WHEN: Today, Thursday, September 18th at 4:38 PM ET

WHERE: CNBC's "Closing Bell with Maria Bartiromo"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with former President Bill Clinton today on CNBC's "Closing Bell with Maria Bartiromo."

Video from this interview is available on

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MARIA BARTIROMO: They're neck and neck-- Senator Obama and McCain. How-- how are the democrats going to-- narrow that debt?

PRESIDENT BILL CLINTON: Well, the latest polls had Senator Obama up a little bit. And I think every-- I-- I think partly that's a function of the current distress, economic distress because I think the more people worry about the current set of circumstances, the more likely they are to change parties. I have always said that I thought Senator Obama would win this election because two thirds of the American people are having trouble paying their bills. And because of democratic registration is up and republican registration is flat. And because he has-- offered some very specific and sensible economic reforms and healthcare reforms. And as I said, I've never concealed my admiration and affection for Senator McCain. I think he's a great man. But, I think on the issues that matter to our future-- the Obama/Biden team is-- is more right. That's what I believe. And I believe they're gonna win. But, I think that-- it will be competitive until the end. And our side has to work hard. But, I think what -- what typically happens in these elections if you look throughout American history when the country's in a fix and you know where we're going is not sustainable, then there is typically a breakthrough. The biggest example of that was in 1860 when Abraham Lincoln was elected. The republican party had only been in existence for four years. But, both the old-wig party and the democratic party had proved unable to resolve the dilemma of how to hold the Union together and stop the spread of slavery. So, they both had different approaches. Neither one were workin'. So, the public said, "Okay, if we can't sustain this, we'll make a change. That's what I think. Now, I think that the-- the people said, "Well, they had the Congress and the White House for six of the last eight years. We're in trouble. We liked Senator McCain. We recognize he's a little bit of a different kind of republican. But, we're gonna make a change." And I think that's where they'll be and I think that you'll see a victory for Obama and Biden. But, I don't think you'll see it clearly. Barring some unforeseen development like in-- something happens in the debates we don't know about. I-- I-- I-- it may not be apparent in the polls until last week or two of the election. But, I believe that it will be apparent on election day. I think that-- I think Senator Obama will win this election.

MARIA BARTIROMO: Were you surprised by the Palin bounce for the McCain campaign?

PRESIDENT BILL CLINTON: No, she's a-- she's an instinctively-- effective candidate. And with a compelling story. And-- and I think it was exciting to some-- that-- that she was a woman. It was exciting that she was from Alaska. It was exciting that she's sort of like the person she is. And she grew up in a-- came up in a political culture and a religious culture that is probably well to the right of the American center. But, she didn't basically define herself in those terms. She's basically said, "Look, this is where I'm from. I'm not gonna impose this on you. This is what I wanna do that I think we can all be a part of." So, she handled herself very well. So, I-- no, I wasn't surprised. I think that-- you know, I disagree with them on a lot of these issues. And that's why aside from party affiliation, that's why I would be for Senator Obama and Senator Biden anyway. But-- but, I think she-- I-- I get why she's done so well. She-- she's-- it's a mistake to underestimate her. She's got good in-- sorry-- intuitive skills. They're significant.

MARIA BARTIROMO: If McCain wins, will Hillary be back in four years?

PRESIDENT BILL CLINTON: I don't know. I think that-- you know the one thing we've learned at-- at our age is that-- you know, I hope we're both active till we're 90 and health. But, I think that her focus will now be-- on what she can do in her present position to try to help her deal with all these things that threw her into the presidential race in the first place. For example, today, she gave them a-- the most detailed-- position I've seen on what she felt we ought to do on the finance crisis. And I completely agree with what she said. She said, "We ought to-- we ought to follow-- not this-- the Resolution Trust Corporation model for dealin' with these homes and commercial properties. We ought to go back to the Homeowner's Loan Corporation that was a product of the Depression." That actually made a profit for the American people by stabilizing what was otherwise a disastrous run-- on the market for financing homes. And people's home values were going through the floor. I think that-- that what she will do is to continue to try to be a national voice as a result of her campaign on economic and healthcare and energy issues that got her into this presidential race in the first place. And I-- you know, I've already told you. She's workin'. She-- you-- you see her. She's out there workin' hard for Senator Obama. She, like me, believe he's gonna win. And-- no matter who wins, we've got to put-- our-- our own personal politics aside-- for the next couple of years and get after these problems. We-- we can't continue this, you know, loss of will, no jobs, stagnant incomes, rising costs. We've got-- we-- we've got to shelf the politics for a while and work on the substance. And if we'll do that, the politics will take care of itself.

MARIA BARTIROMO: What is your view of these bailouts that we've been seeing? Bear Sterns, Fannie Mae, Freddie Mac and, of course, yesterday AIG. Should the government be there if the financial services firms fail and take on too much risk?

PRESIDENT BILL CLINTON: I think in this case, they had no choice. And I'll tell you-- why. I think that there was too little attention for too long to the real estate problems. I know I think Hillary called two years for some device to sort of s-- stop the home mortgage foreclosures for the people that could pay, and to rework the mortgages. Too little attention to the fact that the big finance houses were driven into housing. In effect, assume the role of traditional bankers with the derivatives and other things 'cause there was no other place that was growing in our economy. (SLIGHT SIREN) If you and I had been working at one of these finance houses, and we had to make a living, we had to major our-- our clients' money right, that's where we would have gone because it was the only growth area. And so we allowed this to happen for too long. I-- I think the argument that we shouldn't do it 'cause the taxpayers don't owe anything to Wall Street is rather shortsighted. That the people are getting the shaft out here are the homeowners, the people that live in their neighborhood whose home values are goin' down. The people who are losin' their jobs. In other words, this is not about bailing out Wall Street. This is about restoring confidence in America. This is a country with rising productivity in every year of this decade, which means the working people of this country and their managers are doing their job. It's still a country of innovation. It's still a country with available money to invest. And we have had these drastic distortions in the market, which have got us in this fix. I don't think there's any choice but for us to have the government sit down with the private sector and all-- again, all the stakeholders, and-- and do more. And I think the longer you wait, ironically, the more you have to do and the more money you have to spend. So, in a funny way, the people who are most against market intervention wind up having to preside over the biggest market intervention that costs the most money because we all know that markets without disclosure, without capital requirements, without market requirements-- if you don't have these kinds of things to keep the market in tow, they all tend to unsustainable extremes. And that's where we are today. This-- America is better than letting-- you know, just using trillions and trillions of dollars of wealth. You've got two trillion dollars in home wealth that people are at loss. We can't sustain it.

MARIA BARTIROMO: But, where do you stop? Should they have bailed out Lehman Brothers? Should they be bailing out Morgan Stanley?

PRESIDENT BILL CLINTON: Well, I can only tell you-- first of all, you can only answer a question like that in my opinion based on the facts on the ground at the time. That is, this is a practical question to me. Not a philosophical one. I-- I think-- I believe that if-- if-- if I-- if I had-- if I had to say, first, I think the Bear Sterns thing was necessary. And it worked okay. It just didn't stand (?) the tide because of the underlying massive amount of unsustainable debt in the real estate market both residential and conserv-- and-- commercial. I think Fannie Mae and Freddie Mac-- that had to be done because they frankly-- it was never an ideal structure. They weren't-- they were government operations. But, not. They were-- they-- they-- they're-- too many of those decisions were made by-- (OVERTALK)

PRESIDENT BILL CLINTON: --politics. But, they got in trouble because the market got in trouble. That is, they weren't big players in the-- in the sub-prime mortgage market. They just were on the-- they were the ultimate guarantor of all these mortgages and the value of everything went down. I think that-- it looked bizarre that you had the-- the-- you did Fannie Mae, Freddie Mac, Bear Stern. Then said no to Lehman Brothers and yes to AIG. What does that mean? Does that mean there was no principle involved? Probably I-- I-- I think that-- my instinct would have been to offer Lehman Brothers a line of credit at least. Something along the lines of what was offered at-- AIG. It's not as big. The consequences to the economy are not as great. But, it had a-- psychologically, it was unsettling. And I think that-- not because I wanna bail out Wall Street. But, because I don't want every homeowner in this country to lose all the value-- m-- most Americans-- the only savings they've got is in their homes.



PRESIDENT BILL CLINTON: Until we get-- (UNINTEL) like I said Hillary's offered some good ideas. Bonnie Frank (PH), the congressman (?) of Massachusetts offered some good ideas. The administration has other (UNINTEL). McCain and Obama are weighing in. The main thing I wanna say is let's don't make this like a meal where you're hungry 30 years later. Let's have very few sound bi-- bites. Nobody trying to get short term advantage. And let's look at where we are and figure out how to fix this thing over the long. If you've got the right kind of regulation, the right kind of capital requirements, the right kind of disclosure to investments, then you won't have to do a bailout in the future because anybody that fails, it'll be obvious that it was irresponsible management. Maybe even illegal conduct. And it's the kind of thing you shouldn't bail out. But, right now, you're not bailin' them out. You're trying to save the American financial system. And the savings of-- of hundreds of millions of Americans.

MARIA BARTIROMO: It's really a bailout of the system. Not--


PRESIDENT BILL CLINTON: 'Cause the-- yeah, look, I mean, the-- the-- what-- if Wall Street drops 500 points one day and 450 points the next day, and on the second day, banks (NOISE) don't even wanna lend to each other anymore? Then, if you help this or that group, you're not doing it for them. You didn't-- this wasn't done for AIG. It was done because AIG is so big that if they didn't have some way to manager their bad loans over a longer period of time, the consequences not to AIG, but to everybody in the American system were gonna be great. There is no American that has not been potentially damaged by what's happened the last two days. Even if you don't have a bank account. Twenty-eight million working Americans don't have a bank account. They're still weak if everybody else is in trouble.

MARIA BARTIROMO: Let me ask you this President Clinton. You-- you said, you know, we were in a period where money was so easy, rates were so low. You really were the dream team. You, Alan Greenspan and Bob Rupman (PH) oversee the-- one of the greatest if not the greatest economic up periods-- we know. But, isn't it fair to say Alan Greenspan is somewhat to blame here for leaving rates as low as they were?

PRESIDENT BILL CLINTON: You can argue that. But, let-- let's just talk about this. I don't believe that was the primarily factor here. I think that if-- if you look at it f-- apart from this, there was no inflation in this economy for a long time. There was a lot of competition, open markets keeping inflation down. There was money seeking safe haven. America was thought to be that. So, even if the Fed had kept rates a little higher, I think the money that most people get, which has nothin' to do with the government and its policies now, would still have been available at very low costs. And the fundamental problem is this. This is my opinion now. Listen, I'm not speakin' for Hillary, for the government, for anything. I think the fundamental problem is this. If you look at-- we have now good economic data on the first five years of this decade, okay? Forty percent of our growth was in housing. The other 60 percent in consumer spending. So, what happened? That's-- that-- it attracted the money. And after a while, the consumers had maxed out their credit cards, taking out all the second mortgages on homes you could-- taken out. And there's only so much you can do with even commercial as well as residential real estate. And without a more balanced economic strategy, this thing was gonna come to not a very good end. Now, the other thing that happened is you had the finance houses in effect supplementing what the-- the financial-- the traditional banks were doing. That is packaging these mortgages and derivatives highly leverage. You didn't have--


PRESIDENT BILL CLINTON: Yeah, it was innovation. But, it was innovation without adequate disclosure, capital and margin requirements. So, what happened was it was the magnet that attracted the money 'cause it was the only game in town. And I personally think-- you may fault Mr. Greenspan one way or the other. But, the truth is if he'd raise rates a little bit, there was no inflation in this economy. You were sti-- and there was lots of money. You were still gonna be able to get good money at low prices. And the real problem was that good money at low prices didn't have a lot of options apart from housing or other real estate. Because there was not other growth. I believe if we'd started a serious energy policy six years ago, we might be in this fix. But, it wouldn't be nearly as bad 'cause we'd had a whole 'nother range of things for people to invest money in. Areas for people to work in and less incentive for people to-- to move this money in ever more clever ways just through the same old hold in real estate.

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