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CNBC TRANSCRIPT: CNBC'S MARIA BARTIROMO INTERVIEWS TREASURY SECRETARY HANK PAULSON TODAY ON "THE CALL"

WHEN: Today, Monday, January 12th at 10:30am ET

WHERE: CNBC's "The Call"

Following is the unofficial transcript of a CNBC interview with Treasury Secretary Hank Paulson today on CNBC's "The Call."

More from this interview will air this afternoon on CNBC's "Closing Bell" (3-5 PM ET).

All references must be sourced to CNBC.

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MARIA BARTIROMO: Hi there, Trish. Thanks very much. I'm here at-- the treasury, with Treasury Secretary Hank Paulson, and we thank you so much for giving us your exit interview. Mr. Secretary.

HANK PAULSON: Maria, it's good to be with you.

MARIA BARTIROMO: Thank you. Let-- let me kick it off here. I want to get to the news of the day, with regards to the White House asking for that second traunch. But here we are, a new year, perhaps fresh thinking, after an extraordinary year, in 2008, more than two and a half million jobs lost. The financial system teetering. What do you see ahead for 2009?

HANK PAULSON: Well-- we're gonna have our share of challenges. We're going through a very difficult period economically. When we went to Congress in September to take down the tarp, when the credit markets had frozen, we saw this happening. We saw that spilling over into the real economy. I think it was absolutely essential to stabilize the financial system. I think that's gonna be key to-- helping us get out of this situation. And again-- the new president's-- stimulus plan-- there's gonna be a variety of things that are necessary here and around the world.

MARIA BARTIROMO: Now, let me ask you this. Is it fair to say the worst is ahead?

HANK PAULSON: Well, I wouldn't comment, whether the worst is ahead. I just know there's some more difficult times ahead, and there's a lot that needs to be done. I think the positive is, we've got an economic team coming in here that understands the issues, prepared to do what is necessary. And from my conversations globally-- the-- every leader I talk to, around the world, understands that the situation is a serious one. And they're prepared to take the necessary steps.

MARIA BARTIROMO: How will we know the recovery has began? How we will we re-- know that the recovery has actually begun?

HANK PAULSON: Well, there will be-- I think you'll see confidence-- returning to even a greater extent to the-- to the capital markets. You will see some of the early signs of picked up-- business activity. But-- I-- I think this is something that will take place over a period of time. One key-- factor that we focused on is affordable mortgage financing. I think that's one thing we've got pretty right. And I think that's gonna be very helpful.

MARIA BARTIROMO: Let me ask you about that, because-- I want to read you a quote from President-elect Barack Obama over the weekend, on one of the weekend shows. He said, "I, like many, are disappointed with how the whole tarp process has unfolded." He says, "Your team gave banks money with no strings attached, and did not really help homeowners directly enough." Now, we know today the news, White House asking for that second traunch of the tarp. Where do we stand here? Have you-- released that money?

HANK PAULSON: Well-- again, Maria, we have been saying for a number of weeks to the president-elect's team that when they're ready to have us notify, we will notify on their behalf to take down the second traunch. And they've notified, and that process is-- is beginning. We'll be working with them and Congress on-- the notification.

MARIA BARTIROMO: Do you feel any disappointment that that second half of the tarp will go towards, perhaps, different-- solutions-- with some strings attached, limiting executive pay, taking away perks like--

HANK PAULSON: Well--

MARIA BARTIROMO: --corporate jets?

HANK PAULSON: Well-- Maria, again, I take great satisfaction in the fact that the major things we've done, the big investment program to invest capital into banks, no one is saying that that shouldn't have been done. Everyone knows that's necessary. The program we've developed with the fed, jointly, to provide consumer credit for families and small businesses. This is gonna be very important. I think everybody-- I think that's been favorably received. Now in terms of-- in-- in terms of foreclosure litigation, I'd worked very, very hard in that area. When we went to Congress and asked for the tarp funds, the plan had been to buy (UNINTEL) liquid assets. We thought we would use that to put leverage-- have leverage on the banks to-- to speed up the modification process. When we went with the bank investment program, which was the right way to go, I did not think it was proper to move very quickly and to a big spending program, which is different than what the tarp had been set up for, without doing more work on the cost and the effectiveness. But beginning, right from several weeks after the election, we've been consulting with the president-elect's team. And we had jointly agreed that it didn't make sense for us, to, in the waning days of this administration, announce a foreclosure plan out of the tarp, that would tie their hands going forward. So that's--

(OVERTALK)

MARIA BARTIROMO: That makes sense.

HANK PAULSON: Yes.

MARIA BARTIROMO: Are the banks lending enough, at this point?

HANK PAULSON: The banks need to lend. They can't horde capital. There's-- there's no doubt about that. I worked very hard, right after putting this program in place, to get the regulators to come out with their guidance. And I thought that was very, very powerful guidance, where they have said that all of the banks, not just those getting the capital. Because all the banks have-- have this guarantee. And this is helping them. They need to lend. But Maria, the-- we-- we are going to get the debt out there. The banks-- the regulators are getting quarterly data on bank lending. I think the people will want to see that. But one thing I want to emphasize. I do not believe it is proper or right for politicians or the government to tell banks whom to loan to and how to lend.

MARIA BARTIROMO: You hit on a good point, and that is that people will want to know, because transparency--

HANK PAULSON: Right.

MARIA BARTIROMO: --has been a big topic--

HANK PAULSON: Right.

HANK PAULSON: --of debate in-- in this ordeal. Can you walk us through where the tarp money has gone, which banks the government has invested in?

HANK PAULSON: Well, the-- there's been-- several hundred banks. And there will be hundreds more before it's done. And there's been great transparency, great transparency. Every time we've signed a contract, we've-- we-- we-- we put it up on the web. We've-- we've had-- we've had-- many reports to fill out, and we've filled them all out, on time and completely, and put it up on the web. Now, there's been some discussion that wants us-- some discussion about putting every contract for every individual bank up. But since the contracts are identical, people aren't gonna learn much when all those contracts go up, because the-- the-- they're identical. And this has been a very transparent process.

MARIA BARTIROMO: There's a sense that there's a feeling that you don't want to release too much information, because, you know, when the tide comes in, you see who's-- who's swimming naked. And the market will punish those banks who got money.

HANK PAULSON: Well-- we have, Maria, every time we've-- put capital into a bank, that's been announced. And so everyone knows which banks are getting the capital. And again, the transparency in this program has been very, very high. I think some of the issues that have been raised have to do more with policy questions, where people disagree with the policies, as opposed to the transparency. And lending has been an issue that's been raised, and being able to track the funds. That was not something that was discussed, when we were getting the powers from Congress, and as I look at tracking the funds, we got to remember that the purpose for this program was stability. Stabilizing the financial system, that's a prerequisite to getting the lending going. And so as part and parcel to stabilizing the financial system, you need to recognize some of these tarp dollars will be used to protect against further losses of existing bank assets. Certain of the dollars will be used to purchase weaker banks. That's very consistent with stability, and very consistent with the purpose of a tarp. And then in terms of bank-- excuse me, a bank lending, as I said, the regulators already get this information on a quarterly basis. And we're working on ways to make this more transparent to the American public.

MARIA BARTIROMO: Final question here on the live program, and that is, you've been at the wheel now for 30 months, 29--

HANK PAULSON: Right.

MARIA BARTIROMO: --months and you obviously know what's-- on the balance sheets of banks. You know the system better than most. What do you think? Hank Paulson thinks that second traunch of money should go to.

HANK PAULSON: I don't think that is appropriate for me to-- to comment. This is-- this is the next team. What I have said publicly, you know, in the past, is that I think that the biggest portion of this will need to be used to add to banks' capital. And-- and so, in the past, we've indicated that we have been designing programs for future capital investment and you all know we've been working with the fed and others to design programs to leverage tarp assets, to again, make credit available to small businesses and families. But in terms of what's gonna be done, going forward, that's totally the-- up to the next administration. And that's why the notification we're gonna be working through with Congress is on their behalf, because the funds will be coming down, after we've left, and only they will be the ones who decide.

MARIA BARTIROMO: And-- and I'm gonna ask you about the-- the next administration, incoming administration, in our "Closing Bell" interview for the live--

HANK PAULSON: Right.

MARIA BARTIROMO:--program on-- on "The Call." We'll leave it there. Senator Paulson, thanks very much.

HANK PAULSON: Maria, thank--

MARIA BARTIROMO: We appreciate it.

HANK PAULSON: Thank you, Maria.

MARIA BARTIROMO: Coming up on the "Closing Bell," before I send it back to you, Melissa and Larry, we're gonna talk about-- while the US is banking the financial system, well who is backing the US? I'll ask Secretary Paulson about that as well as-- the differences in policy between himself and Tim Geithner. Back to you.





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