Transcript: Robert Rubin Interview

STEPHANOPOULOS: You've been hammering on the problem of fiscal discipline. Chairman Greenspan was up on the Hill a couple of weeks ago and said unless, unless you take on Social Security and Medicare, there is no chance you can control deficits in the longterm. President Bush says that that's the best way to deal with the social security problem in the long term is through these private accounts that he wants to set up and says Senator Kerry doesn't have any plan at all to deal with social security.

RUBIN: Well, I have the same view today that I had in Washington, I think Social Security was set up, and I think rightly so, as guaranteed retirement benefits. There is no question, George, that investing in stocks is risky. There are studies that show over the long, long-run, stocks without bonds but this is equally true and I've been involved in markets for a long, long time. I ran major trading options for decades. There is no question for over long periods of time, stocks can behave in all kinds of ways, that are difficult or troubling and that there are real risk in investing in stocks. I do not think that people's retirement should be exposed to the stock market.

STEPHANOPOULOS: But the Clinton administration did explore the idea of investing part of the social security trust fund in the equity market.

RUBIN: Ah, but that's a whole different matter. And that, I think, is a very complicated issue and I wasn't sure of what I thought about that. But that isn't exposing the retirees benefits to the risk of the stock market. That's saying that the government will take part of your trust fund and put it into stocks. But if that doesn't perform well, the government is still committed to the full amount of the benefits to the retirees.

I would add one other thing on Medicare. Privatization, I think, is not a good idea for the reasons I just said it also requires a very substantial additional amount of money in the next ten years.

STEPHANOPOULOS: $2 trillion.

RUBIN: It's at least a trillion dollars, and probably more because you have to continue paying current retirees, while at the same time you're taking part of your payroll taxes and putting them in a private account. When that was first proposed, there was a large surplus, and you could've spent part of your surplus for that reason I wouldn't have, but you could.

Now we have large deficits, so what do you do, is it would add another deficit on top of the large deficit you already have. So I think the fiscal policies of the last three and a half years have thrown away that option, even if it's one that should've been considered.

STEPHANOPOULOS: Former Fed Chairman Paul Volcker has said that he thinks that 75 percent chance of a major financial crisis in the next five years if we don't get a hand on these deficits, is that right?

RUBIN: You know, I don't know if his odds are about right, but I think the fundamental point is right. We have enormous fiscal deficits, and while ten-year numbers are pretty unreliable there is no reason to think that they'd be better rather than worse.

And at the end of that ten years, the ten years you know is the conventional budget window, at the end of those ten years because Medicare payments start increasing very rapidly due to Baby Boomer retirement, those projected deficits expect to go up very rapidly. And we really do face horrendous long-term fiscal situations that's totally unnecessary.

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