From the state of the economy to corporate corruption to trips to Africa with rock stars named Bono, Treasury Secretary Paul O'Neill shared his insights with Fool co-founders David and Tom Gardner on The Motley Fool Radio Show on Nov. 1, 2002. Here is an edited transcript of their interview.

TMF: Our next guest is tasked with keeping an eye on the financial state of America. Paul O'Neill was sworn in as the 72nd Secretary of the Treasury on January 20, 2001. Prior to joining the Bush Administration, he was chairman and CEO of Alcoa(NYSE: AA) from 1987-1999. Secretary O'Neill joins us from his office at the Treasury Department in Washington, DC. Secretary O'Neill, thanks for joining us on The Motley Fool Radio Show.

Sec. Paul O'Neill: It is great to be with you today.

TMF: It was a good news/bad news week for the economy. On the plus side, it was reported the economy grew at 3.1% for the third quarter, which was excellent news. On the minus side, for what it's worth, it was reported that consumer confidence fell to its lowest level in nine years. What is your take on the current state of the U.S. economy?

O'Neill: It is interesting. The 3.1% real growth reported today for the third quarter is a continuation of the average growth rate that we have had all this year. By conventional standards, that is a reasonable growth rate. Now, the president would like to see it higher than where it has been this year because we are coming out of a recession. He really does believe that it is important that Americans who want a job can find one. The 5.6% unemployment rate right now is too high.

One of the reasons he has been pushing hard to try to get Congress to enact a so-called Terrorist Risk Insurance is that there is about $15 billion worth of development construction on the shelf right now because developers have not been able to get insurance to cover terrorist risk. If Congress passes that legislation, then 300,000 jobs for those in the construction industry would be made available almost immediately. So, we are anxious for Congress to do that when they come back from their election saga.

TMF: When we look at the basic consumer finance statistics out there, we can't help but scratch our heads and think we could do better as a nation, as families managing our money. What do you make of the performance of the average American family in managing its budget today?

O'Neill: I think Americans are pretty smart about how they operate their lives. I have done a lot of traveling in the last year, and it is rewarding to go around this country and into small towns and villages and big cities and see the ingenuity and enthusiasm and how the American people have responded to the shocks they have had to endure over the last couple of years -- with the meltdown of dot-coms and the overbuilding in telecommunications and semi-conductors and computers. Then, the 9/11 affair on top of that, corporate greed, villains, and now the current uncertainty we have about Iraq. When I go around and I see how people have figured out a way to deal with all those things in their lives, it gives me a great sense of how resilient our people are and how well they have responded to the burden they have had to endure in addition to life's usual travails.

TMF: Mr. Secretary, how would the U.S. economy in your opinion be affected by a war with Iraq?

O'Neill: First of all, it is really important to constantly remind ourselves that the president hasn't yet made a determination that it is necessary to have a military hostilities with Saddam Hussein.

It is my hope that Saddam Hussein is smart enough to know that he has got to finally do what he said he would do more than 10 years ago -- and that is to get rid of his biological and chemical weapons and nuclear capability. Then, we don't have to do anything except be vigilant to make sure he doesn't start rebuilding it on the sly, as he has apparently done over the last 10 years or so. If Saddam Hussein does the right thing, there is not going to be any military hostilities.

On the other hand, if it is determined that we have to do something, it is impossible to know what, if any, effect it has on the economy -- unless you are willing to tell me just exactly what you think we are going to do. I think, frankly, that is unknowable.

TMF: Having been a CEO of a major public company, can you give us some advice on how we as individual investors might be able to distinguish a CEO that has crossed the ethical line and is on the wrong side of it, as opposed to one who is acting responsibly and honestly?

O'Neill: Before the scandals that began with Enron about a year ago, I would have told you that -- if you look at individual companies and see what the CEO does about openness with the investment analyst community and with shareholders -- you can tell by the representations made by CEOs which ones are responsible and which ones aren't. Turns out that is not quite as clean as I had thought. In fact, there were a couple dozen companies where CEOs misrepresented the facts. I want to be careful to say we have to let the court process work its way through, because there is an important principle of our country that you are innocent until proven guilty. Some of these cases seem pretty egregious to me. My guess is that there are going to be people being sent to jail for significant periods of time.

But I think -- with the changes that have been made in the law and what the president has asked of the regulatory agencies -- now CEOs are required to certify that they provided all of the information needed by employees, shareholders, and investors. They provided it all, it is clear and understandable, and it is all truthful. Now by closing the loophole of getting off easy, which I think existed in the past by jail terms as long as 20 years, I don't think we are going to find an awful lot. I don't think we are going to find CEOs who are willing to spend 20 years in jail and take the risk associated with a misrepresentation and spend that kind of time in jail. I think the problem is the judicial part of it is not behind us, but I think the discovery part of it is substantially behind us.

TMF: I want to move now from corporate America back to the world of government. We want to bounce an idea off you here. On August 14, the SEC, as you know, required CEOs to sign off on their company's financials. Why not also ask government agencies to sign off on their financials, given that we are not talking about billions of dollars here, but instead hundreds of billions of dollars of taxpayer money?

O'Neill: I think it is a great idea. We are going to have to make some changes in conventions in government accounting in order to do it. It is something some members of Congress have put to Mitch Daniels and to me, and I think we are both in agreement that it would be highly desirable. That the concepts the government uses to keep its books and reports to the American people, what is going on, ought to be cleaned up so that they can be certified and we can have high standards in the government that are as high or higher than those that exist in the private sector.

TMF: The New York Times recently wrote an article and mentioned that the Department of Defense has something like over 1,000 different accounting systems just to keep track of all the money moving through. That is an example, I guess, of something that could be streamlined?

O'Neill: Absolutely. A lot of what the government has is unnecessarily complicated and segmented. We are working on some of those things. In fact, when I came to the Treasury, I came with ideas about how to do things and how to get things done quickly that gets the best value out of the people who are doing the work. And in the last 18 months, we at the Treasury have gotten to the point that we are closing our books in three days. That may not be meaningful to you, but that is the same amount of time Alcoa takes to close its books.

TMF: Yes, it is amazing.

O'Neill: When I came here and asked how long does it take the government to close its books, the answer was five months.

TMF: So, you have simplified a lot.

O'Neill: And the answer for the Treasury Department was 28 days and basically by giving people encouragement to work to a world-class standard, we have been now for the last four months at the Treasury closing the books in three days. It makes a really important point that the government can operate at a private-sector level of productivity. But in order to get there, you first have to know what is possible and then you need to organize to accomplish the world's best practices.

I think Mitch and I (and believe me, the president is a leader in insisting that we bring intelligent leadership and management practices to the government)... are doing it. We don't get much ink for it; people don't seem to be very much interested in improving how the government functions, but we are spending time on it and we are making real progress.

TMF: OK, so Secretary O'Neill, I think it sounds like you might have an opportunity to make some news this weekend on The Motley Fool Radio Show. You are now officially asking, as the Secretary of the Treasury, each of the heads of the different government departments to sign off on their financial statements on this show?

O'Neill: Mitch and I are committed to the idea that we need to bring the government practices as well as or better than the private sector.

TMF (Dave): So, Tom, we can't quite put out a press release, then.

TMF (Tom): Let's move now to a global level. Several months ago, you traveled to Africa to focus on economic development issues and the HIV crisis. It was much reported upon; looks like you had fun and probably learned a lot, too. One of your traveling companions, of course, was Bono, the U2 rock star. What did you take away from your time in Africa? What was it like to travel with Bono?

O'Neill: In my private sector career, I spent a fair amount of time in Africa. I had not been to Uganda and Ethiopia before, so they were new geographic places that I added to my collection of places that I have visited around the world. So, this for me was an update trip rather than a discovery trip, if you will. From an update point of view, I was encouraged to see some new African leaders whom I thought were headed in the right direction. I don't think it is possible, frankly, for a developing country or any country for that matter, to progress at its potential rate unless the leadership is truly leadership in the sense of creating the conditions so people can realize their human potential. So, I was really pleased to see that.

It was great traveling with Bono because this is a guy who knows a lot about the issues of sacrifice and human beings not reaching their potential. He is knowledgeable about the economics of development. I have always been passionate about the importance of water and primary education in order for economic development to really work. He was really determined to see life as an issue of HIV/AIDS. But, as a consequence of our traveling together, he is now with me in believing that, while HIV/AIDS is very important and infectious diseases more broadly is something we have to work with, he has also proposed that we have to do the right thing about water and primary education, as well. I feel like I have made a really good friend. It is a really good relationship.

TMF: Secretary O'Neill, thanks for joining us on The Motley Fool Radio Show.

O'Neill: Thanks for having me.