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GOLDMAN SACHS, CO.

2013 IBD CEO ANNUAL CONFERENCE

KEYNOTE SPEAKERS:FORMER UNITED STATESSECRETARY OF STATEHILLARY RODHAM CLINTON andLLOYD BLANKFEIN- - - - - - - - - - - - - - - - - - - - - - - x

The Inn at Palmetto Bluff Bluffton, South Carolina

June 4, 2013 8:05 P.M.

Before Patricia T. Morrison, RegisteredProfessional Reporter and Notary Public of theState of South Carolina.

ELLEN GRAUER COURT REPORTIN CO. LLC 126 East 56th Street, Fifth Floor New York, New York 10022 212-750-6434 REF: 104014

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MS. CLINTON: Let's start with thechairman. MR. BLANKFEIN: China. We're used tothe economic team in China. We go there all thetime. The regulations -- and then every once in awhile you hear about South China, the militaryside. How do you from the state departmentpoint of view -- less familiar to us -- think aboutChina, the rise of China, and what that forebodesfor the next couple of decades? MS. CLINTON: Well, you start off withan easy question, but first let me thank you.Thanks for having me here and giving me anopportunity both to answer your questions and maybelater on some of the questions that some of theaudience may have. I think it's a good news/maybe not sogood news story about what is going on right now inChina. On the good news side I think the newleadership -- and we'll see more of that when XiJinping gets here in the United States after havinggone to Latin America. He's a more sophisticated,more effective public leader than Hu Jintao was. He is political in the kind of genericsense of that word. You can see him work a room,which I have watched him do. You can have him makesmall talk with you, which he has done with me.His experience as a young man coming to the UnitedStates in the 1980s -- going to Iowa, spending timethere, living with a family -- was a very importantpart of his own development. MR. BLANKFEIN: His daughter is atHarvard? MS. CLINTON: Yes. They don't like you

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to know that, but most of the Chinese leadershipchildren are at American universities or have been. I said to one very, very high rankingChinese official about a year, year and a half ago-- I said: I understand your daughter went toWellesley. He said: Who told you? I said: Okay.I don't have to punish the person then. So I think that the leadership -- andfor me that's important, because you've seen theclever moves that he's made already. He not onlywent to Russia on the first trip, he went to Africaand then to South Africa. Now in Latin America. Some of it is the same old commodityhunt, but some of it is trying to put a differentphase on that and to try to assuage some of thedoubts and some of the concerns that have beenbubbling up over the last couple of years aboutChinese practices, both governmental andcommercial. So he's someone who you at least havethe impression is a more worldly, somewhat moreexperienced politician. And I say that as a termof praise, because he understands the differentlevers and the constituencies that he has to workwith internally and externally. That's especiallyimportant because of the recent moves he's makingto consolidate power over the military. One of the biggest concerns I had overthe last four years was the concern that wasmanifested several different ways that the PLA, thePeople's Liberation Army, was acting somewhatindependently; that it wasn't just a good cop/badcop routine when we would see some of the moves andsome of the rhetoric coming out of the PLA, butthat in effect that were making some foreign

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policy. And Hu Jintao, unlike Jiang Zemin beforehim, never really captured the authority over thePLA that is essential for any government, whetherit's a civilian government in our country or acommunist party government in China. So President Xi is doing much more totry to assert his authority, and I think that isalso good news. Thirdly, they seem to -- and you allare the experts on this. They seem to be coming togrips with some of the structural economic problemsthat they are now facing. And look, they havethem. There are limits to what enterprises can do,limits to forcing down wages to be competitive, allof which is coming to the forefront; limits to areal estate bubble. All of the cyclical businessissues that they're going to have to confront likeevery other economy, and they seem to be makingsteps to do so. On the not so good side there is aresurgence of nationalism inside China that isbeing at least condoned, if not actively pushed bythe new Chinese government. You know, Xi Jinpingtalks about the Chinese dream, which he means to bekind of the Chinese version of the American dream.There has been a stoking of residual anti-Japanesefeelings inside China, not only in the leadershipbut in the populace. It's ostensibly over thedispute that is ongoing, but it's deeper than thatand it is something that bears very carefulwatching. Because in my last year, year and a halfof meetings with the highest officials in China therhetoric about the Japanese was vicious, and I hadhigh Chinese officials in their 60s and 50s say tome: We all know somebody who was killed by the

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Japanese during the war. We cannot let them resumetheir nationalistic ways. You Americans are naive.You don't see what is happening below the surfaceof Japan society. Riots that were not oppressed by thepolice against Japanese factories, against theJapanese ambassador's car -- those kinds of actionsthat were acting out in the sense of nationalism,which could well be a tool that the new governmentuses to try to manage some of the economic changes.Divert people's attention. Get them upset at theJapanese. Not upset the party. We're a little concerned about that. MR. BLANKFEIN: Does it make any of theother Asian countries nervous and thereforegravitate closer to the US? MS. CLINTON: There is a lot ofanxiety, but it's a schizophrenic, I guess is theway I put it. On the one hand, no nation wants tobe viewed as hostile to China. That's not in theirinterests. They have -- if you're Japan or SouthKorea in particular, you have a lot of businessthat you have to do. So you're going to want tokeep the relationship on an even keel at the sametime this assertiveness, which we first saw mostparticularly around the South China seas startingin 2010, kind of ended the charm offensive thatChinese were conducting with all of their neighborsin Southeast Asia and the assertion of control overthe entire sea. If you Goggle up what the Chinese claimis, it's the entire South China sea. And I wouldhave these arguments with the state counselor, DaiBingguo, with the foreign minister, Yang Jiechi,and I would say: You know, if you believe this,

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take it to arbitration. MR. BLANKFEIN: An unfortunate name. MS. CLINTON: Which one? MR. BLANKFEIN: The South China sea. MS. CLINTON: Yes, it is. And thereare a lot of people who refuse to call it thatanymore. The Filipinos now call it the Filipinosea and the East China Sea is called the JapaneseSea. So yeah. We've got all thesegeographic and historic challenges that are comingto the forefront, which seems a little strange whenyou think about the economic development and growththat has gone on in the last 30 years, to beharkening back to the 1930s and the second worldwar at a time when you've surpassed Japan. You're now the second biggest economyin the world. It really does raise questions aboutwhat is going on in the calculus of the leadershipthat would encourage them to pursue this kind ofapproach. Nationalism, of course. Sovereignty, ofcourse. And if you want to go into it there is --I can give you their side of the question on whatthe Japanese called the -- you know, you can gointo why they are so agitated about it. But thefact is, they have bigger fish to fry in the SouthChina Sea and elsewhere. So why are they intent upon pickingthis fight and asserting this at this time? Whyare they slamming into Filipino fishing vessels?You know, a poor country that is just desperatelytrying to get its growth rate up and making someprogress in doing that. So it bears watching, andobviously it matters to all of us. MR. BLANKFEIN: The Japanese -- I was

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more surprised that it wasn't like that when youthink of -- all these different things. It's sucha part of who they are, their response to Japan.If you bump into the Filipino fishing boats, then Ithink you really -- while we're in theneighborhood, the Chinese is going to help us orhelp themselves -- what is helping themselves?North Korea? On the one hand they wouldn't want --they don't want to unify Korea, but they can'treally like a nutty nuclear power on their border. What is their interests and what arethey going to help us do? MS. CLINTON: Well, I think theirtraditional policy has been close to what you'vedescribed. We don't want a unified Koreanpeninsula, because if there were one South Koreawould be dominant for the obvious economic andpolitical reasons. We don't want the North Koreans tocause more trouble than the system can absorb. Sowe've got a pretty good thing going with theprevious North Korean leaders. And then alongcomes the new young leader, and he proceeds toinsult the Chinese. He refuses to acceptdelegations coming from them. He engages in allkinds of both public and private rhetoric, whichseems to suggest that he is preparing himself tostand against not only the South Koreans and theJapanese and the Americans, but also the Chinese. So the new leadership basically callshim on the carpet. And a high ranking North Koreanmilitary official has just finished a visit inBeijing and basically told: Cut it out. Just stopit. Who do you think you are? And you aredependent on us, and you know it. And we expect

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you to demonstrate the respect that your father andyour grandfather showed toward us, and there willbe a price to pay if you do not. Now, that looks back to an importantconnection of what I said before. The biggestsupporters of a provocative North Korea has beenthe PLA. The deep connections between the militaryleadership in China and in North Korea has reallybeen the mainstay of the relationship. So now allof a sudden new leadership with Xi and his team,and they're saying to the North Koreans -- and byextension to the PLA -- no. It is not acceptable.We don't need this right now. We've got otherthings going on. So you're going to have to pullback from your provocative actions, start talkingto South Koreans again about the free trade zones,the business zones on the border, and get back toregular order and do it quickly. Now, we don't care if you occasionallyshoot off a missile. That's good. That upsets theAmericans and causes them heartburn, but you can'tkeep going down a path that is unpredictable. Wedon't like that. That is not acceptable to us. So I think they're trying to reign KimJong in. I think they're trying to send a clearmessage to the North Korean military. They alsohave a very significant trade relationship withSeoul and they're trying to reassure Seoul that,you know, we're now on the case. We couldn't paymuch attention in the last year. We've got our ownleadership transition. But we're back focused andwe're going to try to ensure that this doesn't getall the rails. So they want to keep North Korea withintheir orbit. They want to keep it predictable in

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their view. They have made some rather significantstatements recently that they would very much liketo see the North Koreans pull back from theirnuclear program. Because I and everybody else --and I know you had Leon Panetta here this morning.You know, we all have told the Chinese if theycontinue to develop this missile program and theyget an ICBM that has the capacity to carry a smallnuclear weapon on it, which is what they're aimingto do, we cannot abide that. Because they couldnot only do damage to our treaty allies, namelyJapan and South Korea, but they could actuallyreach Hawaii and the west coast theoretically, andwe're going to ring China with missile defense.We're going to put more of our fleet in the area. So China, come on. You either controlthem or we're going to have to defend against them. MR. BLANKFEIN: Wouldn't Japan --I mean, isn't the thinking now what is going tohappen? But why wouldn't Japan at that point wantto have a nuclear capability? MS. CLINTON: Well, that's the problemwith these arms races. MR. BLANKFEIN: Nuclear technology -- MS. CLINTON: But they don't have amilitary. They have a currently somewhatquestionable and partially defunct civilian nuclearindustry. So they would have to make a hugeinvestment, which based on our assessments theydon't want to have to make. You know, there is talk in Japan aboutmaybe we need to up our economic commitments to ourmilitary forces. Maybe we have to move frombasically a self-defense force to a real militaryagain, which would just light up the sky in terms

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of reactions in China and elsewhere. So the Japanese have not -- and withAbe trying to focus on the economy and deal withthe political problems with the structural reforms,he doesn't want to have to do that. But there arenationalistic pressures and leaders under thesurface in governship and mayor positions who arequite far out there in what they're saying aboutwhat Japan should be doing. And part of the reasonwe're in the mess on the Senkakians is because ithad been privately owned. And then the governor ofTokyo wanted to buy them, which would have been adirect provocation to China because it was kind oflike: You don't do anything. We don't doanything. Just leave them where they are and don'tpay much attention to them. And the priorgovernment in Japan decided: Oh, my gosh. Wecan't let the governor of Tokyo do this, so weshould buy them as the national government. And I watched the most amazing argument-- you know, Hu Jintao was always so impassive inpublic, especially around us. And I was inVladivostok last September representing thepresident at the APEC meeting, and they had theleaders in a holding room, and we were all in therewaiting to go out to some event. And you had HuJintao in a corner screaming at them, and we allwere listening because their interpreters couldtranslate from Chinese to English to English toJapanese and vice versa. So we got to hear thewhole thing. And so we tried to prevent theproblem. That's why we bought it. That isunacceptable. We never should have done it. Thenational government should never own these things.But we can control it better. It wouldn't be in

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the hands of a nationalist.I don't care. This is breaking the -- it wasreally fascinating. You can actually have four translatorsin your home. This is something that mostfamilies -- MR. BLANKFEIN: The next area which Ithink is actually literally closer to home butwhere American lives have been at risk is theMiddle East, I think is one topic. What seems tobe the ambivalence or the lack of a clear set ofgoals -- maybe that ambivalence comes from notknowing what outcome we want or who is our friendor what a better world is for the United States andof Syria, and then ultimately on the Iranian sideif you think of the Korean bomb as far away andjust the Tehran death spot, the Iranians are morecalculated in a hotter area with -- where does thatgo? And I tell you, I couldn't -- I couldn'tmyself tell -- you know how we would like things towork out, but it's not discernable to me what thepolicy of the United States is towards an outcomeeither in Syria or where we get to in Iran. MS. CLINTON: Well, part of it is it'sa wicked problem, and it's a wicked problem that isvery hard to unpack in part because as you justsaid, Lloyd, it's not clear what the outcome isgoing to be and how we could influence either thatoutcome or a different outcome. So let's just take a step back and lookat the situation that we currently have in Syria.When -- before the uprising started in Syria it wasclear that you had a minority government runningwith the Alawites in lead with mostly the otherminority groups -- Christians, the Druze, some

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significant Sunni business leaders. But it wasclearly a minority that sat on top of a majority.And the uprisings when they began were fairly mildin terms of what they were asking for, and Assadvery well could have in my view bought them offwith some cosmetic changes that would not haveresulted in what we have seen over the now twoyears and the hundred thousand deaths and thedestabilization that is going on in Lebanon, inJordan, even in Turkey, and the threat throwing toIsrael and the kind of pitched battle in Iran wellsupported by Russia, Saudi, Jordanians and otherstrying to equip the majority Sunni fighters. I think that we have tried very hardover the last two years to use the diplomatic toolsthat were available to us and to try to convince,first of all, the Russians that they were helpingto create a situation that could not help butbecome more chaotic, because the longer Assad wasable to hold out and then to move offensivelyagainst the rebels, the more likely it was that therebels would turn into what Assad has called them,terrorists, and well equipped and bringing inAl-Qaeda and its affiliates. The Russian's view of this is verydifferent. I mean, who conceives Syria as the sameway he sees Chechnya? You know, you have tosupport toughness and absolute merciless reactionsin order to drive the opposition down to bestrangled, and you can't give an inch to them andyou have to be willing to do what Assad basicallyhas been willing to do. That has been their position. Itpretty much remains their position, and it is aposition that has led to the restocking of

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sophisticated weapon systems all through this. TheRussians' view is that if we provide enough weaponsto Assad and if Assad is able to maintain controlover most of the country, including the coastalareas where our naval base is, that's fine with us.Because you will have internal fighting still withthe Kurds and with the Sunnis on the spectrum ofextremism. But if we can keep our base and we cankeep Assad in the titular position of running thecountry, that reflects well on us because we willdemonstrate that we are back in the Middle East.Maybe in a ruthless way, but a way that from theirperspective, the Russian perspective, Arabs willunderstand. So the problem for the US and theEuropeans has been from the very beginning: Whatis it you -- who is it you are going to try to arm?And you probably read in the papers my view was weshould try to find some of the groups that werethere that we thought we could build relationshipswith and develop some covert connections that mightthen at least give us some insight into what isgoing on inside Syria. But the other side of the argument wasa very -- it was a very good one, which is we don'tknow what will happen. We can't see down the road.We just need to stay out of it. The problem now isthat you've got Iran in heavily. You've gotprobably at least 50,000 fighters inside working tosupport, protect and sustain Assad. And like anywar, at least the wars that I have followed, thehard guys who are the best fighters move to theforefront. So the free Syrian Army and a lot ofthe local rebel militias that were made up of

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pharmacists and business people and attorneys andteachers -- they're no match for these importedtoughened Iraqi, Jordanian, Libyan, Indonesian,Egyptian, Chechen, Uzbek, Pakistani fighters thatare now in there and have learned through more thana decade of very firsthand experience what it takesin terms of ruthlessness and military capacity. So we now have what everybody warned wewould have, and I am very concerned about thespillover effects. And there is still an argumentthat goes on inside the administration and insideour friends at NATO and the Europeans. How dointervene -- my view was you intervene as covertlyas is possible for Americans to intervene. We usedto be much better at this than we are now. Now,you know, everybody can't help themselves. Theyhave to go out and tell their friendly reportersand somebody else: Look what we're doing and Iwant credit for it, and all the rest of it. So we're not as good as we used to be,but we still -- we can still deliver, and we shouldhave in my view been trying to do that so we wouldhave better insight. But the idea that we wouldhave like a no fly zone -- Syria, of course, didhave when it started the fourth biggest Army in theworld. It had very sophisticated air defensesystems. They're getting more sophisticated thanksto Russian imports. To have a no fly zone you have to takeout all of the air defense, many of which arelocated in populated areas. So our missiles, evenif they are standoff missiles so we're not puttingour pilots at risk -- you're going to kill a lot ofSyrians. So all of a sudden this intervention thatpeople talk about so glibly becomes an American and

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NATO involvement where you take a lot of civilians. In Libya we didn't have that problem.It's a huge place. The air defenses were not thatsophisticated and there wasn't very -- in fact,there were very few civilian casualties. Thatwouldn't be the case. And then you add on to it alot of the air defenses are not only in civilianpopulation centers but near some of their chemicalstockpiles. You do not want a missile hitting achemical stockpile. We have a big set of issues about whatis going to happen with those storehouses ofchemicals since a lot want their hands on them.The Al-Qaeda affiliates want their hands on them,and we're trying to work with the Turks and theJordanians and NATO to try to figure out how we'regoing to prevent that. The Israelis are -- MR. BLANKFEIN: Israel cares about it. MS. CLINTON: Israel cares a lot aboutit. Israel, as you know, carried out two raidsthat were aimed at convoys of weapons and maybesome other stuff, but there was clearly weapons.Part of the tradeoff that the Iranians negotiatedwith Assad. So I mean, I've described the problem.I haven't given you a solution for it, but I thinkthat the complexity of it speaks to what we'regoing to be facing in this region, and that leadsme to Iran. Our policy -- and President Obama hasbeen very clear about this. Our policy isprevention, not containment. What that means isthat they have to be prevented from getting anuclear weapon. Now, the definition of that is debated.

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I have a very simple definition. If they canproduce the pieces of it and quickly assemble it,that's a nuclear weapon, even if they keep threedifferent parts of it in different containerssomewhere. If they do that it goes back to Lloyd'sfirst point. The Saudis are not going to stand by.They're already trying to figure out how they willget their own nuclear weapons. Then the Emiratesare not going to let the Saudis have their ownnuclear weapons, and then the Egyptians are goingto say: What are we? We're the most importantArab country in the world. We're going to have tohave our own nuclear weapons. And then the race isoff and we are going to face even worse problems inthe region than we currently do today. MR. BLANKFEIN: What do you -- I'vealways assumed we're not going to go to war, a realwar, for a hypothetical. So I just assumed that wewould just back ourselves into some mutuallyassured destruction kind of -- you know, we getused to it. That it's hard to imagine going to warover that principle when you're not otherwise beingthreatened. So I don't see the outcome. Therhetoric is there, prevention, but I can't see uspaying that kind of a price, especially what thepresident has shown. We're essentially withdrawingfrom Iraq and withdrawing from Afghanistan. It'shard to imagine going into something as open endedand uncontainable as the occupation of Iran. Howelse can you stop them from doing something theycommitted to doing? MS. CLINTON: Well, you up the painthat they have to endure by not in any wayoccupying or invading them but by bombing their

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facilities. I mean, that is the option. It is notas, we like to say these days, boots on the ground. MR. BLANKFEIN: Has it ever worked inthe history of a war? Did it work in London duringthe blitz or -- MS. CLINTON: No. It didn't work tobreak the spirit of the people of London, butLondon was a democracy. London was a free country.London was united in their opposition to NaziGermany and was willing to bear what was a terribleprice for so long with the blitz and the bombings. Everybody says that Iran, you know, hasunited -- MR. BLANKFEIN: Many -- they held outfor an awful -- MS. CLINTON: They wanted -- yeah. ButI mean, people will fight for themselves. Theywill fight for themselves, but this is fighting fora program. I mean, the calculation is exactly asyou described it. It's a very hard one, which iswhy when people just pontificate that, you know, wehave no choice. We have to bomb the facilities.They act as though there would be no consequenceseither predicted or unpredicted. Of course therewould be, and you already are dealing with a regimethat is the principal funder and supplier ofterrorism in the world today. If we had a map up behind us you wouldbe able to see Iranian sponsored terrorism directlydelivered by Iranians themselves, mostly throughthe Revolutionary Guard Corps, the operatives, orthrough Islah or other proxies from to LatinAmerican to Southeast Asia. They were caught inBulgaria. They were caught in Cyprus. They werecaught in Thailand. They were caught in Kenya. So

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it's not just against the United States, althoughthey did have that ridiculous plot of finding whatthey thought was a drug dealer to murder the Saudiambassador. They really are after the sort oftargets of anyone they believe they can terrorizeor sort of make pay a price because of policies.So the fact is that there is no good alternative.I mean, people will say, as you do, mutuallyassured destruction, but that will require the gulfstates doing something that so far they've beenunwilling to do, which is being part of a missiledefense umbrella and being willing to share theirdefense so that if the best place for radar issomewhere that can then protect the Saudis and theEmirates, the Saudis would have to accept that.That is not likely to happen. So mutually assured destruction as wehad with Europe in the '40s, '50s, '60s, '70s, '80suntil the fall of the Soviet Union is much harderto do with the gulf states and it will be unlikelyto occur because they will think that they have todefend themselves. And they will get into thebusiness of nuclear weapons, and these are -- theSaudis in particular are not necessarily thestablest regimes that you can find on the planet.So it's fraught with all kinds of problems. Now, the Israelis, as you know, havelooked at this very closely for a number of years.The Israelis' estimate is even if we set theirprogram back for just a couple of years it's worthdoing and whatever their reaction might be isabsorbable. That has been up until this recentgovernment, the prior government, their position.But they couldn't do much damage themselves.

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We now have a weapon that is quite aserious one, and it can do a lot of damage anddamage that would -- MR. BLANKFEIN: Two miles before itblows up or something? MS. CLINTON: Yes. It's a penetrator.Because if you can't get through the hardenedcovering over these plants into where thecentrifuges are you can't set them back. So youhave to be able to drop what is a very largeprecision-guided weapon. Nobody wants either of these outcomes.That's the problem. And the supreme leader,Khamenei, keeps going around saying: We don'tbelieve in nuclear weapons. We think they areanti-Islam. But the fine print is: We may notassemble them, but we'll have the parts to them.That's why we keep testing missiles. That's why wekeep spinning centrifuges. That's why we areconstantly looking on the open market to steal orbuy what we need to keep our process going. So that's what you get paid all thesebig bucks for being in positions like I was just intrying to sort it out and figure out what is thesmartest approach for the United States and ourallies can take that would result in the leastamount of danger to ourselves and our allies goingforward, a contained Iran or an attacked Iran inthe name of prevention? And if it were easysomebody else would have figured it out, but it'snot. It's a very tough question. MR. BLANKFEIN: Isn't it amazing thatwe can go through and think of Europe as anafterthought? MS. CLINTON: Our allies?

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MR. BLANKFEIN: Our allies. The US isnow oriented towards the Pacific and looking thatway. It's another surprise, having grown up as wedid, that our attention would be so focused onAsia. But I guess we have a training issue withthe EU. MS. CLINTON: Yes. MR. BLANKFEIN: Of course everybodyhere in the financial service industry is veryfocused on trying to harmonize different -- butfrom our point of view what is incomprehensible isthe governance of Europe and the consequences ofBrussels and the single currency that no one hasany account of, and the fact is they may not be asimportant if they don't get their economy in shapeand they don't grow over the course of the next --any observations there? MS. CLINTON: Well, certainly we arealways looking to Europe as our allies of firstresort. Our common values, our common history.All of that is really just baked into the DNA ofhow we think about our future, and NATO remains themost important and really remarkable militaryalliance, I think, in human history. So there is a lot that we are stillvery attentive to and working on. There is nodoubt that Europe is going through -- you knowbetter than I -- some serious readjustments. Wherethey will come out I don't think any of us are in aposition yet to predict. It may be in Europe whatWinston Churchill used to say about us: TheAmericans will finally get to the right answerafter trying nearly everything else, and maybe theywill stumble and work their way toward moreaccommodation in recognizing the realities of what

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it means to have a common currency without a commonsystem to back up that currency. So I would certainly not count theEuropeans out, but I think they have a lot of workto do. And I'm actually more concerned fromanother perspective. I think that unless thenational leaders and the European union andEurozone leaders get their act together, you willsee some pretty unpredictable leaders and politicalparties coming to the forefront in a lot ofcountries. You'll see a lot of nationalism. Youwill see a lot of chauvinism. You'll see UKparties that is -- winning elections in UK is goingto push Cameron and his coalition government to theright as it moves towards an election -- I think in2015. What does that mean for Europe? What doesthat mean for our relationship? You've got the NATO military alliancealready being starved of necessary funds because ofall the budgets, and most of the European countrieshave been so decimated. So I think that -- it'snot clear to me where it's going to come out yet.They have to take a lot of really unpleasantmedicines, and some are more willing to do thatthat others and see whether or not they have thepolitical will to make these hard decisionsindividually and collectively, and right now Ithink the jury is out. But on the trade and regulatoryharmonization, we are very serious about that andsomething that I strongly supported. Thediscussions are ongoing. It will come down, as itoften does, to agriculture, particularly Frenchagriculture, and we'll just have to see how much we

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can get done by that process. And there is nodoubt that if we can make progress on the traderegulatory front it would be good for theEuropeans. It would be good for us. And I wouldlike to see us go as far as we possibly can with areal agreement, not a phony agreement. You know,the EU signs agreements all the time with nearlyeverybody, but they don't change anything. Theyjust kind of sign them and see what comes of it. I think we have an opportunity toreally actually save money in our respectiveregulatory schemes, increase trade not only betweenourselves but also be more effective in helping tokeep the world on a better track for a rural spacedglobal trading system by having us kind of set thestandards for that, along with the TPC, which wedidn't mention when we talked about Asia, which Ithink is also still proceeding. MR. BLANKFEIN: I think we need to openit up to some questions now, and if there is apregnant pause I know what to follow up with. PARTICIPANT: One question for you. MR. BLANKFEIN: Do me a favor? Whydon't we introduce ourselves to the secretary whenyou ask a question. PARTICIPANT: Secretary, Jeff Gordonwith Diverse Technologies. As you examine the global situation, ifyou were to turn back toward the domestic side andlook here at the US and after the 2012 electionsand give your own kind of third-party assessment ofwhat do we have to do on each side of the aisle toget America back to a functional government.Because we've heard a lot even today that thegovernment has really gotten to a point of

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dysfunctionality that may be almost unprecedented. So just stepping back a little whileand just saying: What do you think? What is yourperspective on where the parties are and what wehave to do to kind of solve the problems heredomestically so that we can come up with a unifiedapproach? MS. CLINTON: I know -- I heard Leonwas here and was his usual shy and reluctant selfto express an opinion and certainly never to useany colorful language, but I'm sure "dysfunctional"was probably the best of the words he used todescribe what is going on in Washington. Look, I think there is a couple ofthings. One, I talk a lot about it, and I talkedabout it when I was a senator. I talked about itas Secretary. I'm talking about it now. You know, we have to get back to atleast trying to make evidence based decisions.I know that sounds so simplistic, but theideological partisan position on all sides --because there are people who refuse to look atfacts and deal with them, coming from manydifferent perspectives -- really underminesconfidence in the people. The American people aresmart. They may not be living and breathingpolitics, but they're looking and they're thinking:Come on, guys. Get it together. You ought to beable to make a deal of some sort. You know, when my husband spoke at thethe Democratic Convention he basically touted thevirtues of arithmetic. Can you imagine a majorspeech having to be made about how arithmetic needsto be used as the basis for budgetary discussions?But in fact, we do need more of an outcry and

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pressure from the rest of the American system, notjust the politicians but business leaders andothers who are saying: Let's try to figure out howwe're going to move forward based on as near anevidence-based foundation as we possibly canmanage. Secondly, you know, people get rewardedfor being partisan, and that's on both sides. Thebiggest threat that Democrats and Republicans facetoday, largely because of gerrymandering in theHouse, is getting a primary opponent from eitherthe far right or the far left. You know, there is no reason you wouldhave noticed this, but there was a woman in theSenate -- and I think it was Kentucky -- recentlywho had an A plus rating from the NRA. Aplus rating. She was a country legislator, highlyregarded, and she was a chairman of a committee inthe state legislature. And somebody introduced abill with -- you know, it's not too muchexaggeration to say that you should have your gunin your car at all times and it should be visible.And she said: Let's table it for a minute andthink about the consequences. So the NRA recruited an opponent forher who beat her. They put a lot of money into itand basically: You couldn't be reasonable. Youcouldn't say let's try to reason this out together.You had to tow the line, and whether it's afinancial line or gun control line or whatever theline might be. But people let that happen. Voterslet that happen. I mean, the number of people who ask mequestions very similar to what you asked I'm sureis representative of millions of people who feel

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the same way. If you look at the polling and allthe rest of it that's clear. But you need peoplewho will stand up and say: I want somebody whoexercises some judgment. I want somebody who isnot just a mouthpiece for one point of view oranother. I may have my own opinions, but let'shave a debate here. That's what we were alwaysgood at in the past. MR. BLANKFEIN: Wasn't it a virtuecompromise at one point? MS. CLINTON: Yes. MR. BLANKFEIN: A compromise -- MS. CLINTON: Because in a democracy,especially as diverse as this one, which is not atheocracy or an autocracy. We don't think anybodyor any party or any interest group has a lock onthe truth. We actually think people bring theirexperience, their ability to think to the table,and then you hammer it out. And the compromise maynot be perfect. In fact, it rarely is, but itrepresents the big thinking and the political willthat is currently available in order to make adecision. And I was in Hong Kong in the summer of2011 and I had a preexisting program with a bigbusiness group there, and before we had a receptionand there were about a hundred business leaders,many of them based in Hong Kong, some of them frommainland China, some of them from Singapore andelsewhere. They were lining up and saying to me:Is it true that the American Congress might defaulton America's full faith and credit, their standing,that you won't pay your bills? And you know I'm sitting there I'mrepresenting all of you. I said: Oh, no. No.

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No. That's just politics. We'll work it through.And I'm sitting there: Oh, boy. I hope that isthe case. So for all of their efforts to takeadvantage of whatever mistake we might make orwhatever problem we might have, they know right nowat least in 2013, the beginning of this century,the United States isn't strong at home and abroad.They've got problems, and it is for me prettysimple. If we don't get our political house inorder and demonstrate that we can start makingdecisions again -- and that takes hard work. Imean, don't -- I've served. I've been an electedofficial, an appointed official. There is nothingeasy about working toward a compromise. I give alot of credit to the eight senators, fourRepublicans and four Democrats in the Senate. Yougo from very conservative to what we would callvery liberal. And they have sat down and theyhammered out a compromise, and then they made apledge they would stick to it as it went throughthe regular order of the committee hearing. Howunusual. That used to be what we did in Congress.You know, people would get together and they wouldhave hearings and then they would introduce billsand then they would mark them up, and you would winsome and you would lose some, and then you go tothe floor. And we need to get back to doing that,but the American people need to demand that that iswhat is expected. And I don't care if you're a liberalicon or a conservative icon. If you are notwilling to be active in your democracy and do whatis necessary to deal with our problems, I think youshould be voted out. I think you should just be

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voted out, and I would like to see more peoplesaying that. PARTICIPANT: Secretary, Ann Chow fromHouston, Texas. I have had the honor to raisemoney for you when you were running for presidentin Texas. MS. CLINTON: You are the smartestpeople. PARTICIPANT: I think you actuallycalled me on my cell phone, too. I talked to youafterwards. I think the biggest question in thisroom is: Do you think you're going to run forpresident again? MR. BLANKFEIN: I was going to bet thatwouldn't come up. MS. CLINTON: I don't believe you. Well, look. I don't know. I'mcertainly not planning it. I've been out of thestate department for what, four months? Fourmonths. MR. BLANKFEIN: You look like you areready to get back. MS. CLINTON: I am ready to continue tokind of think through what I'm doing and what Iwant to do. So I haven't made any decision and I'mnot prepared to make any decision. I mean, on theone hand, as you could probably tell from myanswers, I feel very strongly about our country andwhat is happening, and for me it just defies reasonthat we are in this paralysis at a time when we'vegot so much going for us and we could be so strongagain and we could deal with so many of ourproblems. We were talking at dinner. I mean, the

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energy revolution in the United States is just agift, and we're able to exploit it and use it andit's going to make us independent. We can have aNorth American energy system that will beunbelievably powerful. If we have enough of it wecan be exporting and supporting a lot of ourfriends and allies. And there are other ways thatwe can put ourselves on a better footing, likepassing a decent immigration law and dealing withour budget and being smart about it and realizingthere is two sides to the equation. You've got tohave spending restraints and you've got to havesome revenues in order to stimulate growth. I happen to think that part of thereason we are coming out of where we were a fewyears ago in part is because we did do that, unlikesome of the choices the Europeans made. So I mean,we have teed up well if we just keep going and makethese hard political decisions. And so I very much want to watch andsee what happens in the next couple of years beforeI make any decision. Because honestly, it's kindof nice being on my own schedule. It's kind ofnice living in my own house. MR. BLANKFEIN: In South Carolina? MS. CLINTON: Yeah. Right. Here inSouth Carolina. Just traveling around. It's thefirst time I've been traveling in my own countryfor four years. It's kind of nice. So I'm just taking it kind of easy, butthank for what you did for me in two 2008. MR. BLANKFEIN: Just as a hypothetical,if someone were going to eventually have an entryin this and given that people line up and otherpeople test the waters and people put their hat in

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and start to raise money but they wouldn't want todo the impossible or intervene -- you know, at whatpoint would somebody -- not you, but would somebodyhave to manifest some interest? Or would it startto become clear or would the observer start to say:This was some critical moment we see what she didhere. For example, our very own governor declaredthat he was going to wait. You can't let peoplewait forever. MS. CLINTON: You think not? MR. BLANKFEIN: In his case it might bethe best thing to wait. MS. CLINTON: Well, this is justhypothetical and not about me. MR. BLANKFEIN: I'm saying for myself. MS. CLINTON: If you were going to runhere is what I would tell you to do -- MR. BLANKFEIN: Very hypothetical. MS. CLINTON: I think you would leaveGoldman Sachs and start running a soup kitchensomewhere. MR. BLANKFEIN: For one thing the stockwould go up. MS. CLINTON: Then you could be alegend in your own time both when you were thereand when you left. MR. BLANKFEIN: Enough about me. MS. CLINTON: Look, I am of the mindthat we cannot have endless campaigns. It is badfor the candidates. It's bad for the country.I mean, part of the reason why it's difficult togovern is because an election ends and then thenext day people start jockeying for the next -- doyour job. Get up and do the job you were electedto do. I believe that doing your job actually is

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the right thing to do. So I mean, I am constantly amazed athow attention deficit disordered the politicalpunditry is. Because there is a lot to cover.There is so much that you could actually beeducating people about. The difference that Iexperienced from running for the Senate, being inthe Senate, running for president and beingSecretary of State is that the press which coveredme in the state department were really interestedin the issues. I mean, they would drill them.They would have asked a hundred more questionsabout everything Lloyd has asked in the time thatthey had with me because they really cared aboutwhat I thought, what the US government was doing inthese issues. Our political press has just beencaptured by trivia. I mean, to me. And so youdon't want to give them any more time to trivializethe importance of the issues than you have to givethem. You want to be able to wait as long aspossible, because hopefully we will actually seesome progress on immigration, for example. Maybecircumstances will force some kind of budget deal.It doesn't look too promising, but stranger thingshave happened. So let's give some space and someattention to these issues instead of who is goingto run and what they're going to do and: Oh, mygosh. What is happening tomorrow? But if someonewere going to run, given the process of raisingmoney, given the -- you know, for better or worse Iapparently have about a hundred percent namerecognition. Most of it my mother would say is nottrue, but I live with it.

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So for me it might be slightlydifferent than for somebody else, but you certainlywould have to be in raising money sometime nextyear or early the following year. MR. BLANKFEIN: It's like the trafficin New York. No rush hour. MS. CLINTON: Well, you know, I reallyadmire Peter King. He's a Republicanrepresentative from Long Island. He and I did alot of work together after 9/11 on terrorism andall of that. But when the vote on Sandy came up --and a lot of Republicans voted against aid for NewYork and New Jersey, Peter King said to the NewYork funders: Don't give any of them any moneybecause somehow you have to get their attention.So I thought it was pretty clever. I know whatit's like. I mean, everybody is New York onMondays. MR. BLANKFEIN: All the senatorsdeclined to give aid to New York. MS. CLINTON: Which ones? MR. BLANKFEIN: The senator fromOklahoma. MS. CLINTON: Yeah, I know, but that'swhat I mean. Peter King said: Don't give any ofthem money. Emergency aid used to be off what wascalled off budget. You would go in with anappropriations request for a hurricane, likehurricane Andrew, I remember, back in '92 orwhatever. You would have floods in the midwest andyou would have tornadoes and you would have forestfires and on and on. And there are some people whoas a matter of principle say: We shouldn't do itlike that. We should not do it off budget. But

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it's very hard to budget for disasters. I mean,you can fund FEMA, you can have a pool of money,but given what we're going through right now withone thing after another it's a difficult challenge. So I think that we're going to have totake seriously how we fund disasters, but I thinkPeter's point was a larger one, which is -- youknow, New York is kind of an ATM machine for bothDemocrats and Republicans, and people come up andthey visit with many of you and they ask for money,and often they're given -- if they're comingthey're going to get it. And at some point theAmerican public -- and particularly politicalgivers -- have to say: Here -- and it's not justabout me. It's not just about my personalstandings. Here are things I want you to do forthe country and be part of that debate about thecountry. MR. BLANKFEIN: I have to say weRepublicans -- we obviously reach out to both sets.To a person -- a person regarded as someone who maybe expected to be more partisan and has spent somuch time is is very, very well liked by theRepublicans. PARTICIPANT: First off I would like tothank you for all the years. Of course, I'm on theother side. MS. CLINTON: The dark side? PARTICIPANT: It's the dark side rightnow, but otherwise the sun does come through. Youhave to be an optimist. But you have to put agreat, great effort, and I commend you for it. ButI would like two things. No. 1, you just talkedabout Sandy. And since you were First Lady and asenator -- forget the Secretary. But what is wrong

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with our politicians -- I served in the Corps ofEngineers. Whether it's in Iraq, Iran -- anyplaceoutside the US you can build bridges overnight.You could have gone into Sandy. You could havegone into New Orleans. The actual problem is the law from the1800s. No military, which is the only force, notthe National Guard. They don't have crap. It'sthe military. Like down in New Orleans. If wewould just change the dumb law -- because it hasn'tbeen changed because politicians have no say oncethe president declares it martial law. Put themilitary up. They would have cleaned up thatcoast. You wouldn't have the frigging mess youhave today. But we can do it for everybody else inthe world, but we don't do it because the statejudges don't have no authority. The mayor don'thave no authority, because you're going to put amilitary officer in charge. That's one questionwhy you haven't looked at -- MR. BLANKFEIN: They did that in NewOrleans. PARTICIPANT: Forget the -- the secondthing you mentioned about Afghanistan. Most peopledon't realize the Russians were there before us forten years and whatever, and we supported Tannenbaumto beat the hell out of them. A lot of ourproblems is because we have a competition with theRussians. If we would -- the Russians by naturehate the Chinese, but forget that. If we were more or less kind of likeforget that superpower, superpower, and work withthem -- two superpowers equal a hell of a lot morein the world. You wouldn't have an Iranianproblem, we wouldn't have the Syrian problem, and

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why don't we just cut Israel loose? Give them thefrigging bomb and just blow the thing up. That'smy question to you. MS. CLINTON: Those are interestingquestions for sure. First, I think you're referring to theposse comitatus, which has been actually inexistence -- if not from the end of the 18thcentury, the very beginning, as you said, of the19th century. And it is a law that really limitswhat the military, the US military, can do on oursoil, and it has been supported all these years inpart because there is a great suspicion by many ofUS government power -- and there is no more obviousevidence of that than the US military. However, we do call out the NationalGuard, which is under the control, as you know, ofthe governor and the adjutant general. But it isclearly in the line of command as well from thePentagon. So although it took some difficultieswith Katrina we did get the National Guard out.With Sandy we got the National Guard out. Butyou're right, that if you were to want to have themilitary, the actual US military involved indisaster recovery, you would have to change thelaw. And it's something that would be a big fightin Congress because a lot of people would not voteto change a law that would give any additionalauthority to any president, Republican ordemocratic, to order the US military to go anywherein the United States. We kid about it, but I used to see itall the time when I was a senator. There is thisgreat fear that the US military is going to show upand take away your guns and confiscate your

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property. I think it's -- MR. BLANKFEIN: Was the last time thathappened with Eisenhower? MS. CLINTON: Yes. That was to enforcea court order. MR. BLANKFEIN: It was shocking,jarring. MS. CLINTON: It was. Wasn't it the82nd? I mean, they flew through to desegregate thecentral high school, and it was viewed as a veryprovocative action. PARTICIPANT: The fact is it provedwhat was right. Not what the politicians think.It's a case of sometimes the politicians, whichincludes -- MS. CLINTON: The politicians for morethan 200 years have been united on this issue.There was a posse comitatus law before that. Butthe sensitivity about it was heightened and newregulations were put in after the Civil War, but -- PARTICIPANT: No disrespect, but if youwere right you could not have had Illinois,Oklahoma, California join you. You had governorsthat were appointed there. Military law. MS. CLINTON: Well, you can declaremartial law. You can declare martial law. PARTICIPANT: Military was always -- MS. CLINTON: Well, I personally couldnot favor turning control over to the United Statesmilitary as much as I respect the United Statesmilitary. I guess I'm on the other side of thiswith you. I think that the civilian rule hasserved us well, and I don't want to do anythingthat upsets it even though I have a very personal

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experience. You remember when Castro opened theprisons and sent all the criminals to the UnitedStates? MR. BLANKFEIN: The -- MS. CLINTON: A lot of those prisonerswere ordered to go to a fort in Ft. Smith,Arkansas, Ft. Chaffee, and my husband was governorof Arkansas at the time. It was a military fort,so the United States military ran it. So if youwere on the fort you were under US militaryauthority, but if you stepped off the fort you werenot. And the result was there was a riot whereprisoners were breaking through the gates, and theUS military would not stop them. So my husband as governor had to callout the state police. So you had the militaryinside basically saying under the law we can't doanything even to stop prisoners from Cuba. So itis complicated, but it's complicated in part for areason, because we do not ever want to turn over toour military the kind of civilian authority thatshould be exercised by elected officials. So Ithink that's the explanation. And finally on Afghanistan and Russia.Look, I would love it if we could continue to builda more positive relationship with Russia. I workedvery hard on that when I was Secretary, and we madesome progress with Medvedev, who was president inname but was obviously beholden to Putin, but Putinkind of let him go and we helped them get into theWTO for several years, and they were helpful to usin shipping equipment, even lethal equipment, inand out of out of Afghanistan. So we were making progress, and I thinkPutin has a different view. Certainly he's

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asserted himself in a way now that is going to takesome management on our side, but obviously we wouldvery much like to have a positive relationship withRussia and we would like to see Putin be lessdefensive toward a relationship with the UnitedStates so that we could work together on someissues. We've tried very hard to work withPutin on shared issues like missile defense. Theyhave rejected that out of hand. So I think it'swhat diplomacy is about. You just keep going backand keep trying. And the President will see Putinduring the G20 in Saint Petersburg, and we'll seewhat progress we can make. MR. BLANKFEIN: Secretary, all of usthank you for our service, but I think almost --maybe all of us are hungry for more. MS. CLINTON: Well, I'm not sure aboutall of us, but thank you. (Event concluded at 9:15 P.M.)

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CERTIFICATE OF REPORTER I, Patricia T. Morrison, RegisteredProfessional Reporter and Notary Public for theState of South Carolina at Large, do hereby certifythat the foregoing transcript is a true, accurateand complete record. I further certify that I am neither relatedto nor counsel for any party to the cause pendingor interested in the events thereof. Witness my hand, I have hereunto affixed byofficial seal this 5th day of June 2013 atCharleston, Charleston County, South Carolina.

___________________________Patricia T. MorrisonRegistered Professional ReporterMy Commission ExpiresOctober 19, 2015