10:28 A.M. EDT

THE PRESIDENT:  Good morning, everybody.  Please be seated.  Thank you all for being here.  Let me just acknowledge the presence of some of my outstanding Cabinet members and advisors.  We've got our Secretary of State, Hillary Clinton.  We have our CIA Director Leon Panetta.  We have our Secretary of Defense William Gates; Secretary Napolitano of Department of Homeland Security; Attorney General Eric Holder; my National Security Advisor Jim Jones.  And I want to especially thank our Acting Archivist of the United States, Adrienne Thomas.

I also want to acknowledge several members of the House who have great interest in intelligence matters.  I want to thank Congressman Reyes, Congressman Hoekstra, Congressman King, as well as Congressman Thompson, for being here today.  Thank you so much.

These are extraordinary times for our country.  We're confronting a historic economic crisis.  We're fighting two wars.  We face a range of challenges that will define the way that Americans will live in the 21st century.  So there's no shortage of work to be done, or responsibilities to bear.

And we've begun to make progress.  Just this week, we've taken steps to protect American consumers and homeowners, and to reform our system of government contracting so that we better protect our people while spending our money more wisely.  (Applause.)  The -- it's a good bill.  (Laughter.)  The engines of our economy are slowly beginning to turn, and we're working towards historic reform on health care and on energy.  I want to say to the members of Congress, I welcome all the extraordinary work that has been done over these last four months on these and other issues.

In the midst of all these challenges, however, my single most important responsibility as President is to keep the American people safe.  It's the first thing that I think about when I wake up in the morning.  It's the last thing that I think about when I go to sleep at night.

And this responsibility is only magnified in an era when an extremist ideology threatens our people, and technology gives a handful of terrorists the potential to do us great harm.  We are less than eight years removed from the deadliest attack on American soil in our history.  We know that al Qaeda is actively planning to attack us again.  We know that this threat will be with us for a long time, and that we must use all elements of our power to defeat it.

Already, we've taken several steps to achieve that goal.  For the first time since 2002, we're providing the necessary resources and strategic direction to take the fight to the extremists who attacked us on 9/11 in Afghanistan and Pakistan.  We're investing in the 21st century military and intelligence capabilities that will allow us to stay one step ahead of a nimble enemy.  We have re-energized a global non-proliferation regime to deny the world's most dangerous people access to the world's deadliest weapons.  And we've launched an effort to secure all loose nuclear materials within four years.  We're better protecting our border, and increasing our preparedness for any future attack or natural disaster.  We're building new partnerships around the world to disrupt, dismantle, and defeat al Qaeda and its affiliates.  And we have renewed American diplomacy so that we once again have the strength and standing to truly lead the world.

These steps are all critical to keeping America secure.  But I believe with every fiber of my being that in the long run we also cannot keep this country safe unless we enlist the power of our most fundamental values.  The documents that we hold in this very hall -- the Declaration of Independence, the Constitution, the Bill of Rights -- these are not simply words written into aging parchment.  They are the foundation of liberty and justice in this country, and a light that shines for all who seek freedom, fairness, equality, and dignity around the world.

I stand here today as someone whose own life was made possible by these documents.  My father came to these shores in search of the promise that they offered.  My mother made me rise before dawn to learn their truths when I lived as a child in a foreign land.  My own American journey was paved by generations of citizens who gave meaning to those simple words -- "to form a more perfect union."  I've studied the Constitution as a student, I've taught it as a teacher, I've been bound by it as a lawyer and a legislator.  I took an oath to preserve, protect, and defend the Constitution as Commander-in-Chief, and as a citizen, I know that we must never, ever, turn our back on its enduring principles for expedience sake.

I make this claim not simply as a matter of idealism.  We uphold our most cherished values not only because doing so is right, but because it strengthens our country and it keeps us safe.  Time and again, our values have been our best national security asset -- in war and peace; in times of ease and in eras of upheaval.

Fidelity to our values is the reason why the United States of America grew from a small string of colonies under the writ of an empire to the strongest nation in the world.

It's the reason why enemy soldiers have surrendered to us in battle, knowing they'd receive better treatment from America's Armed Forces than from their own government.

It's the reason why America has benefitted from strong alliances that amplified our power, and drawn a sharp, moral contrast with our adversaries.

It's the reason why we've been able to overpower the iron fist of fascism and outlast the iron curtain of communism, and enlist free nations and free peoples everywhere in the common cause and common effort of liberty.

From Europe to the Pacific, we've been the nation that has shut down torture chambers and replaced tyranny with the rule of law.  That is who we are.  And where terrorists offer only the injustice of disorder and destruction, America must demonstrate that our values and our institutions are more resilient than a hateful ideology.

After 9/11, we knew that we had entered a new era -- that enemies who did not abide by any law of war would present new challenges to our application of the law; that our government would need new tools to protect the American people, and that these tools would have to allow us to prevent attacks instead of simply prosecuting those who try to carry them out.

Unfortunately, faced with an uncertain threat, our government made a series of hasty decisions.  I believe that many of these decisions were motivated by a sincere desire to protect the American people.  But I also believe that all too often our government made decisions based on fear rather than foresight; that all too often our government trimmed facts and evidence to fit ideological predispositions.  Instead of strategically applying our power and our principles, too often we set those principles aside as luxuries that we could no longer afford.  And during this season of fear, too many of us -- Democrats and Republicans, politicians, journalists, and citizens -- fell silent.

In other words, we went off course.  And this is not my assessment alone.  It was an assessment that was shared by the American people who nominated candidates for President from both major parties who, despite our many differences, called for a new approach -- one that rejected torture and one that recognized the imperative of closing the prison at Guantanamo Bay.

Now let me be clear:  We are indeed at war with al Qaeda and its affiliates.  We do need to update our institutions to deal with this threat.  But we must do so with an abiding confidence in the rule of law and due process; in checks and balances and accountability.  For reasons that I will explain, the decisions that were made over the last eight years established an ad hoc legal approach for fighting terrorism that was neither effective nor sustainable -- a framework that failed to rely on our legal traditions and time-tested institutions, and that failed to use our values as a compass.  And that's why I took several steps upon taking office to better protect the American people.

First, I banned the use of so-called enhanced interrogation techniques by the United States of America.  (Applause.)

I know some have argued that brutal methods like waterboarding were necessary to keep us safe.  I could not disagree more.  As Commander-in-Chief, I see the intelligence.  I bear the responsibility for keeping this country safe.  And I categorically reject the assertion that these are the most effective means of interrogation.  (Applause.)  What's more, they undermine the rule of law.  They alienate us in the world.  They serve as a recruitment tool for terrorists, and increase the will of our enemies to fight us, while decreasing the will of others to work with America.  They risk the lives of our troops by making it less likely that others will surrender to them in battle, and more likely that Americans will be mistreated if they are captured.  In short, they did not advance our war and counterterrorism efforts -- they undermined them, and that is why I ended them once and for all.  (Applause.)

Now, I should add, the arguments against these techniques did not originate from my administration.  As Senator McCain once said, torture "serves as a great propaganda tool for those who recruit people to fight against us."  And even under President Bush, there was recognition among members of his own administration -- including a Secretary of State, other senior officials, and many in the military and intelligence community -- that those who argued for these tactics were on the wrong side of the debate, and the wrong side of history.  That's why we must leave these methods where they belong -- in the past.  They are not who we are, and they are not America.

The second decision that I made was to order the closing of the prison camp at Guantanamo Bay.  (Applause.)

For over seven years, we have detained hundreds of people at Guantanamo.  During that time, the system of military commissions that were in place at Guantanamo succeeded in convicting a grand total of three suspected terrorists.  Let me repeat that:  three convictions in over seven years.  Instead of bringing terrorists to justice, efforts at prosecution met setback after setback, cases lingered on, and in 2006 the Supreme Court invalidated the entire system.  Meanwhile, over 525 detainees were released from Guantanamo under not my administration, under the previous administration.  Let me repeat that:  Two-thirds of the detainees were released before I took office and ordered the closure of Guantanamo.

There is also no question that Guantanamo set back the moral authority that is America's strongest currency in the world.  Instead of building a durable framework for the struggle against al Qaeda that drew upon our deeply held values and traditions, our government was defending positions that undermined the rule of law.  In fact, part of the rationale for establishing Guantanamo in the first place was the misplaced notion that a prison there would be beyond the law -- a proposition that the Supreme Court soundly rejected.  Meanwhile, instead of serving as a tool to counter terrorism, Guantanamo became a symbol that helped al Qaeda recruit terrorists to its cause.  Indeed, the existence of Guantanamo likely created more terrorists around the world than it ever detained.

So the record is clear:  Rather than keeping us safer, the prison at Guantanamo has weakened American national security.  It is a rallying cry for our enemies.  It sets back the willingness of our allies to work with us in fighting an enemy that operates in scores of countries.  By any measure, the costs of keeping it open far exceed the complications involved in closing it.  That's why I argued that it should be closed throughout my campaign, and that is why I ordered it closed within one year.

The third decision that I made was to order a review of all pending cases at Guantanamo.  I knew when I ordered Guantanamo closed that it would be difficult and complex.  There are 240 people there who have now spent years in legal limbo.  In dealing with this situation, we don't have the luxury of starting from scratch.  We're cleaning up something that is, quite simply, a mess -- a misguided experiment that has left in its wake a flood of legal challenges that my administration is forced to deal with on a constant, almost daily basis, and it consumes the time of government officials whose time should be spent on better protecting our country.

Indeed, the legal challenges that have sparked so much debate in recent weeks here in Washington would be taking place whether or not I decided to close Guantanamo.  For example, the court order to release 17 Uighurs -- 17 Uighur detainees took place last fall, when George Bush was President.  The Supreme Court that invalidated the system of prosecution at Guantanamo in 2006 was overwhelmingly appointed by Republican Presidents -- not wild-eyed liberals.  In other words, the problem of what to do with Guantanamo detainees was not caused by my decision to close the facility; the problem exists because of the decision to open Guantanamo in the first place.  (Applause.)

Now let me be blunt.  There are no neat or easy answers here.  I wish there were.  But I can tell you that the wrong answer is to pretend like this problem will go away if we maintain an unsustainable status quo.  As President, I refuse to allow this problem to fester.  I refuse to pass it on to somebody else.  It is my responsibility to solve the problem.  Our security interests will not permit us to delay.  Our courts won't allow it.  And neither should our conscience.

Now, over the last several weeks, we've seen a return of the politicization of these issues that have characterized the last several years.  I'm an elected official; I understand these problems arouse passions and concerns.  They should.  We're confronting some of the most complicated questions that a democracy can face.  But I have no interest in spending all of our time relitigating the policies of the last eight years.  I'll leave that to others.  I want to solve these problems, and I want to solve them together as Americans.

And we will be ill-served by some of the fear-mongering that emerges whenever we discuss this issue.  Listening to the recent debate, I've heard words that, frankly, are calculated to scare people rather than educate them; words that have more to do with politics than protecting our country.  So I want to take this opportunity to lay out what we are doing, and how we intend to resolve these outstanding issues.  I will explain how each action that we are taking will help build a framework that protects both the American people and the values that we hold most dear.  And I'll focus on two broad areas:  first, issues relating to Guantanamo and our detention policy; but, second, I also want to discuss issues relating to security and transparency.

Now, let me begin by disposing of one argument as plainly as I can:  We are not going to release anyone if it would endanger our national security, nor will we release detainees within the United States who endanger the American people.  Where demanded by justice and national security, we will seek to transfer some detainees to the same type of facilities in which we hold all manner of dangerous and violent criminals within our borders -- namely, highly secure prisons that ensure the public safety. 

As we make these decisions, bear in mind the following face:  Nobody has ever escaped from one of our federal, supermax prisons, which hold hundreds of convicted terrorists.  As Republican Lindsey Graham said, the idea that we cannot find a place to securely house 250-plus detainees within the United States is not rational.

We are currently in the process of reviewing each of the detainee cases at Guantanamo to determine the appropriate policy for dealing with them.  And as we do so, we are acutely aware that under the last administration, detainees were released and, in some cases, returned to the battlefield.  That's why we are doing away with the poorly planned, haphazard approach that let those detainees go in the past.  Instead we are treating these cases with the care and attention that the law requires and that our security demands.

Now, going forward, these cases will fall into five distinct categories.

First, whenever feasible, we will try those who have violated American criminal laws in federal courts -- courts provided for by the United States Constitution.  Some have derided our federal courts as incapable of handling the trials of terrorists.  They are wrong.  Our courts and our juries, our citizens, are tough enough to convict terrorists.  The record makes that clear.  Ramzi Yousef tried to blow up the World Trade Center.  He was convicted in our courts and is serving a life sentence in U.S. prisons.  Zacarias Moussaoui has been identified as the 20th 9/11 hijacker.  He was convicted in our courts, and he too is serving a life sentence in prison.  If we can try those terrorists in our courts and hold them in our prisons, then we can do the same with detainees from Guantanamo.

Recently, we prosecuted and received a guilty plea from a detainee, al-Marri, in federal court after years of legal confusion.  We're preparing to transfer another detainee to the Southern District Court of New York, where he will face trial on charges related to the 1998 bombings of our embassies in Kenya and Tanzania -- bombings that killed over 200 people.  Preventing this detainee from coming to our shores would prevent his trial and conviction.  And after over a decade, it is time to finally see that justice is served, and that is what we intend to do.  (Applause.)

The second category of cases involves detainees who violate the laws of war and are therefore best tried through military commissions.  Military commissions have a history in the United States dating back to George Washington and the Revolutionary War.  They are an appropriate venue for trying detainees for violations of the laws of war.  They allow for the protection of sensitive sources and methods of intelligence-gathering; they allow for the safety and security of participants; and for the presentation of evidence gathered from the battlefield that cannot always be effectively presented in federal courts.

Now, some have suggested that this represents a reversal on my part.  They should look at the record.  In 2006, I did strongly oppose legislation proposed by the Bush administration and passed by the Congress because it failed to establish a legitimate legal framework, with the kind of meaningful due process rights for the accused that could stand up on appeal.

I said at that time, however, that I supported the use of military commissions to try detainees, provided there were several reforms, and in fact there were some bipartisan efforts to achieve those reforms.  Those are the reforms that we are now making.  Instead of using the flawed commissions of the last seven years, my administration is bringing our commissions in line with the rule of law.  We will no longer permit the use of evidence -- as evidence statements that have been obtained using cruel, inhuman, or degrading interrogation methods.  We will no longer place the burden to prove that hearsay is unreliable on the opponent of the hearsay.  And we will give detainees greater latitude in selecting their own counsel, and more protections if they refuse to testify.  These reforms, among others, will make our military commissions a more credible and effective means of administering justice, and I will work with Congress and members of both parties, as well as legal authorities across the political spectrum, on legislation to ensure that these commissions are fair, legitimate, and effective.

The third category of detainees includes those who have been ordered released by the courts.  Now, let me repeat what I said earlier:  This has nothing to do with my decision to close Guantanamo.  It has to do with the rule of law.  The courts have spoken.  They have found that there's no legitimate reason to hold 21 of the people currently held at Guantanamo.  Nineteen of these findings took place before I was sworn into office.  I cannot ignore these rulings because as President, I too am bound by the law.  The United States is a nation of laws and so we must abide by these rulings.

The fourth category of cases involves detainees who we have determined can be transferred safely to another country.  So far, our review team has approved 50 detainees for transfer.  And my administration is in ongoing discussions with a number of other countries about the transfer of detainees to their soil for detention and rehabilitation.

Now, finally, there remains the question of detainees at Guantanamo who cannot be prosecuted yet who pose a clear danger to the American people.  And I have to be honest here -- this is the toughest single issue that we will face.  We're going to exhaust every avenue that we have to prosecute those at Guantanamo who pose a danger to our country.  But even when this process is complete, there may be a number of people who cannot be prosecuted for past crimes, in some cases because evidence may be tainted, but who nonetheless pose a threat to the security of the United States.  Examples of that threat include people who've received extensive explosives training at al Qaeda training camps, or commanded Taliban troops in battle, or expressed their allegiance to Osama bin Laden, or otherwise made it clear that they want to kill Americans.  These are people who, in effect, remain at war with the United States.

Let me repeat:  I am not going to release individuals who endanger the American people.  Al Qaeda terrorists and their affiliates are at war with the United States, and those that we capture -- like other prisoners of war -- must be prevented from attacking us again.  Having said that, we must recognize that these detention policies cannot be unbounded.  They can't be based simply on what I or the executive branch decide alone.  That's why my administration has begun to reshape the standards that apply to ensure that they are in line with the rule of law. We must have clear, defensible, and lawful standards for those who fall into this category.  We must have fair procedures so that we don't make mistakes.  We must have a thorough process of periodic review, so that any prolonged detention is carefully evaluated and justified.

I know that creating such a system poses unique challenges. And other countries have grappled with this question; now, so must we.  But I want to be very clear that our goal is to construct a legitimate legal framework for the remaining Guantanamo detainees that cannot be transferred.  Our goal is not to avoid a legitimate legal framework.  In our constitutional system, prolonged detention should not be the decision of any one man.  If and when we determine that the United States must hold individuals to keep them from carrying out an act of war, we will do so within a system that involves judicial and congressional oversight.  And so, going forward, my administration will work with Congress to develop an appropriate legal regime so that our efforts are consistent with our values and our Constitution.

Now, as our efforts to close Guantanamo move forward, I know that the politics in Congress will be difficult.  These are issues that are fodder for 30-second commercials.  You can almost picture the direct mail pieces that emerge from any vote on this issue -- designed to frighten the population.  I get it.  But if we continue to make decisions within a climate of fear, we will make more mistakes.  And if we refuse to deal with these issues today, then I guarantee you that they will be an albatross around our efforts to combat terrorism in the future. 

I have confidence that the American people are more interested in doing what is right to protect this country than in political posturing.  I am not the only person in this city who swore an oath to uphold the Constitution -- so did each and every member of Congress.  And together we have a responsibility to enlist our values in the effort to secure our people, and to leave behind the legacy that makes it easier for future Presidents to keep this country safe.

Now, let me touch on a second set of issues that relate to security and transparency. 

National security requires a delicate balance.  One the one hand, our democracy depends on transparency.  On the other hand, some information must be protected from public disclosure for the sake of our security -- for instance, the movement of our troops, our intelligence-gathering, or the information we have about a terrorist organization and its affiliates.  In these and other cases, lives are at stake.

Now, several weeks ago, as part of an ongoing court case, I released memos issued by the previous administration's Office of Legal Counsel.  I did not do this because I disagreed with the enhanced interrogation techniques that those memos authorized, and I didn't release the documents because I rejected their legal rationales -- although I do on both counts.  I released the memos because the existence of that approach to interrogation was already widely known, the Bush administration had acknowledged its existence, and I had already banned those methods.  The argument that somehow by releasing those memos we are providing terrorists with information about how they will be interrogated makes no sense.  We will not be interrogating terrorists using that approach.  That approach is now prohibited.

In short, I released these memos because there was no overriding reason to protect them.  And the ensuing debate has helped the American people better understand how these interrogation methods came to be authorized and used.

On the other hand, I recently opposed the release of certain photographs that were taken of detainees by U.S. personnel between 2002 and 2004.  Individuals who violated standards of behavior in these photos have been investigated and they have been held accountable.  There was and is no debate as to whether what is reflected in those photos is wrong.  Nothing has been concealed to absolve perpetrators of crimes.  However, it was my judgment -- informed by my national security team -- that releasing these photos would inflame anti-American opinion and allow our enemies to paint U.S. troops with a broad, damning, and inaccurate brush, thereby endangering them in theaters of war.

In short, there is a clear and compelling reason to not release these particular photos.  There are nearly 200,000 Americans who are serving in harm's way, and I have a solemn responsibility for their safety as Commander-in-Chief.  Nothing would be gained by the release of these photos that matters more than the lives of our young men and women serving in harm's way.

Now, in the press's mind and in some of the public's mind, these two cases are contradictory.  They are not to me.  In each of these cases, I had to strike the right balance between transparency and national security.  And this balance brings with it a precious responsibility.  There's no doubt that the American people have seen this balance tested over the last several years.  In the images from Abu Ghraib and the brutal interrogation techniques made public long before I was President, the American people learned of actions taken in their name that bear no resemblance to the ideals that generations of Americans have fought for.  And whether it was the run-up to the Iraq war or the revelation of secret programs, Americans often felt like part of the story had been unnecessarily withheld from them.  And that caused suspicion to build up.  And that leads to a thirst for accountability.

I understand that.  I ran for President promising transparency, and I meant what I said.  And that's why, whenever possible, my administration will make all information available to the American people so that they can make informed judgments and hold us accountable.  But I have never argued -- and I never will -- that our most sensitive national security matters should simply be an open book.  I will never abandon -- and will vigorously defend -- the necessity of classification to defend our troops at war, to protect sources and methods, and to safeguard confidential actions that keep the American people safe.  Here's the difference though:  Whenever we cannot release certain information to the public for valid national security reasons, I will insist that there is oversight of my actions -- by Congress or by the courts.

We're currently launching a review of current policies by all those agencies responsible for the classification of documents to determine where reforms are possible, and to assure that the other branches of government will be in a position to review executive branch decisions on these matters.  Because in our system of checks and balances, someone must always watch over the watchers -- especially when it comes to sensitive administration -- information.

Now, along these same lines, my administration is also confronting challenges to what is known as the "state secrets" privilege.  This is a doctrine that allows the government to challenge legal cases involving secret programs.  It's been used by many past Presidents -- Republican and Democrat -- for many decades.  And while this principle is absolutely necessary in some circumstances to protect national security, I am concerned that it has been over-used.  It is also currently the subject of a wide range of lawsuits.  So let me lay out some principles here.  We must not protect information merely because it reveals the violation of a law or embarrassment to the government.  And that's why my administration is nearing completion of a thorough review of this practice.

And we plan to embrace several principles for reform.  We will apply a stricter legal test to material that can be protected under the state secrets privilege.  We will not assert the privilege in court without first following our own formal process, including review by a Justice Department committee and the personal approval of the Attorney General.  And each year we will voluntarily report to Congress when we have invoked the privilege and why because, as I said before, there must be proper oversight over our actions.

On all these matters related to the disclosure of sensitive information, I wish I could say that there was some simple formula out there to be had.  There is not.  These often involve tough calls, involve competing concerns, and they require a surgical approach.  But the common thread that runs through all of my decisions is simple:  We will safeguard what we must to protect the American people, but we will also ensure the accountability and oversight that is the hallmark of our constitutional system.  I will never hide the truth because it's uncomfortable.  I will deal with Congress and the courts as co-equal branches of government.  I will tell the American people what I know and don't know, and when I release something publicly or keep something secret, I will tell you why.  (Applause.)

Now, in all the areas that I've discussed today, the policies that I've proposed represent a new direction from the last eight years.  To protect the American people and our values, we've banned enhanced interrogation techniques.  We are closing the prison at Guantanamo.  We are reforming military commissions, and we will pursue a new legal regime to detain terrorists.  We are declassifying more information and embracing more oversight of our actions, and we're narrowing our use of the state secrets privilege.  These are dramatic changes that will put our approach to national security on a surer, safer, and more sustainable footing.  Their implementation will take time, but they will get done.

There's a core principle that we will apply to all of our actions.  Even as we clean up the mess at Guantanamo, we will constantly reevaluate our approach, subject our decisions to review from other branches of government, as well as the public.  We seek the strongest and most sustainable legal framework for addressing these issues in the long term -- not to serve immediate politics, but to do what's right over the long term.  By doing that we can leave behind a legacy that outlasts my administration, my presidency, that endures for the next President and the President after that -- a legacy that protects the American people and enjoys a broad legitimacy at home and abroad.

Now, this is what I mean when I say that we need to focus on the future.  I recognize that many still have a strong desire to focus on the past.  When it comes to actions of the last eight years, passions are high.  Some Americans are angry; others want to re-fight debates that have been settled, in some cases debates that they have lost.  I know that these debates lead directly, in some cases, to a call for a fuller accounting, perhaps through an independent commission.

I've opposed the creation of such a commission because I believe that our existing democratic institutions are strong enough to deliver accountability.  The Congress can review abuses of our values, and there are ongoing inquiries by the Congress into matters like enhanced interrogation techniques.  The Department of Justice and our courts can work through and punish any violations of our laws or miscarriages of justice.

It's no secret there is a tendency in Washington to spend our time pointing fingers at one another.  And it's no secret that our media culture feeds the impulse that lead to a good fight and good copy.  But nothing will contribute more than that than a extended relitigation of the last eight years.  Already, we've seen how that kind of effort only leads those in Washington to different sides to laying blame.  It can distract us from focusing our time, our efforts, and our politics on the challenges of the future.

We see that, above all, in the recent debate -- how the recent debate has obscured the truth and sends people into opposite and absolutist ends.  On the one side of the spectrum, there are those who make little allowance for the unique challenges posed by terrorism, and would almost never put national security over transparency.  And on the other end of the spectrum, there are those who embrace a view that can be summarized in two words:  "Anything goes."  Their arguments suggest that the ends of fighting terrorism can be used to justify any means, and that the President should have blanket authority to do whatever he wants -- provided it is a President with whom they agree.

Both sides may be sincere in their views, but neither side is right.  The American people are not absolutist, and they don't elect us to impose a rigid ideology on our problems.  They know that we need not sacrifice our security for our values, nor sacrifice our values for our security, so long as we approach difficult questions with honesty and care and a dose of common sense.  That, after all, is the unique genius of America.  That's the challenge laid down by our Constitution.  That has been the source of our strength through the ages.  That's what makes the United States of America different as a nation.

I can stand here today, as President of the United States, and say without exception or equivocation that we do not torture, and that we will vigorously protect our people while forging a strong and durable framework that allows us to fight terrorism while abiding by the rule of law.  Make no mistake:  If we fail to turn the page on the approach that was taken over the past several years, then I will not be able to say that as President.  And if we cannot stand for our core values, then we are not keeping faith with the documents that are enshrined in this hall.  (Applause.)

The Framers who drafted the Constitution could not have foreseen the challenges that have unfolded over the last 222 years.  But our Constitution has endured through secession and civil rights, through World War and Cold War, because it provides a foundation of principles that can be applied pragmatically; it provides a compass that can help us find our way.  It hasn't always been easy.  We are an imperfect people.  Every now and then, there are those who think that America's safety and success requires us to walk away from the sacred principles enshrined in this building.  And we hear such voices today.  But over the long haul the American people have resisted that temptation.  And though we've made our share of mistakes, required some course corrections, ultimately we have held fast to the principles that have been the source of our strength and a beacon to the world.

Now this generation faces a great test in the specter of terrorism.  And unlike the Civil War or World War II, we can't count on a surrender ceremony to bring this journey to an end.  Right now, in distant training camps and in crowded cities, there are people plotting to take American lives.  That will be the case a year from now, five years from now, and -- in all probability -- 10 years from now.  Neither I nor anyone can stand here today and say that there will not be another terrorist attack that takes American lives.  But I can say with certainty that my administration -- along with our extraordinary troops and the patriotic men and women who defend our national security -- will do everything in our power to keep the American people safe.  And I do know with certainty that we can defeat al Qaeda.  Because the terrorists can only succeed if they swell their ranks and alienate America from our allies, and they will never be able to do that if we stay true to who we are, if we forge tough and durable approaches to fighting terrorism that are anchored in our timeless ideals.  This must be our common purpose.

I ran for President because I believe that we cannot solve the challenges of our time unless we solve them together.  We will not be safe if we see national security as a wedge that divides America -- it can and must be a cause that unites us as one people and as one nation.  We've done so before in times that were more perilous than ours.  We will do so once again.

Thank you, God bless you, and God bless the United States of America.  (Applause.)

END
11:17 A.M. EDT

THE VICE PRESIDENT:  Thank you very much for the privilege and the opportunity to address the Kosovo Assembly in such a beautiful, beautiful setting.  I congratulate you on your work thus far and I thank you for your very, very generous welcome.

It's a privilege to return to your country.  And although I am a few months late, let me say happy birthday on your one year anniversary.  (Applause.)

And Mr. President, let me thank you for one of the greatest honors of my career of being awarded the Medal of Freedom.  I accept it on behalf of the American people.  I do not deserve it, but my country -- my country appreciates your gratitude for what we have attempted to do.

I look out and see some familiar faces -- and I say I had some concern that the day would arrive when I would be able to stand before a free and undivided Kosovo and address you all.  You've done remarkable things so far.

I've traveled this region many times as a United States Senator, but this is my first trip as Vice President of the United States of America.  In the past two days I've been to Bosnia and to Serbia.  Our Deputy Secretary of State, Jim Steinberg, just visited Macedonia and Montenegro.  Our purpose is straightforward:  It's to underscore the commitment of the Obama-Biden administration to the stability and progress in the Balkans; and to reaffirm that the policy of the United States is to seek a Europe that is whole, free, and at peace.

The road to Kosovo's independence was difficult, and I need not tell you, hard-earned.  Your journey included a brutal campaign of fighting through a campaign of ethnic cleansing by Slobodan Milosevic, and NATO's intervention to stop it.  It included nearly a decade of U.N. administration and determined diplomacy by the United States and our partners in Europe that resulted in the plan that you are following to this day.

We know -- we know as you do that your task is enormous.  We also believe you are fully up to the task.  You have many friends and partners, including the United States, determined to see you succeed.  Kosovo's independence was and remains today, in my view and the view of my government, the only viable option for stability in the region.  And your independence, as I've said in the countries I've visited, your independence is irreversible -- absolutely irreversible.  (Applause.)

The success of an independent Kosovo is a priority for our administration and for my country, and a key element in our policy of helping the nations of the Western Balkans finally and for the first time of all history be fully integrated into Europe.  Sixty countries from all parts of the world have now recognized the Republic of Kosovo.  We're pleased that Saudi Arabia recognized Kosovo.  We hope that other countries will soon follow suit.  We are urging them to do so.

Kosovo's recent admission in the International Monetary Fund is further evidence of the international community's acceptance of the reality of an independent Kosovo.  And it stands ready -- we stand ready, we all stand ready to support you in building your state and putting the entire region of Southeast Europe on a stable foundation.

In your first year of independence your President and Prime Minister have in my view provided courageous -- courageous and steadfast leadership.  I salute the both of you, and I mean that sincerely.  (Applause.)  My country -- my country as well as yours, in my view, owe you a great debt.  And I commend the members of the Assembly, including the members of the opposition, for your service.  All of you play a vital role in the legislative process, a key component to any true democracy.  Having been a legislator for 37 years, I appreciate how important you are.  And I congratulate all of you on the steps you've taken thus far to build a multi-ethnic democracy at peace with its neighbors.

You've adopted many laws, including 50 mandated by the Ahtisaari plan.  You've built roads and schools, established ministries of government from scratch, from the very beginning -- agencies that didn't exist before.  You've reached out to your neighbors and strengthened your diplomatic ties all around the world.  And you continue to do so.  All in the course of one year.  It's remarkable.

Your hard-earned success has demonstrated to the world that Kosovo’s democracy and its independence are a force for regional stability and that you are here to stay.

But there's still so much more to do, and your people have high hopes and expectations for you and for all of us.  I must say my heart was warmed as I came from the landing zone into town, with what appeared to be hundreds, if not thousands, of people lining the street welcoming a United States representative.  As a friend of Kosovo and as a representative of my country that has invested much in your success, permit me to express our hopes -- our hopes and expectations with regard to your future.

First, we urge you, we implore you to continue to build strong institutions that embody the values enshrined in your declaration of independence and your constitution.  The effectiveness and transparency of these institutions will be critical -- critical -- to the credibility of your government in the coming months and years.

Press ahead with full implementation of the Ahtisaari plan, including measures that will give municipal authorities and ethnic communities greater degrees of control of local affairs.  Continue to build on your record of free and fair elections.

And secondly, the economic and financial challenges facing your country are significant.  These times demand fiscal and budgetary discipline, as well as careful stewardship of the assistance provided by the international community.  To build an economy that can compete in the 21st century all nations, including Kosovo, must create a welcoming and transparent business climate that attracts investment and creates jobs -- jobs your young people so sorely need.

Third, strengthening the rule of law must remain your priority.  Do not let up in your efforts to eliminate corruption and tackle organized crime -- a problem for all emerging new states.  And continue -- continue to streamline and strengthen your judiciary, a backbone of every democracy.  And adopt and enforce effective laws that will help move your country into the European mainstream.

Your government is keeping to its pledge to close and full cooperation with the EU rule of law mission.  The United States is proud -- presumptuous of us to say it, but we're proud to participate with EULEX, which is working to foster professional and multi-ethnic customs, courts, police structures in Kosovo.  EULEX has responded quickly and effectively to stop violence and provocation as we have seen in recent days in Kosovo's north.

Fourth, as a leader of a nation born from conflict as mine was, and yours is, you have a special responsibility to overcome the legacy of division, bitterness, and fear and mistrust within your country.  It's essential that the majority continues to reach out to Kosovo's Serb community, to build a dialogue and establish strong protections for that community and for other non-majority communities.

You must also make every effort to improve the conditions for the return of displaced Serbs and members of others communities to their property and their homes throughout all of Kosovo.  It's an essential ultimate condition to a free and open society.  And we urge you -- we urge you to preserve the rich cultural heritage in your country, and in particular to safeguard religious freedom in a very important role on the Serbian Orthodox Church for Kosovo's Serb community.

Later today I will visit a Decani monastery, an important symbol of the power of unity.  During the fighting a decade ago and following the tradition established at its founding eight centuries ago, the monks there -- and this will be my second visit; last time during the war -- the monks there sheltered refugees from the war regardless of their ethnicity.  They understood they were all bound together by a common humanity.  For a truly democratic and free Kosovo we need that spirit to prevail as it is at this moment throughout your country.  And we -- we are hopeful that it will, because it is the key, in my view, to your further recognition and survival.

Kosovo confronts many challenges, but you do not stand alone.  The United States and the international community are committed to your success.  As you know, I've just come from Belgrade.  I told Serbia's leaders that U.S. support for the independent and sovereign Kosovo remains steadfast.  And I urged them to find ways to cooperate to improve the welfare of all the people of Kosovo.  I discussed the steps they can take to strengthen their cooperation with EULEX.  I asked them to encourage Kosovo's Serbs to participate in Kosovo institutions, instead of pursuing parallel governing arrangements that obstruct constructive engagement among Kosovo's ethnic communities.

I urged Serbia's leaders to end their trade embargo against Kosovo.  And I told them that Kosovo cannot be divided.  It cannot be divided.  (Applause.)

The United States remains committed to Kosovo through NATO's KFOR mission, which continues to play a critically important role in helping secure peace and stability.  The women and men of the many allied and partner nations serving here in Kosovo in my view deserve tremendous praise.  President Obama and I, we are grateful for KFOR's work and especially proud of the U.S. contingent commanding a multi-national task force.  Under NATO's supervision and training, Kosovo is building security institutions, including most importantly Kosovo's security force to meet NATO standards and opening them to all Kosovo ethnic communities. I look forward to the day when Kosovo can contribute to international peacekeeping missions. 

The European Union is playing a critical role in ensuring Kosovo's future as a multi-ethnic democracy and ultimately its future in Europe.  So I applaud the efforts of the international civilian representative, Mr. Feith, and the office he leads to help Kosovo carry out the commitments made for the protection of minority rights here in Kosovo. 

And I salute the United Nations in its role over the last decade in helping establish Kosovo institutions. With Kosovo independence it is now appropriate that the United States reconfigure and draw down its mission, as recommended by the Secretary General. 

As a senator, when I first sought to bring the world's attention to this region, a diplomat -- who I will not mention -- warned me, saying, "Don't dream dreams, Senator."  When people told you a free and independent Kosovo would never happen, you did as I did -- you did not listen to that admonition.  (Applause.)

And you, like me, continued to dream dreams.  And so did your people.  As a public official and as a politician I remain optimistic.  I have to dream to give people the vision for a better tomorrow.  You must continue to dream of a nation that is whole, free, and multi-ethnic, and strong, and finally, for the first time in history, integrated into the European mainstream.

I'm optimistic about your country.  And quite frankly, in spite of all the difficulties that exist, I remain optimistic about the region.  I think this is one of those points in history where we may be able to shed hundreds of years -- hundreds of years -- of past animosities and begin to move into the 21st century.  I believe in your effort to create a modern state, one that can propel all its citizens toward a common European future.  This is the future for all communities in Kosovo.  This is the future reflected in the thousands of signatures on the newborn monument downtown, a monument to hope and to expectations.

You've only just begun.  This is a future that will be determined by each one of you in this chamber today and throughout Kosovo.  Your children and grandchildren and great grandchildren will look to you -- look to you -- as the people who made the final turn after centuries of division.

Ladies and gentlemen, take pride in what you've accomplished.  Keep your patience and persistence and insist that you not give up on what has never fully existed here before -- a truly multi-ethnic democracy.  Take heart -- take heart for the hard work ahead.  And take confidence that the United States of America will be with you, a free and independent Kosovo, every step of the way, every step you take.  (Applause.)

Ladies and gentlemen, once again I thank you for the honor, I'm proud to be associated with you.  And I am incredibly optimistic about your future.

Thank you so very much.  (Applause.)

9:38 A.M. EDT

MR. GOOLSBEE: Our official meeting will begin. First we need to adopt officially our bylaws.

(Bylaws are adopted.)

We have adopted the bylaws. Second, we need to officially create sub-groups that will do preparatory work, research and advance materials that will come to the full board for consideration. I would like to move -- or does someone like to move that we create a housing group, a financial markets and regulations group, a retirement and savings group, a tax and tax reform group, an energy group, and a job creation and industry of the future group? So moved.

(Groups adopted.)

The third thing that we were going to do is, as many of you know, John has drafted a letter that he would like us to consider putting our stamp on and saying we agree with this letter about energy policy, jobs, cap and trade, that we thought we'd take. I thought we would discuss this. If we agree with what's in it we can vote now and we can give it to the President as an official thing. If we have problems with it, we can -- or want to do further edits, there's no pressure to put that forward if we don't want to. But why don't we open just with -- John, give us a little overview of the document.

MR. DOERR: Thank you very much. It's timely for this body to take a position should we choose to do so, and I recommend that we do, on this question of climate legislation, the economy and the economy writ large. And that's what this paper sets out to do. To get to the punch line, it would say that our group endorses a market-based cap and trade system to efficiently deal, flexibly deal with the challenge of greenhouse gas production. And of course, there's other elements to this issue -- America's energy independence, dependence on foreign oil.

And importantly, this paper talks to a point that's not been made well, which is the future implications of America leading or not leading in these new industries.

I've benefitted from conversations with many of you, having worked over time to try to incorporate that input. In doing so, this letter grew to 10-some pages, and so I brought it back down to hopefully 4 pages on which we can agree.

So we talk about greenhouse gases, why to cap them and why to do something about this right now. We talk about getting an economically sound policy so that it's global, and talks of global solution, global agreement. We spend a fair amount of time going into the costs of these policies -- I want to come back to that -- dealing with the transition from coal and innovating working on getting coal to be more efficient, cleaner coal, some would say. And we also touch on some complementary policies, which we'll come back to, working more effectively with the nation's utilities; working to make our buildings, cars, and trucks as energy efficient as possible -- we saw action just yesterday on that from the administration -- and investing more in R&D and what Jeff Immelt likes to call -- I love this phrase -- "the billion-dollar base load deployments," which the federal government really needs to support.

I'd like to say a word more about costs and cost modeling before we open this up for a discussion. And the key points are on the second page of this document under the Chapter E, "Offsetting the costs of carbon pricing." The phrase that's getting a lot of attention, the sentence is that current estimates range from a few hundred dollars per capita to over $1,000 per capita. And Chairman Volcker took me to task on this before the meeting started.

We do not want PERAB to get into the modeling wars. I suggest we stay away from that. The lower estimate comes from the EPA and is very similar also to a more sophisticated MIT study of the Waxman-Markey legislation. The number of over $1,000 per capita comes from a Congressional Budget Office study and, more recently, testimony from the chair of that group. But it's really a comparison, unfortunately, of apples and oranges. The smaller apples in the beginning assume that the revenues from such a system get recycled into the economy. The oranges, which are the CBO assumption, just say the cost would be this. It's as if we collected the money and then burned it and didn't try to measure the recycling of that. But these estimates are out there nonetheless.

I think the important point -- the important point I would like to --

(Cross-talk)

MR. DOERR: The sentence that attempts to capture this is that current estimates range from a few hundred dollars per capita --

Q I think it says less than $100, but there are no numbers --

Q It's page three, it's the last paragraph --

Q Current estimates range from less than $100 per capita to over $1,000 per capita.

Q It's page three.

Q Page three, yes. That was confusing to people, that's right. It's page three.

MR. DOERR: Forgive me. I think, wherever we come out on these numbers, including them, providing more detail about them, there's an important point and a sentence I suggest we add, and this, again, comes from a suggestion of Paul Volcker -- and that would be to say that none of the models account for two very important factors, and those are the benefits of reducing emissions and the cost of doing nothing. And with that, I'll open us open for discussion on any part of the paper.

MR. GOOLSBEE: And let me just say for anyone watching on the Web, we will post this document up on our Web site because it's a publicly available -- it will be a publicly available thing so anybody who wants to look at that can check it for themselves.

MR. OWENS: John, I have a question about the $100 to $1,000 -- it seems to me, if there's going to be a meaningful change in consumer behavior, that seems like a pretty small range of numbers. And in terms of economic efficiency, there are a lot of ways you can put that money back into the economy, but we're trying to drive a significant change in consumer behavior and a substitution of other energy sources. That just strikes me as a pretty small number -- even $1,000. And less than $100 would be inconsequential. I don't think it would change any behavior.

So I think it's important we be transparent with the public. We're looking for a significant change with this policy.

MR. DOERR: A response to that is that the change that we're looking for is less in consumer behavior than it is in industrial behavior, which aggregates all of these consumer costs. So this sort of a change would have a large impact on producers and generators of electricity, not so much on an individual household.

MR. TRUMKA: The first time I got to see this was this morning at 9:00 a.m. and it went out late last night and I wasn't in my office at 9:30 p.m.; I left at 9:00 p.m. (Laughter.) So I didn't get it, so I really -- while I think we'd probably be in agreement with most of this, I really think we need to do business a little differently and not vote on something we haven't had a chance to actually think about, because this is a very important subject.

I think there are a couple of areas where, at the top of page two, I think it's fairly well in balance. It doesn't mention the contributions that labor contributed to this policy at all. And the other thing that gave me a little concern in the first cursory reading was the trap door. The trap door seemed very, very weak; that we ought to consider something if costs go amok and that could have a devastating effect on the economy. And I think it has to be a little stronger than just a suggestion.

MR. GOOLSBEE: Anna, did you want to say something?

MS. BURGER: I did. I wanted just to comment on -- I agree that we have to -- we need to figure out a way that we can actually engage in subcommittees that we're not part of. So obviously, I'm not part of the subcommittee on energy. And I think that there are larger debates going on on our planet about what we need to do.

There's a U.N. report that's called -- I think it's called a fair and just transition to a low carbon, green economy, that really does grapple with a number of issues, including cap and trade. But it also deals with a number of other issues in terms of R&D, responsibility of government, the need for workers to have a voice, a global long-term plan -- trying to figure the winners and the losers. Understand that this can be a great jobs creator -- it's going to end up changing jobs, creating jobs, having a huge displacement factor, and how do we plan for all of that?

So I think that we need a comprehensive approach. I would think that it would be helpful for the group to look at this report from the U.N. I think it's incredibly in-depth. It deals with some of these issues, but it puts them in the context of the greater transition. And it's called -- the President has called a just and fair transition. In other words, how do we actually think about it for the whole planet. So I would just recommend that we look at that, and take a little bit of time.

MR. GOOLSBEE: Martin.

MR. FELDSTEIN: I think John raised a very important point, which is new to me and contrary to what I had believed, and that is that you're not going to have to raise the cost to consumers in order to significantly reduce CO2 and other greenhouse gases, because it would happen at the industry level and it wouldn't involve passing costs on to the consumers. At least, that's what I understood you to be saying.

MR. DOERR: That's not quite what I said. I think the impact will be larger on industry actors than it will be on individual consumers. But consumers will feel this, and there is a price.

MR. FELDSTEIN: The most recent MIT study said that the total cost increase for a Waxman-type reduction -- 20 percent reduction -- would be on the order of $1,500 per capita, in terms of the prices to consumers. So if that's not true, then we ought to know it, and if it is true, I think we ought to say.

MR. DOERR: Is that a total gross, or net?

MR. FELDSTEIN: It's gross. It's gross. So the government -- it's like saying if you raise income tax rates, you will raise so much revenue, and then of course there are many things you can do with it. You can give it back in distribution, you can spend it on various things. But I think, like any other tax, we ought to disclose what the increased cost to the consumer is. It is a form of indirect taxation.

MR. GALLOGLY: What period of time is -- I seem to remember it's in 2020.

MR. FELDSTEIN: It's in 2020 for a 20-percent reduction in CO2 relative to the 2005 level, and it's an annual amount.

MR. GOOLSBEE: In fairness, my understanding -- I'm not an expert -- is that the MIT model is one extreme. That's where the larger numbers come from. And there are other models of the same thing that are substantially lower. But that is where -- so one area are the issues raised by Rich that should we say more about safety valves, stuff like that; issues that Anna raises about other source material and things that -- do we want to expand the scope. I thought, from talking with John, I thought the nature of your letter, John, was that it was going to be sort of a narrow -- more narrow thing that maybe most folks could agree on. And then a third is, do we want to engage change or otherwise deal with this expression of what costs might exist.

MR. FELDSTEIN: Presumably, this document, when it's public, will be judged by whether the advice this committee is giving to the President is giving him the information he needs in making the decision about whether to go forward, supporting cap and trade. So if we leave out this set of numbers, whether it's a high number or a range, I think we're leaving out the most important --

MR. GOOLSBEE: Okay, let me say two things. We haven't let it out, obviously. Right now it is stated in the document. We have to figure out how to state it, but right now it isn't left out at all.

Two, we are not the President's only source of information, obviously. If we wanted to make a one-sentence statement, "We think X is great," we could do that. You know, the President can look up whatever he wants.

Now, we -- I am going to propose that we put off voting on this document, unless there's a strong sentiment to proceed, because I think we've got two or three issues that now that we actually have formal sub-groups, it might be worth considering in the sub-group and to put to the whole board. So I don't think we need a vote on that, because we're not doing -- we're not doing anything.

But, Penny, did you want to --

MS. PRITZKER: No, I just wanted to ask a process question, which is, I think Anna raises an important question, and Rich, as well. What is the process of going from a sub-group to the larger group? And how does one who's not expert in an area get up to speed on the issues so that -- just how do we intend to do that?

MR. GOOLSBEE: Okay, so I would say here two -- I will say two to three things, and Robert and Roger, I'm sorry, I know you have comments, but we're going to run out of time.

The way it will usually work is the sub-group will do preparatory work and will do research and will get the things that they will put to the board. Anyone is allowed to be a part of -- as deeply or as narrowly as they want -- that research and that sub-group work.

It will then go to the board, usually in the form of some document where we can have a debate. But once we get to that higher level, the kind of preparatory work will have been done. So it was probably less -- I mean, certainly we can ask, and hopefully we will have more time before things happen. But if you say, what were the basis of these decisions, or I read this; what were the background materials -- we can get that to you. But I think usually the way it will work is it will come to the full board and we'll just have a discussion about it, have a debate about it.

MS. BURGER: Another process question? One quick one. Just because, I mean, there is a sense of urgency, and I understand wanting to move this forward because now is the time to act. So is there a process that, when we end this meeting, that we can actually do this before the next meeting so it's not --

MR. GOOLSBEE: Yes, we will certainly do that. There will be a process of doing that. We can circulate the documents, put them on the Web site, et cetera. So we will certainly -- it's not -- we're not going to just have 30 minutes and then at our next quarterly meeting we --

MS. LOZANO: I was just going to say, it's safe to say that this board I think wants to move forward with developing a policy that we can get a consensus on.

MR. GOOLSBEE: Okay. Laura, do you want --

MS. TYSON: Yes, I just have a really basic process question, and that is, does this mean that every single thing is going to be agreed to by every single member?

MR. GOOLSBEE: It doesn't have -- our bylaws, which you all voted unanimously, say that we require a two-thirds vote.

MS. TYSON: Okay, so it is doing two-thirds.

MR. GOOLSBEE: That is the standard. So when two-thirds of you say, no, we want to vote this right now, we can do this.

MS. TYSON: Can you do something like -- and you know this very well -- I mean, the President sometimes gets options memos. There may very well be here, I believe on this issue, probably disagreement in the room. We're not going to resolve it.

MR. GOOLSBEE: As a matter strictly of process -- and these are our last 15 seconds, Adam is giving us -- we don't have to present only things that we all agree on. We can present, here is a subject we all think is important, and here are three different views out of the -- we can do anything we want. And our task on taxes, for example, we're explicitly being asked not to give explicit opinions but instead to present a lot of options.

MR. DOERR: So let me suggest what I'll do is mail this letter to all the board members and ask you within 48 hours to reply with any comments -- do the best that I can, as the author of this, to put together a document we might all agree on, lay out some dissenting opinions, but drive for a greater than two-thirds vote by our body in the coming week.

MR. FERGUSON: John, will you also add some of the economic issues, or is it up to us to add those? I think, as I read it, we can do a bit more than the --

MR. GOOLSBEE: We'll see what -- let's hold that.

(Meeting breaks while waiting for the President to arrive.)

THE PRESIDENT: Everybody please have a seat. I apologize we're starting late. It's Rahm's fault. Where's Rahm? (Laughter.)

Q Still late. (Laughter.)

THE PRESIDENT: Right, exactly. It is good to see all of you again. I know that many of you have been busy working with Paul and others on some of the financial issues that we continue to confront in the economy. We're pleased that we've seen some progress, that there is some return to normalcy in certain aspects of the financial markets. We think that that will be helpful overall.

But obviously one of the things that I've been concerned about since I took office is looking beyond the immediate crisis in front of us to find out what is a sustainable economic model post-bubble and bust. How do we create sound fundamentals on issues like education, on health care, and the topic that we're going to discuss today, energy, as well as all the innovation that's required around these various areas, so that moving forward we don't find ourselves in a unsustainable economic model?

And we have seen this week some fairly extraordinary steps being taken around energy, which are promising. Yesterday I stood out in the Rose Garden and announced that the automakers, the unions, state and local officials, as well as the federal government, were coming up with a uniform national fuel efficiency standard that will provide certainty to the automakers and take a real bite out of our level of oil dependence and over time reduce our dependency on foreign oil.

At the same time, you've got an energy committee in the House of Representatives which is making more progress than we would have ever expected around the issue of greenhouse gases and carbon pollution.

So you're seeing industry, labor, and government working together more cooperatively, in a better spirit, than we've seen in a very long time. But this is a huge, complicated, difficult issue. I know that sometimes the slogans about clean energy and green energy may be a little more forward-leaning than the realities of the numbers of jobs that are currently being produced or the technologies that are currently available.

So one of the roles that I thought we could play today is to try to flesh out a little bit what can we get done; where are immediate opportunities that we should be taking advantage of; what are some major challenges; how realistic are some of our projections around clean energy, and how much of them are dependent on technological breakthroughs that we don't yet foresee; and how does this affect those who are not in the energy sectors but have, nevertheless, a significant interest in how this will affect overall economic growth.

So I wanted to start with John Doerr, who's done as much work on this as anybody as a venture capitalist, but somebody who sort of digs in and gets his hands dirty on these issues and understands the technology behind a lot of these questions.

John, why don't you share with us sort of more broadly how you're thinking about some of these issues?

MR. DOERR: Well, thank you for making energy, and energy and climate such a priority. It's today's discussion and it's very important to everybody on the board. There's agreement in our group that energy touches everybody's lives, every activity in the country. And so it's very important for us to get this right.

I put together a paper based on input from some members of this board. We're going to discuss it further today and this week and now. It's focused on the economic consequences, whether we act or do not act, for America. And it speaks to jobs. And it also talks about something that we haven't heard much about today, and that is how getting this right can have a large effect on the America's worldwide economic leadership, and if we get it wrong, we're going to stay where we are today, which is not really in the race.

You've taken a position, the administration has taken a position, squarely in favor of a market-based system to deal with the costs of carbon and climate, the so-called cap and trade position that my sense, from conversations not -- of our group is that we favor that, though there are some differing opinions.

We think it's very important to act now, that there's an issue with carbon emissions that we're behind where we want to be, behind other nations in the world in dealing with this. Also, if we act now and send very clear signals to our business community and the nation then we can get investment now that will create jobs now, as this kind of a regime or system develops.

We think that putting a price on carbon is the most important thing we can do, but it's not the only policy that should be adopted. Getting more work in research and development funding -- that's an area that's been neglected -- is an important thing to do. And the Department of Energy, as part of the stimulus bill, and others, is moving in that direction.

We think enlisting our utilities nationwide, make them allies in getting more energy efficiency, is a very important step -- and we've got more work to do there.

And, finally, making sure that our cars and our buildings are the most efficient in the world -- the action that was taken yesterday -- is very important to a comprehensive solution to this climate crisis we're dealing with.

I want to close with my views, on an optimistic note, and that is that we are seeing breakthroughs in the technology that not only can get us where we need to be, but that can make sure that America is the worldwide leader in developing the jobs and the businesses and the wealth from this industry as it was the case with the Internet.

THE PRESIDENT: Jeff, do you want to talk about this from a big manufacturing company that both uses energy, but also works on the technologies that might save energy usage?

MR. IMMELT: Mr. President, I think clean energy is the most exciting, fastest-growth industry of the 21st century. We've got about 70 energy-efficiency products, about $18 billion in revenue this year. We have 50,000 jobs between GE and our supply chain, lots of small- and medium-sized companies in this country and around the world.

Technology is out there to be had. I think we have to have a broad aspiration to lead in technology. It includes what I call big base-load technologies, like coal gasification and nuclear; real advancement in renewables; technologies that drive efficiency like the smart grid. And it's out there to be had. The leadership is out there to be had. This ought to be something that we aspire as a country to do.

I think things that help that are actually a price for carbon and unleashing the technology that can be applied, as John, said, to energy. If you go back 50 years in this country, the amount that's been spent in energy R&D is dwarfed by health care, NASA, other places. I think if we can take the ingenuity and the innovation of the United States, apply it to this technical revolution that's going to be going on, give us certainty, give industries certainty around a price for carbon, or the rules of the world, I think we're going to be surprised by how many great jobs this creates.

I would say these 50,000 jobs in this brutal recession are the most robust jobs we have. We're shipping products around the world. We ship about 150 heavy-duty gas turbines. Three will go to the U.S.; 147 go to the rest of the world. So this is actually --

THE PRESIDENT: This is an area where we could develop a strong export market.

MR. IMMELT: I think we have to think about it that way, Mr. President. We've got to move on. Other countries around the world are doing the same things. And there's no reason why we should cede leadership to other people.

THE PRESIDENT: How far behind are we technologically, though, in countries, John?

MR. DOERR: I would say that innovation exists here. You know, Europe's 10-percent renewables were at 2 or 3 percent. Other nations of the world, like China, Finland, France, are building nuclear power. We haven't started yet. We're doing the first whole-gas gasification plan in 25 years in Indiana. So the brains exist in this country. I think what we have to use is our domain to really build cost positions and competitiveness that can be globally competitive. But they're the types of products, Mr. President, that we can build great export industries around.

THE PRESIDENT: Rich, I know from a labor perspective, one of the biggest concerns you guys have is the decline in manufacturing.

MR. TRUMKA: Absolutely.

THE PRESIDENT: And we've actually got a task force that's working up some ideas about stabilizing and then growing our manufacturing base. This is one area where we're seeing some potential. I'm wondering if you just wanted to touch on sort of how the AFL-CIO is thinking about clean energy and its potential for creating solid middle-class jobs.

MR. TRUMKA: I think I can probably echo everything John said and what Jeff said. We see it as a tremendous, tremendous potential for us to lead. Our members are going back and being retrained to do weatherization, all sorts of green things to save energy, a whole type of new training to get them up to speed on the skills that they need.

The problems that we're talking about, I think we are disadvantaged a little bit. We're disadvantaged by the tax code that your administration started looking at. We're disadvantaged in some ways by the trade agreements that your administration has already started looking at. And we look at -- with greening right now, we think a couple of things, a couple of trap doors would actually -- should actually look at.

One is we really think that this has to run on two tracks. Not only do we think it has to be done in this country, but simultaneously has to be done internationally. Elsewise the jobs that we create we could ultimately lose because we're disadvantaged internationally if we don't. People who -- when the Kyoto Treaty was adopted, or at least asked to be adopted, everybody said we're disadvantaged by it, and so there was a lot of opposition.

The other thing is we think that all of this needs strict monitoring so that while you're monitoring you can tell if we're on course or not, and if we're not, we have to have language that is a trap door so that the economy doesn't get derailed by surprise along the way.

Our members are excited. We've already started creating the training programs and the jobs. They're already starting to help green the country, and we think it's a win-win-win for this country and for the people of this country. And we applaud your leadership in the area.

THE PRESIDENT: I want to open it up -- Martin, I'd be interested in your views on this. I mean, this is one of those areas where you can have some pretty fierce economic debates around the efficacy of a cap and trade versus a carbon tax; whether the government getting involved in this area helps significantly sparking a clean-energy revolution, or whether this is going to happen due to innovation in the private sector without government catalyzing it.

So to the extent that there's any skepticism in the room and you're always good for that -- (laughter) -- I wanted to make sure that that got put on the table and that we had a realistic conversation about some of these policies.

MR. FELDSTEIN: Well, I think a cap and trade or carbon tax would undoubtedly stimulate conservation and green technology. I don't think there's any doubt about that. I think about two aspects of this. One is the impact on consumers. There's a range of estimates, but the Markey-Waxman kind of reduction, a 20 percent reduction from what the current levels of CO2, the estimates run from $400 per capita increased cost to about $1,500 -- about three-quarters of the EPA is the low end and an MIT technical study is the high end. About three-quarters of that is extra revenue that would go to the government.

What's clear is you have to raise the price to consumers to get them to cut back. Three-quarters of that would be revenue to the government that could be given back or could be used to support spending programs. The other quarter are real costs to put in place this new technology. So I think it's very important, in thinking about this, to recognize the magnitude of that cost increase and the distribution.

The other point is about whether you auction or give away some of these permits. The price has to go up by the same amount. The cost to the consumer has to go up by the same amount, whether you auction it off or you give it way. So I have a hard time understanding the giveaway strategy, because it seems to me that just says we'll take some of the money that would otherwise be collected by the government, that revenue, and give it to some of the firms that win this lottery to get some of these --

THE PRESIDENT: Well, as you know, during the campaign, my original proposal was a 100-percent auction so that you didn't have the potential for political considerations or gaming of the system. The way I think that the Waxman-Markey bill is trying to address this is you've got regional differences that have to be accommodated -- some of it has to do with how do you, if not hold the consumers harmless, then assure that the rebates or the allocations that are awarded are leveling out the cost to consumers.

So it ends up not being as arbitrary as I think it might seem in the abstract. In the particulars, there are just some regions in the country, particularly in the Midwest and the South, where their options for ramping up energy efficiencies quickly are very different from California or some of the Northeast cities. And so you want them to make adjustments. On the other hand, if the adjustments are too onerous, too quick, not only is it brutal on those states, which are already having trouble, but politically it ends up being --

MR. FELDSTEIN: So this is for regulated electricity, basically?

THE PRESIDENT: Mostly around the electricity issue.

MR. FELDSTEIN: Because for gasoline and other products --

THE PRESIDENT: For gasoline that makes less sense. Now, I haven't seen all the details of the bill yet. Carol, you may end up having a better sense. Larry, do you want to chime in on this one?

MR. SUMMERS: Having been taught by you when I was a student, I understood very well the --

THE PRESIDENT: Marty really doesn’t like to admit to that. (Laughter.)

MR. FELDSTEIN: I take great pride in my students -- Larry high on that list.

MR. SUMMERS: I think the broad agreement that people in the business community discuss and so forth was the one the President articulated, which was the essence that the giveaways were to come in situations in which regulated utilities were primary examples where you were going to be plenty able to pass on the price -- there's a little bit of stuff that has the character of our companies and the international competition. And there isn’t something parallel to that in the world.

So at least the principle was you don't get to pass it on and get the windfall. But a situation where it's not going to passed on, then it's natural for there to be a compensation. You might disagree at some point on the application of the principle, but that is -- the sort of economic principle if you would that we're trying to assume. And I think that's a logical --

MS. BROWNER: I think what Mr. Waxman has done to date in the bill -- it's still in markup, things are still changing -- is about 35 percent of the allowances that would otherwise have been auctioned are during a transition period given to the electric utilities, as the President said, to offset the impacts on consumers. Another 15 percent have been reserved for trade sensitive – trade-intensive industries ,recognizing that because of the global nature of their competition there are some transition issues.

And then some smaller amounts have been given to other sectors -- there's this very clear understanding that these transitions are going to be an important way of helping industry find the kind of new technologies, the innovations that will allow us to ultimately drive down the cost.

THE PRESIDENT: Jim, you've got some thoughts as a big manufacturer that operates internationally. You probably see some of these as opportunities, but I know you may see some risk as well, so I'm putting you in a competitive disadvantage.

MR. OWENS: You surprised me. I guess Caterpillar is the third-largest producer of things that make kilowatts over GE and Siemens; we make small ones, but -- and we're a big exporter also for the U.S. In fact, combined heat and power applications of both small turbines and small gen sets are big sellers in -- actually more outside the United States than inside, partly because of the way we regulate emissions site-specific, as opposed to looking at combined emissions and energy efficiency. So there are some things here that we could do to help our country be more competitive using the technologies that are out there.

I agree with Jeff. I think we have the technology, we have the smarts here, and the product technologies, the economic incents of what's needed. And that's why I think of us in industry support a clarity around a carbon price, because that's going to drive a lot of innovation and a lot of efficiency and will get with the program of reducing carbon emissions.

Our concern and one of the things we've been very engaged with the U.S. cap initiative discussing is, we need to approach this in an international context. I think if we move unilaterally as the United States with a significant cap and trade program that drives up the cost of carbon here significantly, and our international competitors, the countries don't move with us, it's going to create competitive problems for the core -- let's call it the base industries -- steel, aluminum, cement -- the core feeder stock, if you will, for the manufacturing industry in this country.

But I think if we take that leadership role, as you've articulated it, and go to Copenhagen with that in hand as showing our commitment to move forward, I think there's a good chance that we'll find the Indians and the Chinese, for example, the two largest emerging markets -- and big growth markets, by the way, for U.S. exports -- likely to want to work with us. And I think there's more opportunity for collaboration on the international scale than some people are giving us credit for here.

THE PRESIDENT: That's what we've been seeing.

MR. OWENS: I think it's out there.

THE PRESIDENT: I want to bring maybe some of the finance guys, because you crunch the numbers, you're looking for opportunities where it makes sense to invest, where it doesn't. Mark, how is this looking from a investor perspective, from a --

MR. GALLOGLY: Well, one way to think about it is to start and say, what's the size of the opportunity? And we produce about 1,000 gigawatts of energy -- of electricity in the United States. And so we've got -- we're at 1,000, we're going to grow 1 or 2 percent, something like that, a year, so by 2020, we're somewhere around 1,200. So that 200 increment -- of that 1,000, by the way, 800 of it, of the 1,000, 800 is based on -- produces carbon emissions.

So if we're growing another 200, and we're trying to get to 20 percent, one way to think about it is, all of the new stuff has to be in alternatives. That's one way to -- and it's about 20 gigawatts a year. That's a lot of money, that's a lot of capital required to produce 20 gigawatts.

At the same time, we're in the middle of a credit crisis, and the big project financers have been UBS, Banque National Paris, RBS, all of the big European and Asian banks, all of them pulled out of the market. So there's a natural disconnect between the amount of capital needed and the size of really big, big facilities, things that Jeff is talking about.

And I think one thing we need to consider -- it's a little bit built into the Waxman proposal -- is whether there's a role to attract private capital into those buildings -- into that building initiative and have some role for federal government, because, as something that Marty is really focused on, I think appropriately, it drives down the cost. And the question is what's the incremental cost to the consumer; what's the likelihood politically this is going to work?

And if you can drive the cost down by having a more favorable capital structure, which has real risk from investors but has a lower cost of aggregate capital, then you're going to increase the likelihood you actually -- which is what your first question was -- realistically hit these numbers, because you're going to start building 20 a year soon, really soon, if you're going to make this goal work.

The second thing I think that could really impact this is whether you have a national standard or not. I know the administration supports a national standard, a national energy standard for alternatives. There's a real -- there's been real success on a state by state basis, but many states, as you pointed out earlier, don't have alternatives, don't have the ability to produce alternatives. In the Southeast there's not a lot of -- if you're in the Southeast, not a lot of winds, not a lot of real sun power, so you're not going to see much alternative generation there.

And energy moves across states -- and so you've got to figure out a way, just as you're thinking through emissions for auto on a national basis, to think about a national standard for energy. I think if you did those two things, in addition to carbon, then you have a realistic likelihood of achieving the goals. If you don't have those three coming together, I think the likelihood is less -- materially less.

THE PRESIDENT: Roger?

MR. FERGUSON: Mr. President, thank you. I would like to point out three things, again coming from finance. First, I think a number of people would say that once you think about not just the cost, but also the benefit, and there's a general view I think among the economics profession that there's a net benefit of taking active efforts now to mitigate climate change, CO2 emissions, and this would be one element of it.

Secondly, that we think about this from the standpoint of another part of finance, which is insurance. The insurance industry and reinsurance industry has seen insurance losses going up quite dramatically as a result of changing weather patterns -- that kind of thing. So I think you would find a number of parts of the financial services sector that would broadly be supportive it because they think it's good economic policy as well as social policy.

I think a third, again thinking about it from the standpoint of the insurance industry and other parts of the financial services sector, cap and trade has a number of appeals to it. One is that it is certainly market based. Secondly, setting a cap gives you a broad direction of where you're headed. And third, to pick up a point that's come up a few times, I think broadly if you think about this as an international problem, cap and trade, as you've already observed, may have the advantages of being something that can be applied successfully across a number of political jurisdictions. And so, looking at the industry I represent broadly, which is finance and insurance, I think you'd find many people supporting these directions.

THE PRESIDENT: One of the things that when our energy team gets together we talk about is that the lowest hanging fruit, the area where technology is already available, is on the efficiency side. We don't need breakthroughs as much as we just need the proper incentives to take advantage of that.

And so I wanted to maybe just talk about that for a minute. And I'd be interested, Penny, from a real estate perspective, because buildings, it turns out, alongside cars, is the area where there is just enormous waste. On the other hand, the real estate industry as a whole, residential and commercial, are obviously under -- feeling enormous pressure right now.

And so the question is whether there is an appetite for retrofitting old buildings, dealing with energy efficiency in what is already a difficult economic environment. Are there some additional things that we need to do if in fact we're going to move in that direction?

MS. PRITZKER: Mr. President, you're exactly right. The real estate industry is a large contributor to the production of emissions, and so something that we need to take into account and to address this issue. I think given the stress that the commercial real estate industry is under, as well as the residential and housing market, I think we're going to need incentives to motivate people to be able to find the capital; it's very difficult to access capital for such retrofitting.

And so I think there potentially needs to be some kind of incentive plan that might encourage activity now -- job creation comes with that -- at a time when the industry probably doesn't have the money or potentially the will -- and I don't think there's an aversion, or the industry is certainly not against this; it's a question of is it realistic to get it done right now.

I think incentives are enormously -- I think you could put a lot of people to work doing this, because it's not only for the residential but also large commercial buildings. There's enormous work to be done.

THE PRESIDENT: Carol, do you want to talk to us briefly about some of the steps that we're already taking on the efficiency front and are there questions for this group that we're still puzzling over?

MS. BROWNER: Well, on the efficiency front, I think many of you are aware that the President's Recovery Act did include about $6 billion for weatherization, and that program is getting up and operating. We're seeing job creation across the country; very positive.

To Penny's point, the states also are now starting to receive their block grants, and some of that money could be made available in terms of some of the commercial real estate and kind of efficiency investments in commercial real estate.

Waxman-Markey does include a renewables and efficiency standard. What they've done is they've blended it together; right now it's a total of 20 percent renewables, up to 8 percent can come from efficiencies at least -- so you could get 12 percent renewables and 8 percent efficiency. I think it's a carefully crafted provision to the bill. We'll see where it goes. And we look forward to that.

One of the things we've been interested in is, are there other such efficiency -- yesterday, the President exercised his executive authority in pressing his national car standards to an historic level of reduction. Are there things we could do on the efficiency side? We understand there are other things you all are aware of where we have some executive authority that the President could exercise --

THE PRESIDENT: John, did you want to comment on this?

MR. DOERR: There's two thoughts. And I think the most powerful one would be somehow to use your bully pulpit to get the nation's utilities to be rewarded just as much or more from saving electrons as they're now rewarded for producing electrons.

THE PRESIDENT: California utilities have done some interesting work on that.

MR. DOERR: The California experience with this has been terrific.

THE PRESIDENT: Would you describe that real quickly in case people aren't familiar with it.

MR. DOERR: This program is called decoupling. And we know that our utilities right now are rewarded based on the return on their investment. So if we can get them to invest, to reduce the demand for electricity -- they're powerful, powerful engines in our economy. They have a 100-percent market share. They touch every building, every consumer. They know how much energy everyone uses. They have very, very large cash flows, and they have very low cost to capital.

And let me connect that dot with the jobs opportunity. If you through your authority or your influence or through further incentives, more than the $6 billion in the stimulus bill -- said to each state, tell you what, if you adopt this decoupling, if you'll reward these utilities for saving electrons, and if so, I'll give you some federal incentive, with a small amount of federal money you'll change their policies forever.

And the beauty of the utilities is they're publicly accountable and they can very rapidly employ across our nation a million out-of-work construction workers to go insulate homes, for example. And once we're insulating our homes and our offices, we're no longer taking American wealth and tossing it into the air by trying to heat the atmosphere -- is a really dumb idea. That money instead goes into the economy and creates jobs, and people buy services, as opposed to trying to heat or cool the great outdoors.

So using these incentives to change the rules of the road, and particularly of those for utilities, I think Carol would agree has enormous impact. We've done a little. We can do a lot more. We can do it quickly, and they can create a lot of jobs.

THE PRESIDENT: Let me bring in some of the folks who I haven't had the chance to hear from -- Robert, any thoughts on this from a banking perspective?

MR. WOLF: Well, I would just say that we're contemplating here a market-based solution on cap and trade. And I would just say we have seen in the over the counter and exchange trade in markets that we have to make sure that there are disciplined regulatory reforms; that we understand the disclosure requirements; that it’s globally coordinated. I mean, we don't want to redo the OTC derivative problem we just came out of, or the credit crisis.

So I would just say that, since we are going to use market-based discipline, we should be very thoughtful before we decide what exchange we don't want, who can be the market participants. We saw it during the energy crisis a year ago when the market went from 50 to 150, that when you take a small asset class and you make it investable, as an invested asset class and a tradable asset class, you have a lot of volatility and you may have inflation that shouldn't happen.

So I would just say we have to be -- I think we should fast-forward it because of the importance, but I do think we should make sure that we understand what we're going to be trading and who are the participants, because, as we know from the industry I'm in, once we see something that's an openly traded free market, we will have many more participants than we thought. And I think we have to be very careful on it, therefore. And I know that we're going to add that to some of the language in something we're going to be sending you soon.

THE PRESIDENT: That's important.

Larry, we've been talking about how we -- the mechanisms to avoid some of the problems that Robert was discussing.

MR. SUMMERS: Absolutely, yes. We've been working very much to have the right kind of framework in so that the markets function in the right -- function in the right way, yes.

THE PRESIDENT: David, have you got anything to add on this?

MR. SWENSON: I think the discussion really underscores the importance of having healthy financial markets. And we're talking about the big project finance opportunities and the fact that the big money is not there, but it's true on the other end of the spectrum, too. A number of our venture capitalists, including John Doerr and his partners at Kleiner Perkins, are involved in clean tech investing. And in the venture capital world, it's unusual because it's far more capital intensive than a lot of the other activities that they pursue. But the fact that the IBM markets are dead or in remission or wherever they are -- the fact that they're not functioning really has a direct impact on the venture capital end of the spectrum, as well. So the sooner we heal these markets, the better for our energy policies.

MR. IMMELT: There are some ideas around the stimulus, around an energy bank, to get back to Mark's point earlier, that I think business would invest side by side. I think that's the way to accelerate some of these projects, is to get the financing for big projects going forward. And I think not in a stimulus way, in terms of just purely government, but taking an energy "bank" and allowing private business to invest side by side on these projects, whether it's smart grid or wind power or any of those. I think that could be a stimulative impact to get that going. I know some of those discussions have been going on with the Department of Energy.

And then beyond that, just ramping up the ex-im to get behind some of these products as we globalize. I think that's another tool that we've got to get things going faster.

THE PRESIDENT: Right.

Monica, do you want to talk about this from a small business perspective? Are you seeing an interest among small businesses on the energy front? I’ve seen some small businesses that are starting to take advantage of some of the retrofitting and weatherization opportunities.

MS. LOZANO: Just two things I would say. There are productive jobs, and a lot of the workers who have been displaced from manufacturing and construction find this and are where they see great opportunity. So we need to provide not just the retraining and the capacity building for those sorts of jobs; this is a gateway to middle-class work, and so as you've said, in fact, Mr. President, these jobs can cover a very wide gamut and small business is looking particularly at this area because of the great focus on it.

So, one, from the point of view of retraining and job creation that leads to middle-class work I think is very important. The other one of the incentives for small business is to begin to participate in the opportunities. Clearly there's a lot of incentive for large business; the financial markets are going to be working at it. Small business needs to feel that there's an opportunity for them to participate.

The stimulus package, a lot of the money has to go out in the next two years. There's a general feeling that if you don't have a capacity to partake you're going to be left behind, and so they're looking for partnerships between small and large business that can actually bring them to the table to access this opportunity.

So those would be the two things -- one is the job creation that leads to good middle-class work. And the second one is the incentive for small business to actually participate in partnership with the large businesses.

THE PRESIDENT: What I'd like to do, I think -- how much time do we have? I think we have probably about 10 minutes -- 10, 15 minutes. What I'd like to do is broaden the conversation a little bit. I want to make sure that Charles, Anna, Laura -- I haven't heard from you guys, so feel free to -- Bill -- feel free to talk about energy.

But this -- Monica offers actually a pretty good segue. One of the things that we're wrestling with is how do we deal with job creation and employment. We expect that -- and I'm not making any predictions here, because this is being Web-streamed -- (laughter) -- we expect that there's going to be some stabilizing of the economy, that the contraction will end and begin -- the engines of the economy will start to turn again.

But as all of you know, employment is a lagging indicator. We have shed a huge number of jobs during this deleveraging period. And the concern that we have is, even in a stabilized situation, there is the prospect of higher unemployment for some time to come. And so I've been really pushing my economic team around the issue of job creation and, alongside the issue of job creation, being able to create career paths for people so that they're upgrading their jobs and upgrading their incomes, because one of the problems that we saw during the '90s, even with very low unemployment and robust job creation, what you weren't seeing was significant increases in real incomes.

So those are two areas that we're spending a lot of time thinking about. Clean energy is obviously a huge opportunity for job creation. We've talked about that, but if people want to broaden it to some other areas or give us suggestions of things we should be looking at that you haven't been seeing us look at or pay as much attention to, that would be helpful.

So, Charles, do you want to start?

MR. PHILLIPS: Sure. I'll talk to energy, because the technology industry, everything we make uses energy 24/7 and we need a lot of power. And I think what's changed in the last five years is, we used to design data centers with computers in them, and we did that based on where network access points were. And our customers over time would come to us and say, these things use too much power; the cost of energy is going up.

So what has changed now is they care about power. And so it's forced us to design products differently. So I think this is a great example of if the right incentives are in place that people will respond with innovation. So we design products now where computers share power supplies, for instance. We design chips differently. But the power needs of the technology industry -- because they'll rely on the products -- it's only going to increase because the chips are getting faster, they dissipate more heat, designing things closer together, they need more power. Same thing on storage; it's growing 15 percent a year. We keep the data longer because of compliance issues. You can't get rid of data anymore.

So this is going to be an issue for a long period of time to come, and it's becoming a constraint to the growing technology industry, because we are 100 percent power dependent. And so we're always looking for alternative sources. And so if we can go from 3 percent to 10 percent of some alternative sources of energy, that actually adds a lot of flexibility on how you can build a computer, how you build data centers.

But no one talked about this five years ago, and now every single conversation -- before people can decide where to build a data center, they want to know how they can get the power.

THE PRESIDENT: So it's not just my 10-year-old daughter, keeping her iPod plugged in and not taking it out of the socket. (Laughter.) That's just one small manifestation of the larger problem.

MR. PHILLIPS: Right, and ours have to stay on 24/7, so we consume a lot of power. And so if we can get alternative sources, I think it actually opens up roads for our industry.

THE PRESIDENT: That's interesting.

Anna.

MS. BURGER: So I think that it's pretty clear that moving to a low-carbon, green economy can create lots of jobs. Of course, whether they'll be good jobs or bad jobs is still the question. And I think what we do about it can have an impact.

I think it's also going to cause a huge transition. We'll be creating jobs, we'll be changing jobs, and some people will be losing jobs. And we need a plan for that transition.

I think that the Vice President's Task Force on the Middle Class, their first hearing in Philadelphia was about green energy and green jobs, actually had the same finding that our Change to Win federation report had, which are that we need to really think about how to make these jobs good jobs; otherwise they won't be.

There was a U.N. report that does the same basic thing that says we really need to think about how to transition this. Part of it is the whole idea that training -- and I think it's great that there's money in the Recovery Act for training, because we really need to figure out how to make sure that people in the communities can access training so it becomes a job entry point, a job transition point, and a movement into good jobs.

I also think that we need to really think about how to make sure that workers have a voice in the job. What we found -- what the Vice President found, what the U.N. and what we found was, generally speaking, the jobs that were good jobs in green energy were union jobs. Those that weren’t were not. And there was lots of exploitation in workers that we can deal with in terms of how those jobs are structured, how the grants are provided, and what the government's role is.

And so as we move forward, I think that your leadership in bringing business and labor and government together to say, how do we collectively solve this, is exactly what we need to do here in our country, in partnership around the world, because whatever we do is going to have a rippling impact, but whatever they do is going to have an impact on us. And if we really can bring this real partnership together -- that is about what's good for workers, what's good for business, what's good for our government, and what's good for the future of our planet -- that it will force us to change our behavior and really have an impact short term and long term.

And so I just want to end with three quick examples and just on things that we can do now, in terms of real estate commercial properties. Now, when workers have a voice, they can actually have ideas about how they can do things better. So our local in New York and California now bargain in energy standards -- energy efficiency standards. They have a whole training program where they train their janitors and their engineers in terms of how to retrofit, how to save energy. And they actually set a goal in their contract about saving 20 percent of the energy in their buildings through a certain period of time.

They've now started a whole recycling, which they do not only for the buildings themselves, but also for their tenants, which is another way of doing that. The work that's been doing in California about the L.A. Ports -- because we all know that the air pollution from the ports and across our country is terrible. It's bad for the community. It's bad for our planet. It's bad for our kids with asthma. And it's bad for the truck drivers. And so how do we restructure that?

The partnership that's gone on between the environmental communities, the truck drivers with the Teamsters, and the broader community has really come up with a new model that will have energy-efficient trucks, which will be good for the workers, good for the community --

THE PRESIDENT: Energy-efficient trucks that aren’t just sitting there idling.

MS. BURGER: So a change in the whole mechanism of how you do it is important. There's a school in Washington State I think now where the janitors came up with a program with the kids, where they just now ended up lowering the energy use, and recycling.

The laborers -- we're doing a program in New Jersey where they're really doing a training program that is recruiting from the communities. And so it's not leaving poor people behind. We really need to figure out as we create jobs, how do we have a pathway for people who are without jobs to give them an opportunity to step up, have a job with a real skill. And how we do that for the weatherization programs can have a long-term impact.

I think that there are lots of ways if people -- public workers can get together and talk a lot about what they could do to retrofit their buildings, to have better energy practices, to really think about greening. So I think that this partnership opportunity is here because you're leading it. And I think that if we all come together, we can actually move this forward.

THE PRESIDENT: Bill, any thoughts on some of the general questions that we've been asking? You have, obviously, experience in regulating big markets. We're looking at creating a market here. Robert raised some questions about the potential problems involved. I'd be interested in your views on that.

MR. DONALDSON: Obviously, there are some major changes that have to be made in the whole regulatory system and the way our markets operate. If I can divert from that a little bit, I think there's -- your use of the bully pulpit to convince people that the energy situation is going to be a focus of the government -- I think that can be used to stimulate the entrepreneurial desires of people out there. There are lots of small businessmen, venture capital-type people who will see -- if they're convinced it's a long-term program, will see opportunities to put businesses together.

So I'm focused on that great mass of small-business people out there who can divert what they're doing now into this area of -- I mean, the opportunity to go into the housing market and buy a defunct house and fix it up -- I think there's going to be businesses developed to do that.

So I'm looking from the bottom up. There's going to be plenty of stuff from the top down. But mainly, people have to be convinced that it's going to be an opportunity that's not going to go away -- it's going to be a focus for a long period of time.

MR. IMMELT: Just to add to what Bill said, Mr. President, I think not just on energy, but to take pride in being a productive technology manufacturing base -- I mean, you mentioned middle-class jobs; the best middle-class jobs we have in this country are manufacturing jobs.

And I think a long-term notion that we would go gently into a service economy that's been held over the last 30 years, I just think hasn't worked. And so I think that is another piece we have to work on. Rich and I don't agree on anything, fundamentally -- (laughter) -- right? I mean, we wake up in the morning disagreeing about everything there is to disagree on. But I think the one thing we agree on is that when you have -- we ought to create a sense of ownership and pride of a very productive high-tech manufacturing base in this country.

MR. FELDSTEIN: For those of us who work in the service industries, like education or health care, we don't want to knock that too much.

MR. IMMELT: No, no, no --

MR. FELDSTEIN: That's been the only thing that's provided jobs --

MR. IMMELT: I just think there's going to have to be some balance --

MR. WOLF: Jeff, one thing I think it's -- obviously growth in manufacturing is critical. But we should realize that finance, insurance, real estate -- which is called the acronym FIRE, unfortunately -- we've lost over half a million jobs in a year and a half. That's 10 percent of all jobs lost. So I know that we have to focus on the labor and the middle class and how to gain manufacturing, but we have been a growth and service industry for a decade -- that we've lost, as Laura said, you know, 10 percent-plus of our jobs. So I think you need that balance on both sides.

MR. IMMELT: When I came to work for GE in 1982 --

MR. VOLCKER: Increase our productivity rating --

THE PRESIDENT: Well, I think the fact that some really good math whiz kids are going into engineering as opposed to derivatives is not a terrible thing.

MR. VOLCKER: -- more engineers --

THE PRESIDENT: But I think that there's no doubt that manufacturing is not going to return to the share of the economy that it was in the 1950s, regardless of what our policies are, just because our manufacturing is extraordinarily efficient compared to what it was.

On the other hand, what is true is that if we are going to at least have a larger element of exports, for example, as a proportion of our economy, which I think we're going to need -- we've had this idea that we can just be the consumers of everything and not -- and borrow and spend. And at some point, we’ve got to start selling something. Some of that is going to have to be top-notch products.

Some of it will be services and that helps our current economy as well. But if on energy, for example, we're just importing Spanish windmills or wind turbines, as opposed to some that are made here in the United States, that would be a shame, and I think we need to take advantage of that.

Penny, you wanted to jump in.

MS. PRITZKER: I just wanted to underscore something Anna said. We have some of the best innovation in terms of clean activities in our hotels coming from our employees and it's come from the bottom up. We challenged our employee base to come up with creative ideas of how to do cleaning without using chemicals, how to better recycle, how to use less.

And so I think there's a really interesting opportunity to use the bully pulpit and to highlight how the partnerships are working at the local level in some very major --

THE PRESIDENT: Telling some good stories, yes.

MS. PRITZKER: -- and to really celebrate that and raise the pride as to this is really an important endeavor in our country.

THE PRESIDENT: Good.

Laura, I wanted to get you in here and -- you're a wonderful generalist, as well as a specialist. One thing I was interested in is how this fits into what you're seeing internationally, because there is a concern voiced by Rich, but I suspect Jim and others are going to be concerned about it, we're moving in an area where, as Marty said, there are going to be some increased costs related to this. And if we don't see some concerted action on the other side, we're going to be placed at a disadvantage.

MS. TYSON: Well, I would tie it back to the beginning of the conversation. I think that it's really important to go to Copenhagen from a leadership position, because if we try to do something on our own, or if Europe tries to do something on its own, but we don't get emerging market buy-in, we will end up in a world where we're going to have carbon tariffs, compensating border, offsetting border, interventions in trade -- things which we would be much better off in terms of efficiency and getting a global outcome on carbon to get a global agreement.

So my first thing is let's really move towards that as a way to hold off a much worse situation where we don't have a global solution and we have a bunch of trading restrictions that intervene. So that would be my first point.

My second point, thinking about it in terms of a couple other trade policy areas, I think there has been -- someone raised already, it's been raised in the jobs group -- looking more at what we can do with ex-im as a way to promote our exports. It gets to the issue of the small- and medium-sized businesses in the following sense -- I mean, the truth about employment in the United States over the next decade is the same truth about employment in the last decade: It's primarily small- and medium-sized businesses, whether it's goods or services, and it is going to be primarily services.

It is not the case that -- so our jobs task force is going to have to look at high-wage strategies for services as well as for manufacturing. And I'm perfectly sympathetic, actually completely sympathetic with the view of building as much as we can, strengthening our manufacturing base. But that will be leaving the share of manufacturing probably steady, the share of manufacturing employment and total employment probably continuing down.

So I think we have to be realistic about the jobs and say, okay, we want to really build the strength of our manufacturing exports and our manufacturing sector, and that will create wonderful jobs throughout the economy. So Ex-Im Bank and what we do at Ex-Im Bank becomes an issue for manufacturing and exports.

But also, I think we have to be very careful. One of the things that I've concerned about, looking around the world, is a lot of countries -- most countries now who are our competitors are talking about the importance of green energy and green jobs, and some of them have a head start on us. And, you know, there are embedded in a lot of what they're doing, local content restrictions -- that is, in order to serve the green economy of the home country, you require local content provision of that service.

Now, some of this is local content by definition. I mean, utility is a local content, refurbishing a home is a local content. Where you buy a wind turbine is not local content. Do you make it so -- so I think we have to be very careful. There's a whole set of trade-related issues around the development of this green economy that we're going to have to keep track of.

The last thing I'll just say is that we are working with your -- we've just started to work with the manufacturing task force and we already, despite what I said about -- I'm not convinced we can have a significant change in the trajectory of manufacturing jobs, but I think we can do a tremendous amount to strengthen U.S. manufacturing as a sector and we will be working with that task force.

And one of the first things that came up, interestingly enough, is this issue of how you help the small- and medium-sized business sector, that I said is very important in manufacturing, access the programs and policies of the U.S. government. We are spending -- I mean, the stimulus bill is a massive investment by the government in the U.S. economy. It is much harder for small- and medium-sized businesses to access that support. And we need to think very carefully about, can we get that better? So that's going to be one of the focuses of the effort.

THE PRESIDENT: We're out of time. Jim, you want to jump in right quick; Mark, you want to jump in, and then Paul.

MR. OWENS: I'll be just very brief. One of the things, don't forget, is that small- and medium-sized companies are big suppliers of Jeff and myself. Roughly, for every job we have, there are three jobs at small- and medium-sized company suppliers feeding us. We exported, for example, last year $16 billion worth of product.

So a lot of our small- and medium-sized companies don't know they're exporters, but they're exporters. (Laughter.) And it's very important that we continue to look at global manufacturing competitiveness. And I think, as a country, if we're going to be a great country 20, 30 years from now, we've got to shift the paradigm a little bit here. We've got to save more and invest more and export more. We can't have the U.S. consumer have the huge deficits. You asked about what do we have to do structurally different going forward. That's one of the reset buttons we've got to hit. And that's a tough one. It's tough for political leaders to help bring about that change, and I think the business community has got to be part of helping the public understand. We've got to save more, invest more, and grow our international competitiveness as a key to our future success.

THE PRESIDENT: Mark.

MR. GALLOGLY: I was just going to add something to follow up on what Laura said. If you think about the competitive dynamic internationally for green, since other parts of the world are just growing their demand for energy just much faster than we are -- so China is high single digits, low double digits -- and because they have a centralized authority that can allow for, for example, a smart grid being put in place much faster than we can, those two things will naturally result in them developing better technologies faster, because their whole market actually has more demand. So we're fighting a fight that will require us to be more on our game than we have to be in a general sense because they have a natural, clear advantage, but governmentally and demand-wise.

THE PRESIDENT: Paul.

MR. VOLCKER: Well, I think we're seeing a remarkable degree of consensus in this group on this particular problem. I'm not going to add anything on the technical side, but let me just make two points on this issue.

It's going to take -- it's going to take a lot of investment over time. But one thing I'm sure of, we've got room for that investment. When this economy normalizes and the financial markets normalize, Jim is quite right, we're not going to live on consumption we've got to fill up that hole in consumption with investment, which will make us more internationally competitive. And I don't have any doubt that this is going to be a good thing in terms of supporting economic activity.

The only other point I'd make, any time this is discussed and the cost, there isn't enough emphasis, it seems to me, on the cost of what happens if we don't do anything. If any of these projections are halfway correct, it's going to cost amounts of money that makes this stuff we're talking about trivial. And I don't think that that's impressed enough upon -- I know it's got resistance so it's hard politically, but there it is.

THE PRESIDENT: I haven't found anything that was easy politically yet. (Laughter.)

MR. VOLCKER: We'll produce that at the next meeting.

MR. GOOLSBEE: I'm sure I speak for the whole group. We've been very excited. This has been a real unique opportunity I think for the government but also for us to get to know each other and to have this outside perspective.

Our ability to operate as an advisory committee does depend on coming up with things that are of interest to you and to top policy-makers. So if you ever have subjects, or Christy, Carol, Larry, if you guys ever have subjects you want to hear from us, if you convey them to our illustrious chairman or to me or to any of us, that helps us do our part.

THE PRESIDENT: You guys have done a terrific job. Obviously there have been a bunch of smaller groups that are working intensively with our economic team. They've got five or six things already on the plate. This has been extraordinarily helpful. I appreciate all of you coming in.

If you can keep your seats just for a moment, we're going to bring a pool spray in just to record who it is that was in the meeting, although we've had some press folks in here taking assiduous notes, I'm sure.

Go ahead.

(The press pool comes in.)

THE PRESIDENT: Hello, everybody. Well, you will have a record of everything that was said here, so we don't need to repeat it.

I just want to publicly thank this group, chaired by Paul Volcker, staffed by Austin Goolsbee. They are doing extraordinary work, separate and apart from meetings with me, on a whole range of issues. We talked about energy today, but they are helping to advise us in our approach to the financial regulations regulatory regime that we are looking to put before Congress this year. They are helping us in thinking about employment, manufacturing. There is a whole host of issues that this group is providing wonderful expertise for.

And interestingly enough, as Paul mentioned at the end of this discussion, there is impressive consensus -- not perfect consensus, but an impressive overlap of views about the importance of us getting out front on energy -- the enormous job-creation potential that exists; the requirements to create a more efficient energy system in order for us to remain competitive.

And I'm excited about the opportunity. We've seen some great progress this week. We're going to see more because of the contributions that are made around this table.

So thank you very much, everybody.

END
11:22 A.M. EDT

3:45 P.M. EDT

THE PRESIDENT: Well, thank you very much. Good afternoon, everybody.

AUDIENCE: Good afternoon.

THE PRESIDENT: And thank you, Lisa. I think you can see that she’s pretty good at making a pitch. (Laughter.) And we’re grateful for sharing your story and your enthusiasm with all of us. And congratulations to you and everybody who is being honored here today as some of America’s most outstanding business owners and lenders and counselors and coaches.

I want, also, all of you to know that I am so pleased with my selection as SBA Administrator. Karen Mills is somebody who is passionate about small business; she understands the ins and outs of it, the nuances of it. She is fighting for bringing SBA into the 21st century. So I think you’ll find just an outstanding partner in her, please give her a big round of applause. (Applause.)

Running a successful small business is impressive in any year -- but it’s especially impressive this year, at this moment when we’re facing the most serious economic downturn in generations. And I know that what you do isn’t easy. I know that for every contract you’ve won, every sale that you’ve made and job you’ve created, you’ve had plenty of setbacks and false starts and late nights wondering how on earth you’re going to keep everything together and why you decided to take this path in the first place.

But you kept on going. You scrimped and you saved and you borrowed and you improvised. And your failures didn’t discourage you -- they educated you and they motivated you to succeed the next time around. And today, we honor that courage and determination and daring just as much as we honor the success that it ultimately brought you.

And that’s the spirit that led Lisa -- a single mom, a former hairstylist -- you know, the hair looks good, so you -- (laughter) --

MS. PINEIRO: I’m good. I cut hair in the back room. (Laughter.)

THE PRESIDENT: In the back room, while she’s scooping ice cream -- (laughter) --

MS. PINEIRO: Running the construction company. (Laughter.)

THE PRESIDENT: -- running the construction company, she’s been doing her hair. (Laughter.)

MS. PINEIRO: I do.

THE PRESIDENT: I think there was a song about you, wasn’t there? (Laughter.)

MS. PINEIRO: "She works hard for the money" -- (laughter.)

THE PRESIDENT: To set out a little over a year ago -- a little over 10 years ago with nothing but a loan from her parents and a big idea, and her company now has 78 employees; it’s grossed nearly $4 million in sales last year.

It’s what led Tom Masterson -- where’s Tom? Tom’s right here -- Tom, after working for 30 years in the electrical industry, to co-found T.E.M. Electric, funded it entirely on his own and working out of his living room until he won his first major contract. Today, the company employs 75 people and has over $12 million in revenues.

It’s what led Andy Wells, a member of the Red Lake Ojibwa Tribe, to invest $1,300 back in 1989 -- where’s Andy? Right here -- $1,300 back in 1989 to found Wells Technology, manufacturing industrial tools and fasteners and creating jobs near reservations in Minnesota, where he lives. In 2008, his company generated $54 million in revenues, and his customers include Coca-Cola and Boeing and Oshkosh.

So small businesses like these are driving our economy. You’re the job creators, responsible for half of all private sector jobs. You’re innovators, producing 13 times more patents per employee than large companies. You’re the starting point for the products and brands that have redefined the market. After all, Google started out as a small business; that was a research project. Hewlett-Packard began with two guys in a garage. The first Apple computers were built by hand, one at a time. McDonald’s started with just one restaurant.

And small businesses don’t just strengthen our economy -- they also strengthen our communities. Your customers aren’t just anonymous folks who buy what you sell -- they’re your friends, they’re your neighbors. The place where you set up shop often isn’t just your business address, but it’s also your hometown, and sometimes it’s your home. And I know what you do to give back -- sponsoring sports leagues and service projects, serving on boards, donating to charities, mentoring other small business owners to help them be as successful as you are.

So with all that you do for this nation, I think our nation’s government should be there to support you -- to help you grow and expand and succeed. So I’m pleased that nearly all of you have benefited from SBA’s services -- from SBA loans, programs, advice, counseling. And I’m pleased about that, but I’m not satisfied. I think we can do more. We can do more to help small business owners, especially right now.

And that’s why our recovery plan raises the guarantees on SBA loans to 90 percent, eliminates costly fees for borrowers and lenders, and includes a series of tax cuts for small businesses, as well as incentives to encourage investment in small businesses. And that’s why my proposed budget reduces the capital gains tax for investments in small or startup businesses to zero. Zero capital gains tax.

That’s why I intend to pass comprehensive health care reform this year, so we can lower costs, raise quality, and make it easier for many of you to not only get health care for your employees, but also for yourselves.

And that’s why we’re announcing a new SBA loan program -- the America’s Recovery Capital, or ARC, program. And this new program will provide up to $35,000 to help struggling, but still credit-worthy, small businesses pay off non-SBA debts -- money they can use to pay suppliers and vendors, or pay down credit card debts. And the loans will be guaranteed 100 percent by the SBA, and they’ll be available starting June 15th. And I believe they will be a lifeline to help viable small businesses through these difficult times.

So all of this is a good start, but it’s only a start. We still have much work ahead to support our small businesses and restore our economy. It won’t be easy. We’ll need to be bold and creative and take risks, just like all of you have done. But that’s always been the American story -- that belief that all things are possible, that we are limited only by our willingness to take a chance and work hard to achieve our dreams. And I’m confident that we will do exactly that. Together, we are going to meet the challenges of our times.

So congratulations again to all of you for what you have succeeded. And please make sure to keep feeding us good ideas, so that we can help you help the American economy and the American people. Thank you very much. (Applause.)

END
3:54 P.M. EDT