Versus the monetary, the you have to suffer for your sins versus you have to stop the panic. Those are in the sense would be the two schools. Rose youre in favor of stopping the panic. Absolutely. Rose and not suffering for your sins to you. It to the a morality play f you want to do a morality play we can do lots of things like putting bankers in jails and thing like that but not at the macro level no one is being recorded rdz but most people understand we need entitlement reform and it ought to be on the table. Absolutely. Rose mish phenomenon fishman and pos enwhen we continue. Funding for charlie rose was provided by the following additional funding provided by these funders . From our studios in new york city, this is charlie rose. Rose jay fishman is here, he is is the chairman ceo of travelers. It is one of the nations leading providers in Property Casualty insurance. Travelers has also been a leader in Corporate America to help educate the public at americas debt crisis. The Company Recently partnered with Public Television on a documentary underscoring the urgent challenge ahead it is called overdraft and here is the trailer. Some people understandably say this is sort of dry subject, dollars, cents, debt. Whats it mean to me. If i read the mathematics right it means everything. I really genuinely believe this threatens the fundamental Economic Security of the United States. A lot of the democrats are mad because they say well, this is mostly caused by the republicans. Without cut taxes and increased spending. The problem for the democrats is that if you look at the next ten years, most of it will be caused by things we care about. All of us are invested in this democracy. We are to the going to have parts of our community succeed and parts fail. If government fails, we all fail. We dont trust government. But we need government. And government is us, when you come right down to it. Those folks in washington werent landed there from mars. They were elected by us. Its a complex problem. People want quick answersment but the fact is that there arent quick answers. These arent things that can be fixed in election cycle. And the question is do we have the Political Leadership that is willing to invest that way. Rational thinking leads to one thing, conclusions. And conclusions are not going to solve the debt problem. Emotions on the other hand leads to another thing, action. Okay. And we need to take action about the debt in the u. S. We need to change. Were going to pass on to our kids a less prosperous nation where they will have a lower standard of living, a massive debt they cant afford to pay off and therefore less secure nation. Im to the giving up on democracy. I dont know what the alternative is. If you say a democratic government cant solve this problem, then you are saying we need a dictatorship . I dont think so. Rose im pleased to have jay fishman at this table for the first time, welcome. Thank you, charlie s so good to be here. Rose so just pick up on overdraft, whats the urgency . And why hasnt the government, washington responded to something that most people agree stands in the way of americas Economic Growth and health . So let me size up the issue in just a few numbers. This discussion has been lots of words, precious few numbers. The baby boom generation of which im a member is moving in exorrably into that 65 and older time frame, between 2000 and 2010, 55 to 64, that Population Group grew by 75 . And they are about to move into the what we come to refer to as the entitlement program. Heres the numbers. Last year Social Security, medicaid, medicare was a trillion 500 billion. 1. 5. It will then begin to march up and by 2020, which pick that because it is a nice round number it will be 2. 5 trillion dollars, every year, every year, a trillion dollars more every year as these programs begin to respond to this population boom. And thats going to create some real challenges for us. And people understand theres an issuement think dont think they understand how urgent it is and the fact is that time is really becoming of the esence. Thats why we got involved in this. Rose we building . Travelers. Rose your company. Thats right. We, it was september of 08 so a long time ago Lehman Brothers went bankrupt. And there was lot os of discussion in Corporate America about uncertainty. And that was what was keeping Corporate Leaders from investing. And i am one. I have 30,000 employees, and we manage business that looks to the future. Thats what we worry about in the insurance business, wass the future going to be. And i couldnt put my finger on what that uncertainty is, and that lead us into a deep dive into the numbers. That is who we are. We are numbers company, very data oriented. And we did a deep dive. And the numbers are are stunning. And i dont use that word lightly. But it raised to me a real sense of urgency to become an advocate, an advocate at the very least trying to help people understand the size of the issue and what confronts us. Rose so what has to happen . Well, everybody will have their own political and social view, and i have my own. We are a democracy and i will go with the 51 wherever it leads us. But i believe those three programs are part of the American Fabric. I think they i think they. Rose Social Security dns Social Security medicare and medicaid, i think they are very much a part of the American Fabric and it is a challenge to us to figure out how are we going to finance that. Rose what is the change that you recommend . So what i would do, and again everybody will have their own view, is first with respect to Social Security, i would means test it much more aggressively than we do now. That means including not only incumbent assets. Rose which means how much you get depends on how much you need. And thats what the program was designed for and we should return to its roots. And so that. Rose you would excuse some groups that just come in, whenever they began to make changes like that means to have something they say, no one who is to you getting or who got it. Yes. Were if the going to pull the rug from under people that relied on that promise, absolutely. This has to look forward. And by the way, the urgency is it the more forward we look the more the baby boom generation moves in the less influential our changes are. So its urgent. So i would means test it i would incorporate the change cpi change to adjust for inflation to a more reasonable framework but i would drive the benefit hard to the people who really need it. Without question. Part of the fabric. Medicare i think theres a couple of things, its really a complicated issue but were going to end up with some more aggressive managed care approach to medicare. Were going to, as most of us in the private arena, we have Insurance Companies that pay for some things and they dont pay for others. Were going to have to get aggressive about figuring out what therapies make sense, where the dollars should be spent. Were going to have to manage it aggressively. I hate to fall back on fraud, waste. But the estimates are are 50 billion a year in medicare go out to fraud, waste and mismanagement. So taking that responsibility seriously. Because i personally believe that if that program is crit k58ment access, being able to go see a physician, to get into a hospital when are you sick when are you old, thats just a crit k58 part of without we are. Rose did the obama healthcare reform address that . I think it made actually the economics a little bit worse, but it moved us more in a social direction. Rose made access better and economics worse. Thats correct. And we havent really dealt with the economics. Rose it really only dealt with access. Thats right. And lastly on the medicaid front because it is really driven to indigent families, very complicated medical issues, i would leave that one to experts. Its not the biggest portion of the cost. Its medicare and how it relates. And then secondly Social Security. Also in medicare, i would be, for one for raising medicare tax, i have no problem with that. This is, were talking about, again, something that is part of the fabric of who we are as americans. And you cant just take whats good and not feel accountable and responsible for paying for it. And i think that goes with it. Rose it was said at the time of passage and argued by the Obama Administration that the healthcare reform put forward by him was deficit neutral. I think were going to find out. I think were going to find out what demands, its also interesting to figure out what demands this new group will put on the medicare system. The other interesting part about all this, and well see this rumble through the system too, healthcare largely. Theirs institutional. Its hospital beds, mri, equipment and the fact that an individual gunt see a doctor may lower medicare costs, but it doesnt lower healthcare costs. And if we squeeze medicare costs enough, what will happen is the providers, the hospitals and the rest will ultimately have to change their model because it wont be able to respond. So were at the beginning, i think, of some really structural changes in the health care environment. And well see where they end up. Rose and washington is not dealing with the issue. No, not candidly not well. Rose cant get beyond you know recently it was able to extend the meddle middle class tax cuts and not, tend the tax cuts for people who made 250,000 household income. And good but not responsive to the issue, right. The issue of whether tax rate was go up on wealthy is an interesting one. Its certainly politically charged. But it contributes over ot ten year period round number 6 to 700 billion. Barely touches the issue. And so the issue didnt become how do we deal with this intermediate term crisis, its not long term any more i believe its intermediate term, its how do we deal with this fiscal cliff of the moment. Rose and even Newt Gingrich said it is not the place republicans ought to make the fight because in the end they will do something. But if it doesnt happen, then people like you and others will descend on washington to force some result which will not be you know in the end there will be a result to do something about the debt. Sure, its unthinkable that we would default. I done mean unthinkable meaning you cant contemplate it, its not in the realm of possibility. The notion that a maturing Treasury Bill that someone holds would not be paid in full is impossible. Just impossible. So i including the it has for the American Economy and the american word around the world. I think weve taken a serious hit to the prestige of the American Financial strength, all right. And it comes from a few things. It comes from the first debate about the debt limit. It comes from the way we handled fiscal cliff. We have become a nation that responds to a deadline, only to a deadline. And at least so far we have been patching it along the way. And so we create more deadlines. I mean the sequestration was created because we couldnt get through Simpson Bowles. Rose Bowles Simpson, a very good effort. Yes, yeah. And i think directionally a sound one. By the way i think the dom initchi rivlin which got much more coverage was in many respects also very thoughtful at this and really dealt with it in the broadest framework. Just an example. We talk about cutting spending. One of the things that came out of the diminicirivlin commission was that if we held, if we held defense spending flat, not cut it but just held it flat for five years and then let it grow with gdp which is what you do if are you in a business, would you look to gdp. And if we did the same thing with discretionary expenditures, the savings over the time period is now 700 billion. We dont even have to have. Rose that much. No, thats not bad. Thats beginning to chip away at it. But 700 billion without having a discussion of what has to get cut simply making a commitment to maintaining it flat is fascinating to me. And that really just shows that the political discussion has pushed to the extremes. Rose the other thing that you care deeply about is leadership. Tell me, and paul volker say hero for you. Yes. Rose former chairman of the Federal Reserve when he basically attacked inflation and said were going to yeah, the only thing worse. Rose and understanding that he was going to have to a very, very tough year or so for the economy. And, indeed, the beginnings of that reagan term were problematic, right. That was i mean paul volker really i think understood that the only thing worse that fixing inflation was not fixing it. It was that corrosive. Rose and Ronald Reagan probably understand if you are going to do it do it early in your term so that by the time f it works, you will have something positive to point to and say yes, i know how bad it was. I know you turned against me, however, we got it under control. And he pushed prime rate above 20 . And it caused a meaningful recession. The last time unemployment was above 10 was in the course of that recession. Rose but its leadership of that kind that paul volker that you believe is necessary. I do. And. Rose but where is ben bernanke, who has the same job volker had. Yeah. Rose where is he . Well, volker at the time had the authority to do what had to be done this is not in Ben Bernankes bailiwick, this is in congress and the administration. Rose agreed. Ats not a monetary issue. Thats right. To me, in this case leadership is about articulate a plan. Show me where were going. And me as a citizen, show me where were going and show me whyment and then fight to take me there. But show me a plan. And right now. Rose i would show me a plan, tell me what my responsibility is, and we go together. We have been a nation of shared sacrifice for so many years. You know, weve gone to war. We think about the next generation. People often say to me what is the thing i worry about the most. The thing i worry about the most is as we as a nation lost our focus. Rose isnt it what we have done, we have not acted with we have first of all we have not been a saving economy, we have been a consuming economy. All about today. I want the next gizmo. Rose we want a government, we dont want to pay for it reasons right. Rose its all those things that are now coming due. Yes. And largely because of the demographic shift. Question manage to make this work for as long as the workforce made it work but now we wont. And i do think that this is time for an acknowledgment of the issue, step number one. Almost like a 12 step. Show me the numbers. And thats why we did overdraft. Show me the numbers, two. Rose recognition. Give me a plan to your point, tell me what i have to do to contribute and im in. At least thats been the american way so far. I hope we havent lost that. Rose how is the way you run travelers different from the way aig was run or the way that the Berkshire HathawayInsurance Companies are run. Well, couldnt pick two different, at least two different issues on the spectrum. First let me start off with warren who really is remarkable guy. I know you know him as well. Hes been here, in fact. Warren runs his business very smart and very thoughtfully. It is predominantly, though, an Insurance Company that generates capital for an investment vehicle. Rose allocation. And thats his philosophy for doing business. And he has been remarkably successful at it. We dont think of ourselves that way. We are. Rose thats a very basic different philosophical. Enormous. Were not warren buffett. Were not we dont. Rose you have to be warren buff tote have that attitude. Capital, you have to have the intellectual capital. You have to have the financial capital. You have to have theres a lot of things that he has that we just dont. And so we cant possibly compete with that. Rose rather than allocating the capital that comes in. Right. You are basically taking and making very conservative bets. Very much so. And so we are an Insurance Company first and foremost and we take only that amount of investment rising that we need to be a successful Insurance Company. Rose so therefore in good times will you not be as strong and in bad times will you be better than everybody else. So it worked pretty well these last few years. We made a decision. You asked about aig. We made a decision in 2004 that what you were getting, what you were being paid to hold what we perceived as risky assets was not sufficient to hold them. And so we stopped. And the number that i use is that the difference in yield which we know then fannie mae 10 year bond and a residential subprime structured bond rated aaa was a quarter of one point. Thats all it was was a quarter of a point. The fannie pay bonds had the implicit guarantee of the u. S. Government, thats worth something testimony had the experience and history of knowing how fannie mae securities work and run. The subprime stuff had been around for an hour and a half. We thought it was worth more than a quarter of a point so we stopped buying. Rose there is also this about your career at travelers. You work closely with sandy weil. And you left. Yeah. Rose to his great disappointment, to go run another company, which later was bought by yeah. Rose now what was it that propelled you to leave. Because you said the most amazing thing. That most people dont have the capacity to do. You said im not ready to leave to lead citigroup, im not the guy. Its absolutely true. Rose thats a hard judgement to say or was it not at all it was just so obvious to you that yeah, selfexamination, critical part of, i think, growth and maturity. And i hadnt had sufficient experience in lots of those business that gave me the confidence that i could be accountable for them. Rose really. I didnt have it. I asked myself a lon