Peter G. Peterson is a man of parts: leveraged-buyout billionaire, policy wonk, social lion, and—most recently—the patron of an ambitious new foundation (named, like the Washington think tank he chairs, after himself) that aims to alert Americans to the dangers of mushrooming deficits, exploding entitlements, and gluttonous oil addiction.

At 81—rich, privileged, and well-connected beyond his dreams—Pete Peterson is an unlikely Paul Revere. He's the Nebraska-born son of striving Greek immigrants, who studied hard, excelled in business (rising through the ranks of the McCann Erickson advertising agency and then running Bell & Howell), and impressed the likes of philanthropist John D. Rockefeller III and former Treasury secretary Douglas Dillon with his public-spirited bent. They sponsored his induction into the American Establishment, and Peterson ended up serving as Richard Nixon's international economics expert, and then Commerce secretary, before running Lehman Brothers for more than a decade. In 1985, Peterson was nearly 60—and ripe for a rewarding retirement—when he and a young financial whiz named Stephen Schwarzman decided to start a small private equity firm, the Blackstone Group, whose name was an amalgam of theirs (schwarz meaning black in German and petros meaning stone in Greek). Now the senior chairman of the hugely successful firm, Peterson received $1.8 billion as a result of Blackstone's initial public offering and plans to pump as much as a billion dollars of his own money into his new foundation. Three weeks ago, he sat down with Portfolio.com for an exclusive interview.

Lloyd Grove: You have launched this foundation that is hugely ambitious. It's going to tackle everything from the federal deficit to the insolvency of our health-care system to our energy policy or lack thereof, and any number of other issues. Why should we believe that this one will go beyond its good intentions and bright ideas and actually have some impact on public policy and the way we live?

Pete Peterson: I think that is truly the central question. I was presumably educated at the University of Chicago. One of my professors used to say if you have no alternative, you have no problem. And I would agree that taking on some of these challenges that I call undeniable, unsustainable, and yet untouchable politically up to now, is a very daunting task. But I've thought about the alternative. The alternative is to do nothing essentially and to say that this is just the nature of things in America. But I think of what could possibly happen to this wonderful country that's been so good to me. I think we're at a make-or-break point in America, and if we continue to deny these challenges, which I do think are unsustainable, then in not too many years, we'll become a very different country. And since I'm the lucky, lucky recipient of the American dream—the son of poor Greek immigrant parents who came over here without a penny or without a word of English, with very little education. I had a father who emphasized giving back. I've had a big windfall from the Blackstone public offering. I've got more than enough financially, and I think it's worth a very serious try.

L.G.: Are you actually going to pump a billion bucks into this foundation?

P.P.: Oh, over the next several years, it'll be that much. My current plan is to also put much of my estate in it, and whatever's left over is going to the foundation, which I emphasize is non-partisan.

L.G.: Hopefully your stock in Blackstone will go up, right? It's taken a little bit of a hit in the past several months.

P.P.: But I was fortunate enough to liquefy some of my holdings.

L.G.: Yes, I've read $1.9 billion. That's not bad.

P.P.: And some of that goes to my kids. I have five children and nine grandchildren.

L.G.: I think they can make do. But we already have think tanks, and everybody has a great idea about some aspect of public policy. When will we see these good ideas actually enacted?

P.P.: I can make a big distinction between an ordinary think tank and what I have in mind. The problem with most of these challenges is not so much that there's a lack of proposals—and there's certainly no lack of agreement on how unsustainable these problems are. Just doing something about them, that's the issue. So in a few cases, you might need some new proposals. In several of these areas that we're going to focus on, there are several ideas, any one of which would be a lot better than what we're doing now.

L.G.: Right.

P.P.: But the problem is to do something.

L.G.: Who's going to be the vehicle to carry the ball forward? I mean, you're supporting John McCain, right? You're one of his economic advisers?

P.P.: Well, I don't know the extent to which that's the case. I'm called one of his economic advisers.

L.G.: Now "Mr. Straight Talk"—who initially opposed the Bush tax cuts and voted against them—has said that he's for making them permanent. Why should we believe that John McCain is going to take care of this multitrillion-dollar forecasted deficit, when he talks like that?

P.P.: I want to remind you of something about John McCain. He wanted to tie the tax cuts to the same thing, frankly, that Bill Clinton, Bob Rubin and Congress did in the 1990s, which is tie them to spending caps, tie them to pay-as-you-go rules, where you'd have to make up the revenue loss by reducing benefits. That's a very different proposition than just tax cuts. And I think he has a track record of being a true fiscal conservative—for example, on the spending side. There were only a few Republican senators who voted against the Medicare prescription—drug benefit, and I talked to John from time to time about how totally unsustainable the current Medicare program was—huge debts, huge taxes that would be implied. You may recall he voted against it on the grounds that the current Medicare program is unsustainable. He said: ‘Why should we make it more unsustainable until we've reformed the basic program?’ So I think to talk about tax cuts in a vacuum, and by that I mean not in a context of spending patterns, is to oversimplify the tax-cut issue.