IN AN INTERVIEW TO BE BROADCAST THIS WEEKEND ON CBS NEWS "SUNDAY MORNING"

Former Treasury Secretary Henry M. Paulson, who testified before the House Committee on Oversight and Government Reform this week, sits down with CBS correspondent Anthony Mason, to discuss the government's controversial bank bailout program. In the interview to be broadcast this Sunday (9:00-10:30 AM, ET) on CBS News SUNDAY MORNING, anchored by Charles Osgood, Paulson says he hated the idea of a bailout, but that without it Americans would be facing an unemployment rate more that twice the 10% it is now.

Paulson, who previously served as the Chairman and CEO of Goldman Sachs, also agreed that the current financial regulatory system is outdated and that compensation in the financial industry is too high.

Excerpts from the interview are below. You must credit CBS SUNDAY MORNING.

PAULSON:        It was pretty clear as we worked to get the legislation, that just making the kinds of statements that Ben [Bernanke] and I made in private to them wasn't going to be enough.  They wanted us to tell the American people how bad things could get.  I shuddered, because I thought, to the extent we scared people, it was going to make the crisis worse. 

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PAULSON:        I believe that if the system collapsed, we easily could've seen unemployment of 25 percent.  And so, that reality was staring me in the face.  And it was an awful reality.

MASON:           How close, in your view, did we come to that?

PAULSON:       Oh, I think we came very, very close. 

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PAULSON:        It would've been far, far worse if we hadn't taken these steps...And, of course, many members of the public and Congress looked at us, like, "You're crazy.  How can you possibly say it worked when we have 10 percent unemployment in this country?  That's a disaster."  And it is.

MASON:           But it's the best possible outcome?

PAULSON:        Yes.  It was the best possible outcome...What was very hard for me was advocating things that I hated. And having to defend them to members of Congress that found it repugnant to have the government have ownership positions or put equity in banks. I also thought it was repugnant. I hated to have to defend it.  But it was so much better than the alternative.

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PAULSON:        I think many of the reforms that the administration is pressing for and the Congress is seriously considering are the right ones. But we need to fix our outdated, outmoded regulatory system. We need a regulator responsible for risks across the entire system. We need the authorities to wind down and liquidate a failing financial institution in a way in which it doesn't hurt the American economy. We need a comprehensive, coordinated regulation of major financial institutions.  And we need a global accord with strict rules on capital and liquidity. And we really need to find a way to get some balance in our housing policy. 

PAULSON:        The money we put in the banks is coming back.  The taxpayers aren't going to lose a dime on the capital that was put in the banks on the FDIC guarantee program.  That's going to make money.  That's going to come back... I understand that the American people are very frustrated.  They're angry that the recovery is coming in the banking sector well ahead of the recovery of the rest of the economy. 

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MASON:           If you were back running a bank today, would you be paying the kind of bonuses that are being paid on Wall Street?

PAULSON:        I've always said that I thought the compensation was high, out of whack, in our industry and I said that when it was our industry. Now, as I look at it as my former industry, I understand the public's sentiment here. And I will just say to you that from my perspective today looking at it from where I'm looking at it, I think some of these numbers seem ridiculously high.

Rand Morrison is the executive producer of SUNDAY MORNING.

Louise Bashi | Director CBS News Communications | Sunday Morning | 48 Hours Mystery | 212 975-2856 |