Remarks by the President in Roundtable Interview with Business Reporters

Thursday, August 9, 2007 1:00 PM

THE WHITE HOUSE

Office of the Press Secretary

August 8, 2007

Department of Treasury

Washington, D.C.

1:31 P.M. EDT

THE PRESIDENT: Thank you for your time. The fundamental question for a President and his administration is to understand the proper role of government and enterprise. And I campaigned on the notion that government is to create an environment that enhances entrepreneurship. One of the key signs -- for me, probably the most important sign of whether or not our economy is flourishing is whether or not the small business sector is doing well.

The reason I say that is that obviously most new jobs are created by small businesses, but there's a spirit, there's a -- when you say entrepreneurial spirit, there actually is a feeling and it really means, have we created an environment in which people are willing to take risk? And so that's what I look at. When I talk to Hank or Eddie, my basic question is, are we making the right decisions that encourage investment and growth?

The fundamental question facing Washington is taxes. It's the core of all fiscal debate. It's going to be the core of the political debate. And as I told some guy just a second ago, we've got a record that proves taxes can be cut, economies grow, deficits reduced, and wars fought.

There is a significant appetite for federal spending here in Washington. Appropriators are appropriators, they will -- they take their titles very seriously. And the only way that one could pay for their additional appropriations if you're willing to -- unless you're willing to run up significant deficit, is to raise taxes. So when I say in that -- opening remarks there, which I understand you all had to suffer through, that I'll veto bills that would cause taxes to go up, I mean it. And the reason I do is because it -- nothing more discouraging from the small business owner's perspective than to have the government get inside their treasurer.

Most people don't understand that small businesses are sole proprietorships or limited partnerships or sub-chapter S corporations, and therefore, when you cut the individual tax rate, you're cutting taxes on small business owners. And yet, when Congress looks at raising revenues, they're not going to say, okay, let's exclude small businesses and focus on only individuals. It just doesn't work that way. A tax increase to pay for additional spending will slow down this economy. And to me, that's a big issue.

Another issue, an interesting issue, is trade. I don't know if you remember my State of the Union a couple years ago I argued very strongly against the policies that would cause us to be isolationist or protectionist. Those who follow the White House know full well that I am concerned about isolationism and protectionism. I sense that there's protectionist moods across the country. I know there was in '04 when I campaigned hard and vigorously defended our policies of opening markets for the good of workers and for the good of the entrepreneurial spirit.

The true test on trade is twofold: One, can we come up with a Doha Round that is satisfactory to our Congress and our producers and, at the same time, helps us address the need to help impoverished nations grow? And the other one, of course, is the immediate votes on FTAs. And we'll just see. It's going to be an interesting moment as to determine whether or not people are sincere in, one, keeping a trade policy alive, and two, helping to alleviate poverty through trade.

And so I'm looking forward to the fall. I'm looking forward to continuing to make the case that the economic policies that we put forth are working. And it's been an interesting arrival to this point. After all, we have been through a recession and a terrorist attack, and corporate scandals, credit adjustments, big liquidities. And yet it's hard not to be optimistic when you not only think what we're doing here is solid, but the world is growing.

Part of our job, and Hank's job, is to make it clear that a strong economy around the world is in the interest of the United States. And so I come to you -- sitting down here; thank you for your time, interested in some of your questions. And if I can't handle them, I'll dodge them and hand them over to somebody who can.

Weisman. So is this, like, dangerous to call on The New York Times guy first? No, he's a classmate.

Q Mr. President, thanks. There's been a lot of volatility in the markets in recent weeks. Investors and workers are concerned about the impact. Can you say anything to assure them?

THE PRESIDENT: I can say that the underlying -- the underpinnings of our economy are strong: 3.4 percent growth in the second quarter, strong employment numbers, low inflation, real wages are on the rise. There's a strong global economy that means that it's more likely somebody will buy our goods or services. As a matter of fact, exports were one of the reasons why we have strong second-quarter growth. In other words, the basic fundamentals are good.

Secondly, I can assure them that Paulson and his group are paying close attention as the market begins to readjust its assessment of risk. Thirdly, there is a lot of liquidity in our system, and liquidity will provide the capacity for our system to adjust. It's very important that we -- that the investors and workers know that the government pays close attention to adjustments.

No, Baker, I'm not asking you a question. (Laughter.) You don't know anything about the economy. (Laughter.) Look, he's a political guy. It's unfair, right, if I were to ask him. Okay, we'll do this, we'll do -- all who believe I shouldn't ask Baker a question at your expense, raise your hand. (Laughter.) Then I'm only going to ask him questions.

Kevin.

Q Thank you, Mr. President. A couple questions and an odd-ball question. The S-CHIP --

THE PRESIDENT: I get them all the time.

Q The S-CHIP program, you've indicated you're going to veto. There's strong bipartisan support in both chambers. There's been a suggestion, are you, in fact, going to veto it?

THE PRESIDENT: Yes, I am, so long as it continues -- if they use S-CHIP as an excuse to expand the nationalization of health care, I'll veto it.

I am for S-CHIP, as you know. In my budget I put a significant amount of money to make sure that we covered the people initially intended for S-CHIP, poor children. The idea of expanding eligibility in order to get people to swap from private insurance to government insurance is something I strongly resist. And as a matter of fact, we've got a better avenue, which is to change the tax code so people get treated fairly. The individual gets treated just like the person working for corporate America. And the whole aim is to create a market for the individual market -- create enough demand for an individual market to grow.

Go ahead.

Q The other question and the odd ball, the federal gas tax is back in the news again, the question of whether it should change given what's happened in Minnesota. Do you think that after several decades we may need to reexamine this? And if not, is there a better way to pay for infrastructure?

THE PRESIDENT: Yes, there is a better way to pay for infrastructure, and that is for everybody in Congress to revisit the process. If the federal government wants to set priorities, they ought to prioritize bridges. But that's not the way it works on the highway bill. As you know, there's a rather large public works committee -- the first thing that happens is each member of the public works committee gets to decide his or her priority, and then they determine how to spend the bulk of the highway money. And if there's genuine interest in setting strong priorities, the best way to do so is to prioritize money coming out of the funding formula.

Q And the odd-ball question: Last August you said that North Korea was faking U.S. currency, printing fake $100 bills. Are they still doing it? What evidence do we have that it's North Korea, and not Russia or China or anybody else?

THE PRESIDENT: I'm not at liberty to speak about intelligence matters, but what I said then is what I believe to be true.

Q Mr. President, Americans are losing their patience with China. They blame the country for a loss in factory jobs, unfair competition, and a flood of products that could be harmful flowing into this country. What do you say to China's critics? And what new policies would you advocate to address these problems?

THE PRESIDENT: No question China is on a lot of Americans' minds. There are positive aspects to our relationship with China and obviously some concerns with our relationship with China. First the positive. It is in the interest of producers and farmers to have access to Chinese markets. After all, there's a significant and growing middle class. To that end, the Secretary and I are working very closely with the Chinese government to convince them to put policy in place which will expedite the change from a saving society to a consumer society. That would be health care policy, or pension policy.

Right now the Chinese are expected to save money as opposed to spend money. And therefore, opening markets, short-term, has been beneficial. After all, exports to China are growing. Long-term would be even more beneficial.

Secondly, our consumer -- inflation rates are low, in spite of the fact that energy prices are rising. We've got a fairly sophisticated society that's able to absorb high energy prices through advanced conservation. But, as well, one of the reasons why inflation remains low in the face of rising energy prices is imports from China. Although anytime an American worker loses a job overseas, whether it be to China or anywhere else, I'm concerned. That's why we've got trade adjustment assistance. But I would also remind you that since August of 2003, we've created 8.3 million new jobs and the national unemployment rate is low.

Hank came in, said when he first came in here, he said, look, he wants to set up a working group, American officials and Chinese officials, which he's led, all aiming to make sure that we work through the difficulties -- I wouldn't say difficulties -- the complex issues that arise from a -- with an important trading partner, particularly one that is beginning to emerge from a closed market society to an open market society.

My big issues with China revolve around intellectual property rights. Here we are, the great innovator of the world, and we sell our products in there and there needs to be better control at the governmental level so people don't steal our ideas. I'm also concerned, obviously, about product safety. We import a lot from not only China, but overseas -- and it's not just China we ought to be concerned with product safety, it's everywhere. Therefore, I put together this group headed by Michael Leavitt to come up with practical ways for us to assure the consumer that the products they buy are safe.

So when Paulson -- I keep calling him Paulson -- Secretary Paulson goes and talks to the Chinese, one thing he tells them is, if you want to continue to have access to our markets you better put policy in place to make sure that you know what you're exporting. The same when dealing with U.S. companies that expedite exports from around the world. They have a responsibility to make sure that which they're bringing to the United States is safe. And so we've got a comprehensive plan to deal with it.

Look, the Chinese relationship is a very important relationship with the United States. And whether it be the issue of currency or -- which we're constantly talking to them about -- I happen to believe the best policy is for Hank Paulson and me to convince the Chinese to make the right decisions on currency, and not for there to be legislation that can be counterproductive coming out of the Senate or the House.

Anyway -- yes, ma'am.

Q Sir, thank you. I work for Cox Newspapers. Most of our papers are concentrated in the South and Texas, and many of our employers use immigrant labor. There are reports out today in The New York Times that the Homeland Security Department was going to require employers to fire workers who don't have valid Social Security numbers. A lot of people in the South are worried about that, the impact on agriculture. Can you confirm that report? And will it hurt --

THE PRESIDENT: First of all, can we go off the record? I wouldn't believe everything you read in The New York Times. (Laughter.) I don't know, I didn't see it. I can check it. I don't see it -- I don't know of any plan -- I just don't know. Now, do you want to talk about immigration?

Q Yes, sir. And if there were something like this or something that would discourage immigration --

THE PRESIDENT: If it's hypothetical, I need to get the facts before I respond.

Q Are immigrants important then to the agricultural interests of this country?

THE PRESIDENT: Immigrants are important for overall economic growth. And that is why I strongly believe that we needed a comprehensive immigration bill. And it's interesting you bring this up, because I predicted, after the comprehensive immigration bill went down to defeat in the Senate, that there would be blowback, and it would start with employers, who are saying, where am I going to get my peach pickers from, for Georgia, or my apple pickers in Washington D.C., or my chicken pluckers in Central Arkansas? In other words, there's a lot of labor that Americans aren't doing that are being done by people who are here who want to work hard for a living. And a rational way to deal with that would have been a temporary guest worker program that was verifiable.

Now, in terms of documents -- and I guess that's what the article was all about -- there's a whole industry that has sprung up. There's a demand for workers and there are people who are now forging documents. And it's very difficult to ask small business owners, or farmers in wherever your paper is read -- Georgia, Atlanta -- to be document verifiers. Now, we're doing the best we can through different programs here -- a program here in Washington, where people are trying to be able to verify Social Security numbers on a document with their real Social Security number.

All the more reason we needed a comprehensive immigration reform. Now, there's all the more reason we needed to come up with a document that was -- that couldn't be forged, that was real, so that the employers you're talking about feel comfortable employing people.

Now, will this issue be revisited in Congress? I don't know. I've always said, by the way, that border security was important -- is the most important priority. We ought to secure the border. But I don't see how you can secure the border unless you have a rational way for people who are coming to do jobs Americans aren't doing, you know? In other words, this is a big border, we can -- we're modernizing it. We're getting many more agents. We've got infrastructure that is able to see people crossing here, and then you can radio to get them there and stop them from coming in. But as long as there's jobs here that Americans aren't doing, people are willing to get in the bottom of 18-wheelers and take advantage of this whole coyote system. And so I also believe that not only was comprehensive immigration reform necessary for economic growth, I believe it was an important ingredient to enforcing the border in the first place.

Yes, sir.

Q Mr. President, there are proposals around that Fannie Mae and Freddie Mac, the government supported enterprises, should be able to play a bigger role right now in coming in and buying up some of these sub-prime and other problem mortgages that are out there in the marketplace, underlying a lot of the turmoil that's taking place. Would you support those government-supported enterprises playing, if you like, some kind of rescue role in this situation, or would you rather see their role continue to be pared back over time in these markets?

THE PRESIDENT: I'd rather see their role reformed. That's precisely the policies we've made on Capitol Hill. We put forth a reform program that would cause them to stick to their core business, which is housing, that would give us more confidence that the decisions they were making will lead to stability. And part of that reform program was to put them under the same regulatory eye that other financial institutions are under here in America. That's where I think we ought to go with the issue.

Q Mr. President, I have two questions, one on the economy and one on trade. On the economy, as you know, there seems to be a disconnect between the numbers that you put out on -- the government puts out on the health of the economy and how people are feeling about it. And there was a poll, as you know, a couple of weeks ago, where 60 percent --

THE PRESIDENT: Okay, can I get the poll thing out of the way?

Q Can I ask just --

THE PRESIDENT: You can quote any poll you want, you know. You can make polls say what they want to say. But, off the record -- go ahead and put it on the record -- Baker tries to do it all the time. He's always saying -- (laughter) -- how can you possibly stand in front of me with a smile on your face -- have you seen the latest poll? (Laughter.)

Go ahead.

Q But it was interesting -- I happened to write about this, and it's a subject that touched a nerve with people. People -- you get an outpouring from people who feel like they are not keeping up, that things are not going up. They cite inflation, they cite health care, they cite --

THE PRESIDENT: They cite inflation?

Q Yes. Well, they say their wages don't keep up with health care, housing, gas, et cetera, putting it in that context.

THE PRESIDENT: Yes, I can see that. I can see that.

Q So that's my economic question.

THE PRESIDENT: I happen to believe the war has clouded a lot of people's sense of optimism. I don't know what -- look, we've got polls all over the place. I don't mean to be diminishing the polls. But there's also the Consumer Confidence Index, which is, like, sky high. So there's contradictory evidence.

I will tell you that I understand there's unsettlement. Part of it is the war. Part of it is the fact that if you're under 30, you will have had nine jobs, and if you're an older person, that kind of turnover is, I guess, disconcerting. This is a new economy that's growing. And no longer is it where you go to work for one company for all your life, and there's a sound pension plan and a health care policy to take care of you. It's a changing world we're in.

Please don't -- don't feel bad for your pollsters. I didn't really hit them that hard -- but I do understand there's disquiet out there. Having said all that, real wages are up; people have more money in their pocket; productivity gains yield better jobs. And so the role of government is to create the economy growing by rational tax policy. And by the way, if you think they feel disquiet now, go ahead and run up their taxes and see how they feel, which is what is going to be required if you increase the budget by over $200 billion over five years.

Q Can I ask you on trade quickly? The Democrats and the administration came up with sort of a template, an agreement on May 10th about the free trade agreements on both labor and environmental standards. There's some sense that the Democrats have moved off that a bit. What's your strategy moving forward to deal with getting what you want out of this Congress?

THE PRESIDENT: Secretary Paulson and Trade Representative Schwab will continue to work with the leadership and remind them of the importance of these trade bills. And they're now in charge of the Congress and they're going to -- they'll have a chance to prove whether or not they believe in opening these markets or not. We'll start learning sometime in September whether or not they're interested in advancing the trade bills. It would be a huge mistake for the country if they don't.

Q Yes, sir, Mr. President --

THE PRESIDENT: Baker, I keep telling you I'm not going to call on you, so stop raising your hand.

Q In your remarks you talked about the economy, and you said in the legislative process on Capitol Hill, you said something has got to pay for it. But I didn't hear you talk about Iraq. And I'm wondering, since we have had troops in Korea and Japan for the last 50 years, doesn't it make sense for an investor in the U.S. to think that we're going to have troops in Iraq for that long, and what the financial implications are for that, basically hundreds of billions of dollars over the decades?

THE PRESIDENT: Whatever we do, we'll be able to afford. The troops in Germany and the troops in Korea provided an environment for there to be peace in troubled parts of the world. I would argue strongly that U.S. presence in Germany and the Marshall Plan created the conditions for a Europe that was whole, free, and at peace, and enabled us to have a trading partner in which we exchange goods and services to over a trillion dollars a year, which is in our long-term financial interests.

Our presence in Korea provided stability. I daresay, in early 1950s, if someone would have sat here and told you that, oh, don't worry, 60 years hence, or 55 years hence, we'd be having strong trading partners, good economic vitality, good economic relations, and there would be no war, they'd have said, well, you can't possibly believe that. And so whatever decision is made, it's got to be, one, in the security interests of the country, and in the long-term, economic health of the country would be benefitted by stability around the world.

Q Two questions, Mr. President. You mentioned taxes a number of times. And the Secretary had a big roundtable a couple of weeks ago on corporate taxes, where there was a big discussion about how corporate taxes in the U.S. are hurting American businesses. I'm wondering if you have any plans to suggest any sort of tax reform or any changes to the tax code to help business --

THE PRESIDENT: We discussed this. It was the first time that the Secretary had brought to me some of the interesting ideas that he gathered as a result of this summit. One thing is for certain: Our tax structure makes us less competitive, and if we want to be a competitive nation we've got to analyze a lot of things, including taxes, dependence on oil, or good education policy. And so we will work through possible suggestions for Congress to think about. This may be an issue that requires a lot of selling to get the conditions right for people to even take it seriously.

But taxes -- look, reforming the tax code is a tough -- it's a tough issue for people here in Congress. There's a reason why these tax codes are complicated -- it's because everybody has got their own political constituency there and they're able to get their interests embedded in the tax code. It's easier to add something to the tax code than it is to get rid of it. And so we approach this issue very realistically.

But no question that we need to address really how our taxes and regulations and lawsuits -- what kind of environment do they create, relative to our competitors? Same with the education system. Look, if we don't educate engineers and scientists, jobs are going to go to countries that do educate engineers and scientists. And so there's a -- we look at this issue in a holistic way. There's a lot of different aspects to remaining competitive, one of which is relative tax rates and relatively -- how simple or complex one's tax code is.

Another question?

Q Given all the structured finance deals in the markets, I guess I'm just curious -- you talked about liquidity and the market reassessing risk -- but how can you know sort of -- everything is so new, how can you know that the market is going to be able to deal with it, and that we won't see some real negative impacts down the road?

THE PRESIDENT: Well, it all depends if you're a glass half full person or a glass half empty person. I'm a glass half full person. I believe that if markets are given a chance, they will adjust in a way that is a necessary reaction to a flood of liquidity that came in the market over the past couple of years. Having said that, this is not my line of expertise. It happens to be the Secretary of Treasury's line of expertise, and he is in constant touch with financiers and financial engineers, and all these people. And the first question is, do they recognize they need to reassess risk, not whether the government does; do the people on the front lines of Wall Street recognize there needs to be a reassessment? And the answer to that question is, yes, they do.

Yes, ma'am.

Q Thank you. I'd just like to follow up that question, because you discussed the liquidity. But one of the big concerns in the market and among companies right now is the problems in the sub-prime and the other sectors are going to lead to a much stronger credit crunch that's going to go and affect the much broader economy. How do you see the possibility of that risk? The markets think the Fed is under-reacting; the Fed thinks the markets are overreacting. Which is it?

THE PRESIDENT: I believe that markets look at the fundamentals -- ultimately look at the fundamentals of any economy. And the fundamentals of our economy are strong. Inflation is down, real wages are increasing, the job market is a strong job market. People are working, small businesses are flourishing. Obviously, we had an issue with housing. Housing got really hot. And then you would have sat here and asked me, do you think it will be a precipitous decline, a slow decline, a soft landing? And I would have said that, I can't -- I'm not an economist, but my hope is that the market, if it functions normally, will be able to yield a soft landing. Now, that's kind of what it looks like so far.

In terms of markets, and in terms of people's confidence about our economy, they need to look at our own strength, as well as the global economy. The economies around the world are growing, they're strong, which is beneficial to providing -- enabling there to be orderly decision-making on risk. So the conditions for the marketplace working through these issues are good. That's how I look at it.

Glenn.

Q A question related to trade and China. And if I could preface it by saying, everyone recognizes that Secretary Paulson and Secretary Gutierrez and others are doing everything they can to keep those markets open. But notwithstanding, the annual record deficits mean that more and more of our money is going to China. Their reserves constantly mount and they're in the trillions. Do you have any concern that that creates a potential vulnerability for the United States, that even as some people suggest that that money -- China could use that money to threaten or bluster about policies here?

THE PRESIDENT: In my judgment, the best way to deal with a trade deficit is to increase exports, which we're doing. The alternative would be to restrict imports -- in other words, create the conditions for protectionism. I told you a guiding philosophy of mine is for this nation to remain internationalist, and not be isolationist, and to be confident in our capacity to benefit from trade, not be protectionist. Therefore, if you ask about my decision-making, I would be concerned that trying to affect trade deficits through trade -- the initial stages of what could be called a trade war would be detrimental to the U.S. economy and U.S. workers. We export a lot to China. More importantly, we have the potential to export a lot more to China.

Secondly, we've got a large economy that can soar with a lot of liquidity. Thirdly, it is not in China's interest to create a trade war with the United States. This is an economy that needs to create economic vitality to be able to deal with a significant population, many of whom live in rural China. As a matter of fact, if you look at China policy, it's all driving toward gaining the resources necessary to continue the economic growth. And, therefore, to insinuate -- not you, but somebody to insinuate that they would like to create a trade war with the United States in order to create some kind of political objective doesn't understand China's internal issues. It's not in their interests that they create a trade war.

Now, obviously we work very closely with them, and that's why Hank's -- Mr. Secretary's meetings are very important, to be able to put ourselves in a position where we can have very frank discussions with China. I've got a very good relationship with Hu Jintao, and Hank has got a great relationship with Madam Wu. And those relationships are important to be able to, first and foremost, detect whether or not there's any inclination by this country to start some kind of trade war.

Secondly, we are constantly defending our markets. That's why Carlos put out the paper deal the other day. We're also in a position to explain why we did it. And so, in other words, we've got relations so that we can pick up the phone and say, here's what happened and why.

And so it's -- I don't know if that answers your question or not. One of the interesting things about the world is that people still want to invest in America. They look at America as not only a great beacon of hope, but it's a place to -- for safe haven for their currency. Again, it's not in the interests for the world to take policy that ends up affecting their own investments.

Denny.

Q How did you know that? That's great. (Laughter.)

THE PRESIDENT: You've got your --

Q Aside from the fundamentals of the economy -- when we walked in here today the stock market is up a whole bunch, about 100 points, I guess, but last Friday it was down almost 300 points, credit markets in turmoil, and so on. Does just the volatility, the ups and downs, which are really disconcerting to people with 401(k)s, and older people sitting on their life savings -- just the ups and downs concern you? Is there anything -- is the kind of anxiety overdone? Should we get used to this volatility? What's the deal?

THE PRESIDENT: You've studied markets, Denny. Has this ever happened before? And the answer is, yes. Has it happened before in recent memory? And the answer is, yes, it has. It's the nature of the market. Ultimately markets make decisions based upon -- again, I repeat the fundamentals. One things markets will make decisions on is whether or not the price earnings ratio of a company is rational relative to history. In other words, there's a lot of rational investors there making decisions based upon basic facts.

Q Mr. President, there's a proposal -- this gets back to Krishna's question about the sub-prime market. There are proposals in Congress that Fannie Mae be allowed to enter the market to visit, but that the limits on their ability to purchase mortgages be lifted to decrease some of the volatility. Does the administration back such an idea?

THE PRESIDENT: Kevin, the first thing we back is reforming these entities. It's to get them to focus on their core business in the first place. And we put forth a reform plan. To answer your question, let's get them reformed first, and now is the time to get it done.

Yes, ma'am.

Q I also have a question about the mortgage market. Do you -- with defaults rising, do you think that the mortgage market regulators, the FDIC and the Federal Reserve have done their job --

THE PRESIDENT: I'm sorry, excuse me -- do I think --

Q Do you think the mortgage regulators -- the FDIC and the Federal Reserve -- have done their job properly? And do you think there -- is there some role for government to help people who are on the verge of losing their homes?

THE PRESIDENT: I think, first of all, one of the lessons learned is that we need to help people understand the fine print, that there needs to be financial education measures in place. We have some. Matter of fact, we've increased -- had calls for increases of funding to make sure there's full transparency in the contractual -- so that people understand the contractual obligations they're taking on.

Secondly, there are predatory lender policies in place that need to be enforced. Somebody said, should we be using taxpayer money to bail out lenders, and the answer is, no, we shouldn't be. The market will work. And what we ought to be focused on is those poor souls who may be losing their houses. That's why you have an FHA as a potential refinancing tool; it, too, needs to be reformed. And if Congress can come back and help reform that, it would be very helpful, in terms of providing -- helping provide secondary liquidity. The real question is, will people have enough value in their homes to be able to refinance? There's liquidity to do that. That's why I keep talking about liquidity. And FHA helps on that. Hopefully we get it reformed so it helps some more.

Yes, ma'am. Sue. Are you from Texas?

Q No, I'm from Montana.

THE PRESIDENT: The Kirchhoffs were great friends of mine in Plainview, Texas, by the way. There's not a lot of Kirchhoffs probably in Montana or in Texas. You would like them. (Laughter.)

Q Getting back to the markets and the question of transparency, should there be more transparency in terms of hedge funds? One of the areas of uncertainty seems to be people waiting to see what the positions are of some of these hedge funds and how exposed they may be. Do you think there's any need to have a better idea of what some of their positions are --

THE PRESIDENT: It depends on what you mean by transparency on hedge funds. There's a lot of smart people that are constantly assessing risk and constantly making investment decisions. If what you're asking is for there to be government intrusion into capital -- more government intrusion into capital markets, we'd be very resistant to that. And so I'm not exactly sure what you mean beyond -- more disclosure, more paperwork, more regulation?

Q Quarterly filings.

THE PRESIDENT: What?

Q Quarterly filings.

THE PRESIDENT: Hank, you want to comment on this?

SECRETARY PAULSON: Yes, Mr. President. You've got it exactly right, because what we're -- we've had a big focus on transparency, but the transparency between the regulated entities and the hedge funds, making sure they've got information they need. And we've put forward some guidelines of principles for the President's working group, and we've set up some groups of investors and fund managers to come up with best practices. And transparency will be a big part of those best practices and making sure you have the transparency between, as I said, the regulated entities and the regulators -- excuse me, and the hedge funds, and transparency also between the investment managers of the so-called hedge funds and their investors.

THE PRESIDENT: Jane.

Q There's long been an academic consensus that the corporate tax system is a complete mess. But would you be reluctant to open it up at this point with this Congress?

THE PRESIDENT: Depends on what we suggest that Congress try to do with us. I would be reluctant if it ended up with a -- causing a tax increase, given the fact that people are worried that the tax code -- our corporate tax code makes us less competitive relative to other people's corporate tax codes. I believe there's an opportunity to have a -- I know there's an opportunity -- I think there's a chance that we may be able to devise a simplification that will enable us to have a tax code that is more competitive and, at the same time, either without raising or decreasing revenues to the treasury. That's really going to be the, I think, determinant factor of whether or not we can go forward with some kind of legislation.

I know it's in the country's interest to begin a serious dialogue, and that's what Hank has done. The fundamental question you ought to ask is, will we be in a position of developing a legislative package that has a credible chance of succeeding? And I don't know yet, because we've just started the discussions. I'm inclined to want to push hard, but I've got to know, push hard on what? And today literally is the first day that Hank brought the findings from the group that I think you -- yes.

Okay, yes, Baker. (Laughter.) I'm going to regret this.

Q I would think you would want to take economic questions from a guy like me.

THE PRESIDENT: Okay.

Q You're clearly going to know more, obviously.

THE PRESIDENT: Thank you, I appreciate it.

Q Two quick questions, sir.

THE PRESIDENT: How about politics? How am I doing on ¿ (laughter.) Go ahead.

Q That's another day. You went to Nashville, as you mentioned, sir. And today, you talked about the Democrats and spending, and threatened vetoes about bills that you think are going too far. One thing your critics say, of course, is that you never vetoed a spending bill while Republicans ran Congress.

THE PRESIDENT: Correct.

Q I'm wondering whether today --

THE PRESIDENT: Can I explain why?

Q Well, I wonder whether you regret that, whether you think that you'd have more credibility had you done that at some point, just to sort of send a message and it wouldn't look as partisan as some people think it is now.

THE PRESIDENT: Peter, for the past six budget cycles -- the first six budget cycles, I sat down with members of my own party and proposed a size of the pie: This is the top line that we think is necessary to continue to stimulate the entrepreneurial spirit and economic growth and, at the same time, meet our priorities and begin to reduce the deficit -- okay? They hit our top line every time. They said, we hear your budget, Mr. President, and we will meet your top line. The slices of the pie might not have been exactly the way we designed them, but the overall size of the budget was precisely that which we suggested to them. Had I vetoed any aspect of that, it would have made budget negotiations the next time around difficult to do.

As a result of the budgets we negotiated -- not the slices of the pie inside the budgets, but the overall budgets -- we now have a deficit that is lower than the 40-year average as a percentage of our economy.

Things have changed. We submitted a budget; the leadership in Congress and the Senate submitted their own budget. And so the first argument is over the size of the pie. And in order to balance the budget and meet priorities, I'm going to have to use my veto, unless, of course, they change their mind.

Q My second question is, last night during the Democratic debate --

THE PRESIDENT: I view this, by the way, as good economics. That's how I view it.

Debate last night?

Q Last night the Democrats, debating in front of the AFL/CIO, most of them on stage, said that they would try to alter or fix NAFTA, in their view, and most of them criticized you for not doing -- that the reason that they need to do so, in fact, was because you didn't do enough to enforce labor standards, health standards --

THE PRESIDENT: Well, I appreciate the fact that my dad negotiated NAFTA; Bill Clinton got it through the United States Congress. NAFTA has made a difference in our hemisphere, positive difference. You know, I grew up in Texas. We used to go down to the border down there; it was a like a third-world country in many ways. Today it's a prosperous part of the world, on both sides of the border. I believe prosperity -- and same with Canada, it's been very beneficial, in terms of our trade relations with Canada. I think prosperity in our neighborhood is in the national interest.

NAFTA has worked. What are they suggesting we fix? All you need to do to, first with Mexico, is to help them deal with their drug cartels, is to support their government. This guy Calder?n is a strong leader. It's in our interest to help them deal with their internal problems. And by the way, if you're one of these people who worry about people coming into our country illegally -- and a lot of people do -- then one way to solve that is for there to be prosperity in our neighborhood.

Interestingly enough -- I can't prove this to you, but I would suggest to you that most of the people coming across from Mexico aren't those who benefitted from cross-border trade. They're the ones from the interior of the country who are wondering how they're going to feed their families. Used to be in the old days that people would come right across the border to do work Americans weren't doing.

But there's a prosperity zone now, relatively speaking, but there's a prosperity zone as a result of free trade between our countries.

I don't know what they're complaining about; I didn't see the debate. But we've got mechanisms -- if they're worried about water quality, we've got mechanisms to deal with that, and we do. But I'll remind you, it's a lot easier to be environmentally conscious when you have revenues and money. Real hard to worry about the environment when you're stone broke, because you have other priorities, like eating, or basic health care, or educating your children. And so the more prosperous Mexico becomes, the more likely it is that we'll be able to have even more robust programs on conservation and the environment.

No, you can't ask two questions. What do you think this is, Marilyn? Do you think this is like -- is that the way it works with the economic people? Do you get to ask --

Q Two-for-one sale.

THE PRESIDENT: Okay. All right, I'm out of here.

Q I'm interested in airlines. In Atlanta --

THE PRESIDENT: I told you, I'm out of here. I've answered all of my questions.

Q Just a quick one on --

THE PRESIDENT: I don't want to be the impolite guy. I want to be the friendly President. I'm through. I've got to go. (Laughter.)

Q What about Barry Bonds?

THE PRESIDENT: I called him. As a matter of fact, I called him 30 minutes ago.

Q And you said?

THE PRESIDENT: And I said, congratulations. This is something -- a subject I know a lot about: baseball. He is a really good hitter. And it was my honor to call him. I said, I hope I didn't wake him up. I was hoping the time differential wasn't such that I got him out of bed, and, fortunately, I didn't. At least he was polite enough to say I didn't.

But it was a friendly conversation. I congratulated him on breaking a great record by a great man, Hank Aaron. And I also talked to him a little bit about how neat it was that his son was there to see him cross home plate. I said, Barry, I got a famous father. Some of my greatest memories were -- great highlights of my life were being with a guy I love during dramatic moments. And that picture of him hugging his son stuck with me. It was, I thought, an important moment between a father and a son.

Anyway, all right, everybody. Thanks for your time.

Q Thank you.

END

2:19 P.M. EDT