Goldman Sachs Hillary Speech #2 part one

GOLDMAN SACHS
ASSET MANAGEMENT

AIMS ALTERNATIVE INVESTMENTS
SYMPOSIUM 2013

FORMER UNITED STATES
SECRETARY OF STATE
HILLARY RODHAM CLINTON
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                  200 West Street
                  New York, New York

                  October 24, 2013
                  12:50 p.m.

     Before Rita Persichetty, a Notary Public
of the State of New York.


     ELLEN GRAUER COURT REPORTING CO. LLC
       126 East 56th Street, Fifth Floor
           New York, New York 10022
                 212-750-6434
                 REF:  105177











               P R O C E E D I N G S
                   *   *   *   *
          MR. O'NEILL:  Welcome.  This has been a great day and a half here at the AIMS Symposium, and it is my distinct honor to introduce today's lunch conversation.  Please join me in welcoming Secretary Clinton, who will be hosted in a discussion with our own Tim O'Neill, who is the cohead of investment management.
          Well, thanks again, Madam Secretary. Everyone is very interested in what you have to say, so why don't we get right to it and start talking about the political process in Washington, D.C.
          I think it's fair to say that the government shutdown and debates that surrounded it were not the finest hours in political history, but democracy is an evolving process, and nobody has a more refined perspective of that than you, having served in the executive branch as well as Congress.
          So my first question is:  How do we get past this partisan gridlock?
          SECRETARY CLINTON:  Well, Tim, thank you.  Thanks for having me here to have this conversation with you.  And I know we have many people who are not Americans who are here from other parts of the world.
          So let me start by saying that we have evolved our system, it is a durable, resilient system, and from the outside, it can look quite dysfunctional from time to time, but it has a capacity for regeneration and focus that has really stood up in good stead for so many years.
          What happened in the last two years, really, three years was a growing sense on the part of some who are very ideologically disposed, to try to move out of the usual order in the Congress where you win some, you lose some, you keep working.  You can't win on legislative issues, you win elections, you have a rhythm to it, and it requires a certain amount of compromise and acceptance because of the broad cross-section of views and experiences that our country embodies.
          Back in July of 2011, I was in Hong Kong during the last debate over our debt limit.  And it was very striking to me how the business leaders I was speaking with in a big conference there were quite concerned.  At that time, I could be very reassuring, I said, don't worry, we'll get through it, we're going to work it out, we would never default.
          So we fast-forward to this last episode, and it is troubling that there is a hard core of extremist politicians who have views about decisions as monumental as shutting down our government and defaulting on our debt that have a small but a disproportionate influence on the debate in Washington.
          So what you saw was a relatively small group in the House of Representatives and very few in the Senate who were trying to achieve one objective, namely make a political point about the health care law by holding hostage the entire rest of the government and putting the full faith in credit of the United States at risk.
          Although it went up to the last hour, the fact that they were a minority and that there were much more level heads, even in the same political party, that the business view started speaking out after having been relatively silent, thinking this is going to work out, but then people of experience and expertise began speaking out, it was possible to get through that crisis.
          But it does raise the larger issue about what to do.  And I think there are three answers to that.  Voters have to quit rewarding people who take uncompromising stands in the face of reality and evidence, and that is something that each one of us can contribute to.
          Obviously I'm a Democrat, but there are a lot of level-headed, smart Republicans who were biting their nails over this.  They should be rewarded, not threatened by the far right and people who either don't know or don't care about the importance of our being in reserve currency, about the importance of our paying the bills that we've already run up, about the importance of confidence in the global economy should pay a price, and you pay that price at the ballot box.
          Secondly, running for office in our country takes a lot of money, and candidates have to go out and raise it.  New York is probably the leading site for contributions for fundraising for candidates on both sides of the aisle, and it's also our economic center.
          And there are a lot of people here who should ask some tough questions before handing over campaign contributions to people who were really playing chicken with our whole economy.
          And thirdly, I think that there has to be greater education and understanding about what's at stake.  I think too many people for too long thought raising the debt limit was so you could borrow more and spend more instead of pay bills you've already incurred.  That's a pretty big.  The guy goes out, has a really nice meal, puts it on his credit card, the restaurant turns the credit card in, and the company gets paid, the company bills the guy, and the guy says, you know, I didn't like that meal very much after all, I'm not paying, and that in a very small, microcosmic way is what people who were willing to default were basically saying.
          So it's a worrisome situation, but I always come back to my first point, I mean, that we always have a way of righting ourselves and getting back into that great big messy middle that you've operated in for more than 200 plus years, and I think that's where this will move towards, everybody, citizens as well as leaders do their part.
          MR. O'NEILL:  Part of that process is called compromise, so let me just test that hypothesis to an issue that you know a lot about, health care reform.
          So obviously the Affordable Care Act has been upheld by the supreme court.  It's clearly having limitation problems.  It's unsettling, people still -- the Republicans want to repeal it or defund it.  So how do you get to the middle on that clash of absolutes?
          SECRETARY CLINTON:  Well, this is not the first time that we rolled out a big program with the limitation problems.
          I was in the Senate when President Bush asked and signed legislation expanding Medicare benefits, the Medicare Part D drug benefits.  And people forget now that it was a very difficult implementation.
          As a senator, my staff spent weeks working with people who were trying to sign up, because it was in some sense even harder to manage because the population over 65, not the most computer-literate group, and it was difficult.  But, you know, people stuck with it, worked through it.
          Now, this is on -- it's on a different scale and it is more complex because it's trying to create a market.  In Medicare, you have a single market, you have, you know, the government is increasing funding through government programs to provide people over 65 the drugs they needed.
          And there were a few variations that you could play out on it, but it was a much simpler market than what the Affordable Care Act is aiming to set up.
          Now, the way I look at this, Tim, is it's either going to work or it's not going to work.  We have an election next November, make it an issue.  If it doesn't work, it's been, as you said, voted on, you know, signed by the President, passed by -- on constitutionality by the supreme court, so it's the law of the land.
          Everybody knows there are problems getting the software right and getting the information in.  They'll either work it out or they won't.  You know, by February, March, you'll either see that the system is working, because if you compare the federal system, which for all kinds of reasons has to be more complex, the state systems that ran their own exchanges, states like New York, California, Maryland, et cetera, are actually rolling it out quite sufficiently because they had a smaller universe, they had a better collection of the data, and they had willing participants on all sides of the transaction.
          But when you have huge states like Texas, which is dead set against it, and you have a large state like Florida, which is ambivalent, you know, it's difficult to run a federal exchange, you know, being able to get the information, get it up and get it out.
          So I think the way our system is supposed to work is if, by next November, people running for office are either defending or not the Affordable Care Act, it will be an electoral issue.  And if it is still unacceptable to people or not running right, then the Congress that will come in after, will have every right in the world to go after it and figure out what they can do.
          Now, if they still have a Democratic President in the White House, who may not want to go as far as some would, in fact, I'm sure of that, but then there can be a discussion about, okay, what worked and what didn't work.
          But, you know, elections are about winning and losing and who gets to make decisions.  The President is a two-term President.  We have a Democratic senate and a Republican house, so people had to compromise.
          And on the Affordable Care Act, I think there's going to be a few months to see whether or not it can be operating the way it should, and then people can have a rational discussion about what, if anything, can be done, and then they can be arguing it out in the election.
          MR. O'NEILL:  So can I follow up on that perspective of President Obama's role in all of this process.
          Do you think that if he were more personally engaged with Congress on these issues, that we would have a different result?
          SECRETARY CLINTON:  I don't know, Tim.  I mean, I've obviously been asked this and I've seen the critique.  You know, different presidents have different strengths, they bring different life experiences.
          I had the opportunity of working with the President closely for four years on some very tough national security issues.  He's an incredibly intelligent, thoughtful, decisive person in pursuing the agenda he sets.
          But he may not, you know, be someone who we think of as spending a lot of time in a give and take of politics; however, I know that he spent a lot of time early on in the first term with the Republicans in trying, as you recall, to put together the brand barbie (phonetic) and it turned out that the Republicans' side, particularly in the house, couldn't deliver on even a small market.
          So you can get to the point of saying, okay, we can live with this, you say you can live with that, I can sell it to the Democrats, you sell it to the Republicans, and the answer would come back, I can't sell it to Republicans, so we have to jigger it around somehow.  Whether that was a negotiating tactic or the hard reality that it was hard to sell it to the caucus, I don't know.
          But I do remember quite well the President working diligently to reach out to people and trying very hard on the health care bill, for example, spending more time than a lot of Democrats wanted him to, trying to figure out how he can get some Republicans on board.
          So let me switch gears for a minute and go back to the '90's with my husband, and there isn't anybody that I can think who would doubt that my husband is an incredibly active engager of people, whatever side of the aisle, (audible over laughing) and ask their opinion on something, he's going to have you over, he's going to play golf with you, et cetera, et cetera.  That didn't stop them from trying to destroy him.  And his agenda and his economic program was passed without a single Republican vote after an enormous amount of personal effort to get some Republican, you say you care about the deficit, at that time we had $250 billion deficit, help me bring it down. The arithmetic I learned in Little Rock, Arkansas is you add and subtract with both revenues and cuts, let's work together, nowhere.
          So it's not always that being, you know, personally engaged and working with people is going to get you the results you want if the people on the other side are doing their political calculations that is in their interests not to compromise, not to give in.
          So, you know, there's always -- you can always try more things, you can work harder at it.  I'm a big believer in that, but it's not always the case you will get it done.
          Now, back in the '90's when, you know, Republicans shut the government down twice with Bill in the White House, and he did just what President Obama did, I will not negotiate with you until you open the government, I'm not going to be put into that position.  They opened it once and then demanded that he agree with them on some issues he wouldn't agree with them on.  They shut it again.  And he took the same position, I'm not going to compromise in this posture, I'll be glad to talk to you later.
          So got the government back opened, began to try to work together.  And there's a lot of theater in politics just as there is in any other human enterprise.
          So Newt Gingrich was the speaker, and he would rail against Bill and occasionally me all daylong beyond -- I think we had at least one cable station back then, but we seemed to be on there when it was being broadcast, and then 9:00 o'clock at night, he'd sneak into the White House, I mean, you really can't sneak into the White House, it wouldn't be advertised, let me put it that way.  So he would go into the White House, go up to the second floor, and he and Bill would pound things out for a couple of hours trying to work towards welfare reform, and eventually, a couple years later, a balanced budget, et cetera.
          And he -- and Gingrich was a very forceful leader of the Republicans, but he had people to his right that didn't want any negotiation or any compromise.
          At one point the then, I think he was -- I don't know if it was Tom DeLay or Dick Armey told Gingrich, we don't want you going to the White House any longer talking to Bill alone.  You make too many deals.  We're going to stop that.
          So it's a constant effort.  And I think the presidents that I've known and even my working with President Bush, you know, different styles, but every president I've ever known well has really tried to put the pieces together.
          MR. O'NEILL:  There's no doubt that the President has a tough job, but as you said, politics is not for the fainthearted, but probably the most impossible job is the speaker's job.
          SECRETARY CLINTON:  Yes.
          MR. O'NEILL:  Would John Boehner even try to sneak into the White House?
          SECRETARY CLINTON:  Well, I personally like Speaker Boehner.  I've sympathized with him because he's in a tough spot, and I don't pretend to understand all of the dynamics in the Republican caucus, but I do think that, you know, the speaker needs to try to figure out how to exercise more direction for his caucus.
          I think his theory this time was, you know, these guys are going to exhaust themselves, we'll get to the 11th hour, the senate will save us, we'll pass something, we'll get beyond it.  And that's pretty much the way it played out.
          And that wasn't a, you know, that wasn't a wrongheaded view on how it would unfold, because even though the people leading the charge of the shutdown and default got a lot of air time, they did not get a lot of support beyond what they had to start with.
          So the speaker wasn't wrong about that.  The problem is, we can't keep doing this.  This is really, you know, this is really dangerous to our entire system.
          So I think the speaker has to see if he can figure out a way to isolate as much as possible the really hard core, absolute evidence deniers and get them over here and then try to bring the rest of the caucus with him.
          It may mean that it will threaten his speakership, but my view on that, and it's easy for me to say, he will be historically a more important figure if he stands up to his own extreme wing and makes clear that he is putting his country first.  He's obviously a rock solid Republican, conservative, but he's not going to (inaudible) go so don't even think about all of you guys ever doing this again while I'm the speaker.  And I personally think he would stay in office, but, you know, that's not for me to say.
          MR. O'NEILL:  Well, we can all hope for a profile (inaudible) encourage speaker for, Madam Secretary, but let me take a different prospective as foreign governments were watching all of this, what do you think they were saying and thinking about the United States?
          SECRETARY CLINTON:  Well, I think we know, because some of them went public with what they were thinking about.  And it was painful because it's difficult to see a self-inflicted wound like the one we just went through having such consequences.
          And it's not just what they were saying at the moment, it's what they were planning for the future.  When, you know, you see countries saying that we don't know how reliable the United States is, they don't know how much we can count on us and our leadership, that has real consequences.  It has economic consequences but also has consequences when you read that, you know, one of the high-ranking Chinese officials who publicly commented on it, said, look, it's time to de-Americanize the world.  These people can't run their own country, why should they be permitted to exercise a disproportionate influence on the rest of the world.
          So it was something that I regret, and probably the best symbol of it was because the government shutdown, President Obama could not go to the East Asian Summit or the Asia-Pacific Economic Committee, two of the linchpins of what we call the Asia pivot, which was our desire to both reassure and reassert American presence and power in the Pacific as a balance and as a duty to those with whom we have treaties, Japan and South Korea, Philippines and Thailand and Australia.
          And so because of the shutdown, it wasn't just the fact of the shutdown, literally a lot of the people furloughed who would do a President's trip couldn't work, just imagine, that is no way to run a great country, right?
          And so the President didn't go, but, you know, President Putin was there, President Xi Jinping was there and, you know, it's a very symbolic moment when it's -- not because of any external problem, but it's because of the internal political dysfunction that keeps the President of the United States, I don't care what party, I don't care what your political preferences are, keeps the President of the United States from being on the world stage at a really important time, to look over the horizon about, you know, trading opportunities and the Trans-Pacific partnership, other kinds of work that needs to be done in the region to keep, you know, commerce flowing across the South China Sea to work with our friends in Japan and China to prevent further escalation over the contested islands.  I mean, there's a lot going on in the region.
          And it was a very sad commentary on what this kind of political standoff done for totally partisan and personal advantage does to our overall foreign policy.
          MR. O'NEILL:  We agreed there's a lot of going on in Egypt and in China, (inaudible) new leadership there.  Your views?
          SECRETARY CLINTON:  Well, I've met the new president, and certainly I'm impressed by his, you know, mental and physical energy and vigor.  He seems to have created a stable transition from Hu Jintao power and the former leadership to the new team.
          I think China has some big challenges that they're going to have to confront.  You guys know more about economic challenges than most people, but there are other demographic challenges that feed into that.  There's a lot of discontent in a growing middle class about, you know, what is the future holding for them, what kind of opportunities are they going to have, there's no real social safety net whatsoever, pensions and the like.
          So I think that he has his job cut out for him.  He's very much committed to coming up with some plans.  I know there will be a meeting shortly to try to look at the plans for the next five to ten years, so I think he's shown steady leadership, which is very welcome, both inside China and outside China, but I also believe that there's growing nationalism in China and in Japan and in other places in the region that we have to be watchful about.
          This dispute over what are called by the Japanese as Senkaku Island has really unleashed some very old grievances and a lot of heated rhetoric going back and forth between China and Japan that needs to calm down.  It is not in anyone's interest that this spiral out of control.
          Similarly, Korea and Japan have disputes over Takeshima (phonetic/audible) and some territory, again, without the United States playing a leading role in making sure there's an opportunity to resolve this.  North Korea, which under its new leader, seems unpredictable at best, and I think even the Chinese leadership today recognizes that.