CQ Transcriptswire

SPEAKERS: DAVID GREGORY, HOST

SEN. CHARLES E. SCHUMER, D-N.Y.

SEN. LINDSEY GRAHAM, R-S.C.

[*] GREGORY: First, two key senators in the debate over the economy, Democrat Chuck Schumer of New York and Lindsey Graham of South Carolina.

Welcome, both, back to the program.

GRAHAM: Thank you.

SCHUMER: Good morning again.

GRAHAM: Thank you.

GREGORY: Jobs, issue number one around the country.

This is what The Washington Post reports about its effect on even the effectiveness of the stimulus.

“The nation is losing jobs so quickly that the government is having trouble keeping up and faces even more pressure to take further action to stabilize the economy and the financial system. Analysts increasingly view the administration’s actions so far as insufficient, given the scope of the problem. The stimulus package was designed to `save or create’ 3.5 million jobs. But the nation has already lost 4.4 million jobs since the start of the recession.”

Mark Zandi, noted economist, has advised both sides, says the economy is deteriorating faster than expected, even after the passage of the stimulus plan, that more policy may be needed.

Senator Graham, is more stimulus needed for this economy?

GRAHAM: More credit is needed in the general economy. We’re not going to turn the economy around until we get credit flowing. So the TALF plan that they’re coming out with may work.

GREGORY: Which is an extension of credit from the Federal Reserve beyond autos and consumer credit, say.

GRAHAM: Right. Exactly. I’ve got people in South Carolina who are thinking about buying a car but are having a very difficult time getting a car loan. But their biggest fear is they think they may get laid off in the next six months.

So if we could get credit flowing in the consumer areas, I think it would stabilize the economy more than anything else. Then you tackle housing. There’s no amount of money we’re going to print in Washington to solve this problem. We’ve got to get the private sector lending money to consumers to grow business.

GREGORY: But you’ve got a hole of at least $2 trillion in this economy, and the point is, how do you create demands for goods and services when everyone around the world is unwinding?

They’re paying off debt, they’re not spending money; not businesses, not individuals. Do we need another stimulus plan?

SCHUMER: Well, I think we have to see if this one works. Look, the president proposed a three-legged stool, and they’re just going into effect now. First, a major stimulus. Some said it should be larger, but politics is the art of the possible. We didn’t have more votes to make it larger, we did the best job we could. And it’s a very significant stimulus, 3.5 million to 4 million jobs is a lot of jobs.

Second, housing. The president’s plan on housing has not gotten the credit it should, and it’s just starting this week. And I think it’s going to have a great effect on reducing foreclosures. If you reduce foreclosures, you find a bottom to the housing market and then the banks, who are worried about all this mortgage paper they have, will start lending again.

The key to the president’s plan, there, is that it focuses not so much on the homeowner, but on the servicer, the person who puts together the refinancing, the loan package.

And two-thirds of the servicers, mainly because some of them have gotten TARP money, have agreed to set up the president’s plan to refinance mortgages, not for the people who are deeply underwater, you know, the subprime.

GREGORY: Right.

SCHUMER: But for the next group. And that’s what’s everyone’s worried about. And then the third leg of the stool, of course, is financial reform. Getting these banks, as Lindsey says, lending again.

GREGORY: Right. And...

SCHUMER: And that hasn’t started yet, but it has to.

GREGORY: Right, and I want to get to that. There’s a confidence problem that is at the base of this economic crisis.

Here’s one metric, and BusinessWeek had a chart that showed the Dow and how it’s gone down since Election Day. November 4th, it was at 9,625, went down on Inauguration Day to 7,949. The stimulus bill is signed; it’s at 7,552; Friday’s close, 6,626.

The president talked about fear that people feel, during an interview with The New York Times. Here’s a portion of it.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: And so what I would say to people is, you know, obviously, be prudent. What I don’t think people should do is to suddenly stuff money in their mattresses and pull back, you know, completely from spending.

I don’t think that people should be fearful about our future. I don’t think that people should suddenly mistrust our -- all our -- all of our financial institutions, because the overwhelming majority of them actually have managed things reasonably well.

(END VIDEO CLIP) GREGORY: What the president is trying to do, Senator Schumer, is increase consumer confidence.

SCHUMER: Yes.

GREGORY: But let’s talk about history. FDR, at the height of the Depression, the first thing he did was deal with confidence. Before he dealt with the New Deal and fiscal stimulus, he closed down the banks. He got people to stand by, not do a bank run and take out their money. That hasn’t happened here yet.

Is he failing in this fundamental issue and mission of restoring confidence?

SCHUMER: No, I don’t believe so. And the polling shows that while people are very worried about the economy, they have a great deal of faith in the president’s plan, in the president’s ability to get us out of this mess.

And the president, wisely -- I think he said it yesterday -- is not promising a bill of goods in three months, so that when it doesn’t happen then people are going to say they don’t -- he said it’s going to take a while.

So I think the bold action the president has proposed, his very reassuring and honest words, not underestimating the problem but still giving people confidence that we’re going to act, is going to work. And it’s going to take a little while.

Look, we’ve gotten into this mess, you know, you could say politically eight years. It’s more than eight years. We are a country that, you know, consumed more than we produced, that imported more than we exported, that borrowed more than we saved over the last 20 years, and it’s going to take a -- the day of reckoning has come.

GREGORY: Right.

SCHUMER: He’s going to get us out of this mess. He is smart; he is bold; he is moderate, but it is going to take a little while. I wouldn’t measure the stock market over the day-to-day as to how well we’re doing. I think that you’re going to have to give the president’s plans, which are just taking effect this week, some time to work.

GREGORY: Mm-hmm. Is he restoring confidence?

GRAHAM: Obviously not in the market. I mean, the one thing I hoped to have happen if he got elected -- and I tried to help Senator McCain, as you well know -- is that he would govern from the center.

Harry Reid said on February the 5th, “I can’t imagine what would happen to the financial markets tomorrow if it was reported that this bill would go down,” the stimulus package.

Well, the stimulus package passed, and look at the stock market. The budget is a radical, reckless exercise that’s scaring the hell out of everybody who is watching this country’s financial situation. It triples the national publicly-held debt between now and 2019. It has an assumption that we’re going to grow next year at 3.2 percent GDP when we’re not.

So this whole idea of these policies have one thing in common: just print more money. I think the president has quite frankly, in his budget, told us a lot about who he is and what he believes, and it’s scary.

GREGORY: And why don’t you believe that in fact some of what’s happening is a response to the policy agenda of the president?

SCHUMER: Because the policy agenda hasn’t begun to work. This is the first week the housing plan is working. This is the first week the stimulus money gets in -- into circulation.

And frankly, the president has a huge burden on his shoulders, as I said, brought up by eight years -- if you’re going to be partisan, let’s say eight years now. But a long time coming. The people are confident in him. And he’s been honest, even in the budget.

Why is one of the reasons the deficit went up?

Because the president said, I’m not going to say the wars are off the budget; I’m not going to say that other issues, AMT or other things, are off the budget.”

He’s being honest about it. He knows it’s going to take tough medicine. But the number one way to get us back moving again and to get the budget back in good shape is to get this economy going.

And I know those, you know, those on the hard right -- Lindsey’s a little more moderate -- but I know those on the hard right say, “Cut government spending, let’s go back to the old Reagan days.”

Well, the last president who did this when we were in this type of situation was Herbert Hoover. Herbert Hoover said the government should do nothing when we were in a recession, not a depression. We did nothing and it related to a depression. You ask the American people...

GREGORY: Yes

SCHUMER: ... you ask economists -- Mark Zandi, you know, McCain’s economist -- should we do less?

No, we should do more.

GRAHAM: Well, if I may, I think there’s a lot of disingenuousness in this budget. One, he assumes in his budget that unemployment will peak at 8.2 percent at the end of this year.

Well, unemployment by everybody else’s estimation is going to be at 9 percent in 2010. He’s projecting GDP growth in the economy in 2009, ‘10, ‘11, that I think is wildly optimistic. In -- in the...

GREGORY: Do you think they’ll fall short of their jobs...

GRAHAM: Oh, absolutely.

GREGORY: ... creation or number of jobs saved?

GRAHAM: Absolutely. No one else has these numbers. And he’s picking these numbers to make the math work out. This is a tremendous explosion. And he raises taxes.

(CROSSTALK)

GREGORY: I want to get to something, Senator Schumer, I want to get to the banking issue here, which is so important.

GRAHAM: But don’t raise taxes in the middle of a recession.

(CROSSTALK)

GREGORY: On the banking question, leading economists will say you cannot solve what ails the economy until you deal with saving the financial system, that the stimulus plan will not work.

(CROSSTALK)

GREGORY: And the fact of the matter is that, while the Treasury Department says and indicates that it has a lot of its plan out there, they have not yet decided how they’re going to clean up the impaired assets on the banks’ balance sheets.

Why haven’t they come up with that plan yet?

SCHUMER: But let me just first say, in reference to Lindsey, if we did what the Republican mainstream wants and cut back even further, the numbers would be worse. No one except hard-right ideologues believe it.

Now let’s get to the banking issue. First, the two are related. One of the reasons the banks are in worse shape today than they were six months ago in October is because the economy is worse. And every day the economy gets worse; the banks, in bad shape already, get worse. So you need to do both at once. You have to get the economy going and you have to solve the financial crisis.

GREGORY: Right.

SCHUMER: This is very difficult. We have never had anything like this. This is not like the New Deal, where people lost confidence in the banks. This is the banks losing any confidence in lending. We all hear the story, South Carolina, New York, where good, capable businesses...

GREGORY: Right.

SCHUMER: ... are having their loans pulled.

GREGORY: We know it’s difficult, though. SCHUMER: OK. So the...

GREGORY: It’s been difficult since the previous administration that wouldn’t take on the assets either.

SCHUMER: But the question is not to do it quickly, as Hank Paulson and George Bush did, but do it right. And here’s what they’re doing right now. They’re undergoing thorough evaluations of the banks that are in trouble. That should be finished in a couple of weeks.

GREGORY: Right, the so-called stress test.

SCHUMER: Right. Then they will not come up with a one size fits all plan. Different banks need different types of solutions. And they have a number of different tools which they’ve talked about.

In addition the TALF, which I think is very positively regarded -- this is the Federal Reserve saying we’re going to guarantee car loans, small-business loans. It worked in the area they did it in October. It was the one thing the president -- President Bush did that worked.

SCHUMER: It worked for commercial lending, it worked for interbank lending. You’re going to see a real effect now. So here is the only thing I’d say, David. We all are a nation of very -- we want very quick results. The president has wisely said it’s going to take awhile. He is smart; he is thoughtful. He’s very active, no question, but he’s moderate.

GREGORY: Do you...

SCHUMER: And I think these plans, if you give them a chance, are going to succeed.

GREGORY: Do you still believe, Senator Graham, that nationalization of at least some banks will be necessary?

GRAHAM: Once the stress test is administered, we will look at the state of play of the banks. And here’s what I’m trying to tell folks back home. I don’t think a TARP 3 is available. If you had a TARP 3 proposal -- there’s $250 billion in the president’s budget for another round of TARP. I don’t think he’d have the votes to infuse more capital in the banks unless something happens.

GREGORY: Would you vote to give more money?

GRAHAM: No.

GREGORY: You wouldn’t do it?

GRAHAM: We got to look at these banks. And the question becomes, when are you throwing good money after bad?

When would it be better to take the bank over, break it up, sell it off and better manage the bad assets vs. just infusing it with capital? That, to me, is an option -- call it what you like -- that needs to be put on the table. It’s the last thing you want to do, but ideology is part when it comes to me. But this whole series -- the stimulus package was $787 billion that I think missed the boat dramatically.

GREGORY: All right, but I want to stay focused on this nationalization, this question.

GRAHAM: Yeah, right.

GREGORY: Should government be in the business of running banks?

Now, let’s be clear what we’re talking about here, because...

GRAHAM: Yes. We’re not...

SCHUMER: Right, right, right.

GREGORY: ... the government has a very big stake in Citi, in B of A.

GRAHAM: Yes.

GREGORY: It has capitalization, you know, positions in a lot of banks. So it’s got -- it’s got a 40 percent position or it’ll get to that, in Citi.

SCHUMER: Yes, it does.

GREGORY: That’s not complete nationalization. But, of course, they can tell the banks what to do anyway.

SCHUMER: Right. It’s a very difficult question. Again, these are not easy questions and they don’t have quick answers. But I think the word nationalization has sort of gotten misinterpreted.

GRAHAM: Yes.

SCHUMER: And Lindsey and I are closer than you’d think on this issue.

GRAHAM: Right, right.

SCHUMER: And so are a lot of others. There’s what I call good nationalization and bad nationalization. Bad nationalization, the federal government comes in, takes over and runs the bank.

GREGORY: Right.

SCHUMER: The federal government is bad at making those type of decisions. The danger of crony capitalization, you know, the federal government or some powerful senator, president, someone saying, “Do this because I believe in this project or that,” it’s noneconomic -- bad.

What is good nationalization?

We should probably have a better term. Some people have called it -- have come up with other terms.

GRAHAM: Receivership.

SCHUMER: Receivership, or whatever. The government -- and the FDIC has done this. We did this during the S&L crisis. Once these evaluations occur there may be some banks -- we don’t know which ones, and I’m not going to name any -- that will never make it.

And Lindsey is exactly right, and he’s been saying this, to his credit: We don’t just keeping putting money in, money in, money in, and the bank never solves itself. You’ve got to come clean.

What you do is the federal government comes in, it clears out the management, it tells the existing stockholders you’re gone. It takes the bad assets and takes them off the bank’s books and then recapitalizes the bank with private dollars and a new private group and management run it.

GREGORY: But do you think the government...

SCHUMER: That should be...

GREGORY: Is the government dithering right now with capital injections...

SCHUMER: No.

GREGORY: ... the way they’ve been doing it?

SCHUMER: I think -- David, I think what they have to do is not act first and then think and evaluate, but the opposite. They are now evaluating these banks.

GRAHAM: Right, the stress test.

SCHUMER: Each one is different. Each one is different because of their loan portfolio and everything else.

A quick answer, one-size-fits-all, doesn’t work. I have talked to Secretary Geithner. He is very thoughtful about this. Larry Summers is. They’re what the American people would want.

GREGORY: Right.

SCHUMER: They’re deep, they’re practical and they’re nonideological. They’re going to come up with different solutions for different institutions.

GREGORY: But taxpayers are going to have to pay more money for the banks. Is that your belief?

SCHUMER: Well, we’ll have to wait and see. I mean, they haven’t come up... GREGORY: There’s $750 billion in this budget. The president has said it’s going to go beyond the TARP money that’s there right now, the bailout money.

SCHUMER: He put another 250 in, and that’s in case, God forbid, there’s an emergency. Right now, we don’t have an emergency the way we had it with Bear Stearns and with AIG...

GRAHAM: Well, David...

SCHUMER: ... right before. And so they have a little bit of breathing space to analyze this and do it right. Do it strongly, but do it right. And that means one size doesn’t fit all.

GRAHAM: But I don’t believe there’s enough money in TARP 2 to stabilize housing and deal with the undercapitalized banks. So the Federal Reserve is a player in this.

But, politically -- I may be wrong, Chuck -- but politically, we’re in a spot now where the Congress is not going to reauthorize a TARP 3, unless...

GREGORY: There just isn’t the political will.

GRAHAM: There’s just not the political will unless something new happens. And when the stress tests are administered and you can see that this bank is a zombie bank, I think there’s growing political will that we’re not going to keep throwing good money after bad.

GREGORY: All right, I want to get into...

SCHUMER: That’s true, but there’s just one other point here. It’s very expensive to even do the good nationalization.

GREGORY: Right.

SCHUMER: A lot of these banks, to take over their bad assets...

GREGORY: Sure.

SCHUMER: ... sounds nice and easy. Oh, you put them aside.

GREGORY: Right.

SCHUMER: Oh, no, no, no, you have to make up for what they are on the books vs. what their actual value is.

GREGORY: And if they continue to lose money...

SCHUMER: Exactly.

GREGORY: ... the government could be on the hook for a lot more.

SCHUMER: So there is not quick and easy answer.

GREGORY: OK. SCHUMER: One other thing I’d say on the TARP -- I think it will not, certainly -- and the president, I think, is aware of this -- it certainly will not be renewed without really tough oversight, with much stronger parts of executive -- limits on executive compensation (inaudible) claw-backs, for instance.

GREGORY: Right.

SCHUMER: ... and without some guarantees that, if we’re going to put any more money in, we’re going to actually see lending to his car buyer and to my small business in New York.

GRAHAM: Right.

GREGORY: I -- Just a couple minutes left. I want to get to an important debate this week, and that’s about this spending bill, this omnibus spending bill that’s full of pork, full of pet projects. Senator McCain, on the floor of the Senate this week, had some choice words.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN, R-ARIZ.: It is the president of the United States business to do what he said. In his -- his pledge last September, President Obama said during the debate in Oxford, Mississippi, “We need earmark reform, and when I’m president, I will go line by line to make sure we’re not spending money unwisely.”

So what is brought to the floor today? Nine thousand earmarks.

So much for the promise of change.

(END VIDEO CLIP)

GREGORY: Now, as Senator McCain pointed out, this is a bipartisan disease. Forty percent of the earmarks are from Republicans. That’s $7 billion. Should the president veto this bill?

GRAHAM: Well, I’ll leave that up to the president. We do need earmark reform. I wish he would veto the bill. We’d get back together and come up with the earmark reform process.

Senator McCain does not object to members of Congress designating money to be spent in their state, as long as it has a federal purpose that’s transparent and people understand what the money’s going to be spent for and will have a say about whether or not it’s a good idea.

That system doesn’t exist. I think it would be good for the country if the president and Senator McCain could meet, soon -- sooner rather than later, and come up with a package.

GREGORY: And yet Senator McCain is actually giving you a hard time.

GRAHAM: Sure. GREGORY: He’s on Twitter, and number six on his list of pork- barrel spending, $950,000 for a Convention Center in Myrtle Beach, South Carolina.

GRAHAM: Yeah. Yeah.

GREGORY: You want him to -- you want the president to veto this spending bill?

GRAHAM: I voted to take all earmarks out, but I will come back in the new process and put that back in. Myrtle Beach, South Carolina, we’re trying to build an international airport, an international convention center and open up a new interstate highway to diversify Myrtle Beach’s economy.

GREGORY: Yeah.

GRAHAM: This came through the Small Business Administration.

GREGORY: You’ve got 37 earmarks, and you think they’re more important than other people’s projects around the country?

GRAHAM: I think I should have the ability, as a United States senator, to direct money back to my state as long as it’s transparent and it makes sense, yes.

GREGORY: Senator Schumer?

SCHUMER: Let me say this, David. We have reformed earmarks. When Democrats came in -- the earmarks got out of control under the old administration. In 2005...

GREGORY: This -- this is reform? This bill is reform?

SCHUMER: Wait. Well, let me explain what’s happened here. There is -- we’re going to make more reforms, too. But there’s transparency and there’s accountability.

For the first time, every earmark is online, you can get it before it even comes into the appropriations bill, so everyone can see it.

Second, every earmark has someone’s name attached to it. There’s my name attached to some. There’s Lindsey’s name attached to some. So you can no longer ever get the kind of bridge bridge to nowhere that brought everything -- and that was put in at the last minute in the conference committee with no name on it. People for weeks searched who put this in. So there has been reform.

GREGORY: You don’t really think voters care about pork. Is that your view?

SCHUMER: And -- no, I -- of course they care about pork, and I said that.

That little quote people talk about, they cut it in half. I said they care about other things as well. But the bottom line is, there’s been serious reform. We are now, this year, two years later, there’s one-fifth the earmarks there were before -- not 80 percent, 20 percent from before. They are transparent, no bridge to nowhere could occur.

We’re going to keep reforming. Here’s three more things we’re going to do. Next year, every request is going to go online. So it’s not just the ones that are about to be put in the bill.

Second, we are going to make them available much earlier. And third, we have made a commitment that there will be no more than 1 percent as earmarks. Some earmarks are good earmarks, as Lindsey said.

I’ll give -- can I give you one little example?

GREGORY: Real quick.

SCHUMER: Because everyone talks about the negatives. Mortgage fraud is killing Brooklyn, and lots of innocent people are hurt. The D.A. of Brooklyn, a well-known prosecutor, came to me and said, “The federal government won’t do this, they’re too busy with terrorism and drug stuff. I don’t have the money to do it.”

In this bill are money for five investigators, four accountants and three prosecutors, some number like that, to go after mortgage fraud of -- they’re vicious people who have gone after these people. If we had done this without earmarks...

GREGORY: All right.

GRAHAM: Right.

SCHUMER: ... it would have taken me two years to propose a government program...

GREGORY: All right, I...

SCHUMER: ... a year for them to apply, and he might not have gotten it.

GREGORY: All right.

Real quick before you go, Senator Graham, a political question. A lot of back and forth between the White House and Rush Limbaugh, radio talk show host.

Is his prominence and influence right now in the Republican Party good or bad for the party?

GRAHAM: Well, I think Rush Limbaugh’s prominence in the Republican Party is not what we’re talking about. His prominence in the radio world to gin up people for conservative calls is prominent. He doesn’t play in the Republican Party. He’s not an elected official. He doesn’t make...

GREGORY: You don’t think he has influence over lawmakers?

GRAHAM: I think -- sure. When people call, some people give in. I’m “Lindsey Grahamnesty.”

(LAUGHTER)

He’s been on me for two or three or four years about different things. And I take it for what it’s worth.

SCHUMER: He calls me worse.

(LAUGHTER)

GRAHAM: Yeah. I mean, no, stop talking about Rush Limbaugh at the White House. Work with us to solve housing and banking.

GREGORY: All right, we’re going to leave it there. Senators, thank you very much.

END

.