STREET AND MAIN STREET, SO WE KNOW IT IS GOING TO BE TOUGH, BUT DO YOU HAVE A FEAR THAT IT MOVES TO MAIN STREET IN COMMERCIAL BANKING?

CORZINE: YOU KNOW, FIRST OF ALL, I THINK UNTIL WE RECOGNIZE THAT ITIS ALREADY THERE, JOE, WE ARE NOT GOING TO SOLVE THE PROBLEM.I THINK THAT WE ALREADY HAVE A VERY SHARPLY ERODING SITUATION FOR MAIN STREET. WE HAVE SEEN IT IN THE UNEMPLOYMENT NUMBERS, WE SEE IT IN, OBVIOUSLY, THE VALUES OF HOMES AND THE PEOPLE'S CONFIDENCE IN THE ECONOMY. I THINK THERE'S A BIG, BIG PROBLEM THAT IS BEING IGNORED BY THE WEEKEND WORK SESSIONS, AND THAT IS THE CORE PROBLEM THAT WEHAVE IN THE ECONOMY.THERE ARE TWO THINGS HERE THAT ARE VERY DISTURBING AND NOT ADDRESSED. ONE, THERE IS NO MAJOR INFUSION OF NEW CAPITAL INTO THE SYSTEM.WE ARE DOING MORE FINANCIAL ENGINEERING TO SOLVE PROBLEMS.SECOND OF ALL, AND MUCH MORE IMPORTANT, IS THE FUNDAMENTAL ECONOMY IS IN VERY BAD SHAPE AND THE PROBLEMS ARE GROWING. WE WERE SO LATE IN ADDRESSING THEM THAT NOW, IN EFFECT, WE HAVE A WHOLE SERIES OF MARKETS, AUTO LOANS CONSUMER EXPENDITURES ALL THE THINGS THAT ARE ABOUT 65% TO 70% OF THE ECONOMY.

QUINTANILLA: THERE'S A WIDE GAP BETWEEN WONDERING IF YOU ARE GOING TO QUALIFY FOR AUTO FINANCING AND WONDERING IF YOU CAN GET CASH OUT OF YOUR BANK. I THINK JOE IS ASKING, IS THAT WHERE WE ARE HEADED?

CORZINE: WELL, I THINK THERE'S A RISK OF THAT BECAUSE YOU DON'T ACTUALLY KNOW WHERE ALL THE PROBLEMS LIE IN A WORLD WHERE DERIVATIVES FORM MUCH MORE OF THE RISK EXPOSURE THAN JUST ACTUALLY THE BALANCE SHEET ITSELF. YOU KNOW, BEING ONE THAT IT WENT THROUGH THE EXPERIENCE OF LONG TERM CAPITAL, WHICH WAS NOT AS MUCH OF A SYSTEMIC ISSUE AS IT WAS THE CURRENT SITUATION IS, YOU HAVE THIS MULTIPLICATION OF LEVERAGE THAT IS DIFFERENT THAN JUST WHAT SHOWS UP ON THE BALANCE SHEET.I DON'T THINK ANYBODY HAS A HANDLE ON IT. THEY MAY MAY HAVE TRACKED IT BETTER THAN WHAT WE DID TEN YEARS AGO, BUT I HAVE A FEELING THAT PEOPLE DO NOT KNOW ALL OF THE EXPOSURES THEY HAVE TO THE ENTITIES THAT ARE TROUBLED, AND THEREFORE CAUSING ADDITIONAL PROBLEMS THAT HAVE TO BE ADJUSTED REQUIRING EVEN MORE CAPITAL AND EVEN GREATER SHRINKAGE OF BALANCE SHEETS AND OTHER RISK EXPOSURES.

QUICK: WHAT HAPPENS NOW?I MEAN, I KNOW YOU SAID THERE'SA LOT OF BLAME TO GO AROUND, BUTWHAT HAS TO HAPPEN IMMEDIATELY TO FIX THE SITUATION?

CORZINE: FIRST OF ALL, I THINK WE NEEDSOMETHING THAT WORKS ON THE REAL ECONOMY. WE NEED TO GET --

QUICK: ARE YOU TALKING ABOUT A SECOND STIMULUS PACKAGE?

CORZINE: I THINK THERE NEEDS TO BE A SECOND STIMULUS PACKAGE.

QUINTANILLA: REBATES OR INFRASTRUCTURE INVESTMENTS.

CORZINE: I THINK THE INFRASTRUCTURAL INVESTMENTS ARE NEEDED. JOE MAKES THAT POINT THAT NEW JERSEY IS ABSOLUTELY TIED TOTHE OUTCOMES ON WALL STREET. WE'LL SEE OUR TAX REVENUES FALL OFF SHARPLY. WE ARE ALREADY CUTTING OUR BUDGET AT $600 MILLION ABSOLUTE THIS YEAR, $4 BILLION OFF GROWTHRATE THAT IS WOULD HAVE BEEN EXPECTED IN NORMAL TIMES. WE ARE GOING TO CUT MORE IF THE FEDERAL GOVERNMENT DOES NOT ACT, THEN WE'LL SEE ACCUMULATING GATHERING MOMENTUM TO THE RECESSION. YOU HAVE BANKS NOT LENDING AND YOU DON'T HAVE THE SPENDING GOING ON IN THE ECONOMY THAT IS GOING TO CREATE JOBS. YOU ARE GOING TO HAVE MORE PEOPLE UNPLOYED AND MORE PEOPLE NOT MAKING MORTGAGE PAYMENTS. THEN ALL THAT RESETTING OF THE VALUES OF THE UNDERLYING ASSETS ON THE BALANCE SHEETS OF FINANCIAL INSTITUTIONS. I DON'T LIKE THE SITUATION, AND I DON'T THINK ANYBODY SHOULD.I THINK WE NEED ACTION. WE NEED IT NOW AND VERY STRONG. ACTUALLY, I WOULD USE THE WORD BOLD OUT OF WASHINGTON.

SORKIN: GOVERNER, ANDREW SORKIN HERE, AS A FORMER CEO OF GOLDMAN SACHS, WHEN YOU LOOK NOW AT GOLDMAN AND MORGAN STANLEY, THE LAST REMAINING INDEPENDENT INVESTMENT BANKS, IF YOU WILL, HOW DO YOU SEE AND THE LANDSCAPE CHANGING FOR THEM?

CORZINE: I THINK THERE WILL BE GREATER CONCERN ABOUT THEIR BALANCE SHEETS THAT WILL BE NATURAL. ON THE OTHER HAND, I THINK THEY HAVE DONE A GOOD JOB OF EXPLAINING TO THE MARKETPLACE WHAT THAT I HAVE DONE AND WHAT THEIR BALANCE SHEETS LIKE LOOK LIKE.THEY HAVE DONE A HECK OF A BETTER JOB THAN THEIR COMPETITORS. THAT'S ONE OF THE REASONS THEY HAVE BEEN ABLE TO STAY IN THE POSITION THEY ARE. IF THEY HAD BAD EARNINGS, PEOPLE WOULD BE VERY NERVOUS WITH ABOUT THE DIRECTION.NOW, I DON'T THINK THAT'S GOING TO HAPPEN.

QUICK: IF THEY HAD GOOD EARNINGS, THEN WHAT?

CORZINE: WELL, I THINK PEOPLE WOULD BEREINFORCED THEY HAVE BEEN MANAGING THE RISKS RELATIVELY EFFECTIVELY .I THINK PEOPLE KNOW THAT IF YOU HAD A RESTATEMENT OF EARNINGS RIGHT NOW, ANY FINANCIAL INSTITUTION OR MAJOR WRITEDOWNS UNEXPECTED, THAT TELLS YOU THAT PEOPLE DON'T HAVE CONTROL OFTHEIR BALANCE SHEET.I DON'T THINK YOU ARE GOING TO SEE THAT OUT OF THE TWO INSTITUTIONS BECAUSE THEY DO A VERY GOOD JOB WITH STRONG EFFECTIVE MANAGEMENT, AT LEAST THAT WAS THE CASE MOST OF THIS DECADE AND I THINK IN THE LAST AS WELL.

KERNEN: GOVERNOR, THE STRUCTURED PRODUCTS, THAT WAS REALLY TELL GRAVY TRAIN FOR A LOT OF FIRMS AFTER DEREGULATION AND IT IS HARD TO MAKE MONEY TRADING STOCKS, OBVIOUSLY.THERE'S GOT TO BE SOME BLAME ASSIGNED TO JUST WALL STREET GREED, DON'T YOU THINK? DO YOU THINK A LOT OF THE CEOs WOULD HAVE BEHAVED IF REGULATORS CAME IN AND SAID, LOOK, WE DON'TLIKE WHAT YOU ARE DOING WITH THE STRUCTURED PRODUCTS.YOU ARE WE LYING TOO MUCH ON THESE.THERE'S TOO MUCH RISKS.WHEN YOU WERE CEO, YOU MIGHT HAVE PUSHED BACK ON THAT, RIGHT?

CORZINE: THERE WOULD HAVE BEEN PUSH BACK, BUT THAT'S WHEN STRONG REGULATION HAS TO BE IN PLACE. YOU KNOW, IT IS VERY INTERESTING, YOU PICK UP THE PAPER TODAY AND YOU DON'T HEAR ONE SENTENCE OF DISCUSSION ABOUT WHAT THE SCC HAS BEEN DOING.I THINK THEY MANAGE OR HAVE THE RESPONSIBILITY FOR OVERSIGHT OF THE INVESTMENT BANKING AND SECURITIES FIRMS. IT IS ALL BEING LED BY THE TREASURY OR THE FED. IT IS NOT AN ISSUE WHERE THERE HAS BEEN CONSTANT ATTENTION TO MANAGING THE SYSTEM. THERE'S BEEN AN ABERGATION OF THAT. THAT'S THE FUNDAMENTAL FLAW THAT HAS LET THE SYSTEM GET WAY BEYOND ITS MEANS. BY THE WAY, I THINK THE SAME IS TRUE IN SOME OF OUR BANK REGULATION, NOT ALL OF IT, BUT SOME OF IT, AND THAT HAS ALLOWED FOR THIS EVOLUTION OF EXCESSIVE RISK OR EXCESSIVE LEVERAGE BEING TAKEN IN THE BALANCE SHEETS.

KERNEN: HAVE YOU TALKED TO JOHN THAIN?

CORZINE: I HAVE NOT.

KERNEN: NOT IN RECENT DAYS. IT IS STAGGERING TO WATCH THESE THINGS PLAY OUT.

CORZINE: IT IS A HISTORIC TIME, BUT I THINK THE REAL CHALLENGE WE HAVE IS I DON'T THINK WE HAVE SHUT THE DOOR.I DON'T THINK WE HAVE COME UP WITH A PROGRAM THAT IS ACTUALLY GOING TO DEAL WITH THE REAL ECONOMY OR HAVE WE COME UP WITH A PROGRAM THAT IS GOING TO KNEEL WITH THE NEED TO DELEVERAGE, NOTONLY THE ASSETS ON THE BALANCE SHEETS, BUT THE DERIVATIVES THERE. THAT'S GONNA TAKE CAPITAL WE HAVE TO CREATE A WAY TO DO THAT.ONE OF THE THINGS THAT COULD BE DONE, I REMEMBER BACK WHEN THE WORLD WAS SIMPLER, THE FEDERAL RESERVE CHANGED MARGINAL REQUIREMENTS. THEY MAY HAVE TO FOR A SHORT PERIOD OF TIME CHANGE CAPITAL RULES TO ALLOW FOR THE FACT THAT YOU CONSIDER CARRY THE BALANCE SHEETS WITHOUT FORCING THE SALES WE ARE SEEING. THERE NEEDS TO BE A STRATEGIC ANSWER, NOT JUST THIS TACTICAL WEEKEND WONDER WORK WE HAVE SEEN GOING ON AS WE HAVE GONE THROUGHTHE LAST SIX TO NINE MONTHS.

QUICK: GOVERNOR, IT IS STILL EARLY, WE ARE STILL TRYING TO FIGURE OUT WHAT HAPPENED AND WHAT'S HAPPENING, BUT WHEN YOU LOOK OVER THE WEEKEND AND YOU REALIZE THAT LEHMAN WITH ITS 26,000 TO 28,000 EMPLOYEES IS GOING TO BE SHUTTING DOWN AND MERRILL IS GOING TO BE BOUGHT OFF AND THE BACK OPERATIONS, YOU MAY SEE JOBLOSS THERE AS WELL. HOW MUCH WORSE DO THINGS GET FORTHE STATE OF NEW JERSEY OVER THE COURSE OF THIS WEEKEND?

CORZINE: I THINK IT IS VERY SIGNIFICANT. I CAN'T PUT A HANDLE ON IT, BUT WE HAVE A NUMBER OF OPERATIONS IN THE TWO FIRMS IN NEW JERSEY. A LOT OF THE BACK OFFICE, BUT ALSO THE SECURITY MEASURES THAT IF A TRADING FLOOR GOES DOWN, THEY WANT TO BE ON A DIFFERENT POWER GRID. THERE'S A LOT OF THING THAT IS WILL GET SQUEEZED OUT OF THE SYSTEM.IF THEY ARE NOT COMPENSATED WITHTHE NEW FIRMS THAT COME IN WITH BANK OF AMERICA OR HOWEVER LEHMAN GETS DIVVIED UP, IT COULDBE VERY HURTFUL FOR OUR ECONOMY AND CERTAINLY WILL BE FOR NEW YORK. I'LL TELL YOU, WE HAVE BENEFITTED ENORMOUSLY BY THE GROWTH IN THE EARNINGS POWER OF PEOPLE ON WALL STREET ASIDE FROM JUST THE NUMBER OF JOBS, AND THAT, I THINK, SPEAKS FOR ITSELF GIVEN THE CURRENT CLIMATE.

KERNEN: GOVERNOR, YOU STILL, YOU ADVISE SENATOR OBAMA, YOU STILL THINK CAPITAL GAINS AND DIVIDENDS TAXES SHOULD BE RAISED?

CORZINE: I THINK THE DIFFERENCE OF WHETHER IT'S 15% OR 20% ON CAPITAL GAINS OR DIVIDENDS HAS ZERO TO DO WITH THE CRISIS THAT WE HAVE RIGHT NOW.

KERNEN: AND THE MARGINAL RATES WOULD GO UP.

CORZINE: THIS HAS ZERO TO DO WITH

WHETHER WE ARE GOING TO SEE A HEALTHY BALANCE SHEET ON A FINANCIAL INSTITUTION. EXTRA LEVERAGE BEYOND REASONABLEBOUNDS IS WHAT HAS GOTTEN US INTO THIS PROBLEM, AND A LOT OF IT IS TO DO WITH JUST THE BALANCE SHEET AND THE DERIVATIVES AND THE LACK OF REGULATORY OVERSIGHT.

QUINTANILLA: UNDERSTOOD, BUT DOES THE CASEFOR THE HIGHER MARGINAL RATES ERODE AS THE ECONOMY DETERIORATES.

CORZINE: YOU CAN ARGUE IN THE MIDST OFTHE RECESSION YOU WOULD RATHER NOT HAVE ANY KIND OF CHANGE IN THE TAX STRUCTURE OR A LOWER ONE BECAUSE IT WOULD BE STIMLATIVE AT THE MARGIN, BUT THERE IS NOT A SINGLE BIT OF EVIDENCE THAT SHOWS THAT IF YOU WENT FROM 15% TO 20% IT IS SOMEHOW GOING TO E RODE THE ECONOMY.AS A MATTER OF FACT, WE HAD A MUCH STRONGER ECONOMY EVEN ACCOUNTING FOR THE BUBBLE IN TECHNOLOGY IN THE 1990s WITH A SIGNIFICANTLY HIGHER MARGINAL RATE AND A SIGNIFICANTLY HIGHER RATE ON DIVIDENDS AND CAPITAL GAINS.

SORKIN: FAIR ENOUGH. IF YOU COULD DO IT TODAY, WOULD YOU RAISE?

CORZINE: I'M NOT RAISING TODAY. WE NEED A STIMULUS PACKAGE TO GET THE MACRO ECONOMIC AFFAIRS OF THIS COUNTRY MOVING, AND THAT MEANS WE ARE GOING TO HAVE TO TAKE RISKS AND WE ARE GOING TO HAVE TO PUT MONEY INTO THINGS THAT CREATE JOBS AND GET PEOPLE BACK TO WORK SO THAT YOU BUILD UP THE CONFIDENCE THAT ALLOWS ASSETS FROM CONTINUING TO DETERIORATE IN VALUE.LIKE HOMES.

QUINTANILLA: SPEAKING OF WHICH, THERE HAVE BEEN SOME ENCOURAGING NUMBERS OUT OF KAY SCHILLER. MORTGAGE RATES HAVE COME DOWN. EXPORTS ARE STRONG.THE DOLLAR IS NOT WHERE IT WAS A FEW WEEKS AGO.ARE YOU SPENDING ANY TIME THINKING ABOUT BRIGHT SPOTS TODAY OR IS THIS NOT THE TIME AND PLACE FOR THAT?

CORZINE: IT IS GREAT WE HAVE BRIGHT SPOTS, BUT I THINK THE UNEMPLOYMENT RATE IS GOING UP. I THINK THAT WE SEE PEOPLE'S VALUE IN THEIR HOMES CONTINUE TO DETERIORATE AND I SEE PEOPLE IN MY STATE THAT ARE STRUGGLING. I SEE FORECLOSURES ACTUALLY YEAR OVER YEAR IN NEW JERSEY.WE ARE JUST STARTING TO CATCH UPWITH THE COUNTRY GROWING AT 50% YEAR OVER YEAR BY THE KAY SHILLER STATISTICS.I'M MORE WORRIED WHERE HAS THE GOING TODAY THAN THREE MONTHS AGO.

KERNEN: GOVERNOR, WE APPRECIATE YOUR TIME. THE MOVE INTO POLITICS IS LOOKING PRETTY GOOD OUT OF THE INVESTMENT BANKING BUSINESS. A LOT OF PEOPLE WONDERED, BUT NOW WE SEE THE METHOD TO YOUR MADNESS.





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