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'Race for the White House with David Gregory' for Monday September 22, 2008

Read the transcript to the Monday show

Guest: Mitt Romney, Austan Goolsbee, Paul Krugman, Michelle Bernard, Eugene Robinson

DAVID GREGORY, HOST:  Tonight, bailing out the bailout.  Both candidates raising doubts about President Bush's emergency plan to rescue Wall Street. 

This hour, former Republican presidential candidate Mitt Romney weighs in on the Wall Street crisis after the market drops nearly 400 points.  And Obama economic adviser Austan Goolsbee and I go one on one.  He's going to lay out Obama's vision for managing the financial mess.  That and more as the RACE FOR THE WHITE HOUSE rolls on.  Forty-three days to go in the race for the White House. Welcome to the program.  I'm David Gregory.

My headline tonight, "Bailout Backlash."  The president's emergency plan for a $700 billion bailout of financial institutions comes under scrutiny now.  Senators McCain and Obama become wary of turning over the president's multimillion-dollar rescue plan, hundreds of billion of dollars, to one individual, Secretary of the Treasury Henry Paulson.  Today, Senator Obama warned against giving the government a blank check while stumping in Green Bay, Wisconsin.


SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE:  And we cannot give a blank check to Washington with no oversight and no accountability, when no oversight and accountability is exactly what got us into this mess in the first place. 


GREGORY:  Meanwhile, Senator McCain, campaigning in battleground Pennsylvania, proposed a bipartisan oversight board. 


SEN. JOHN MCCAIN ®, PRESIDENTIAL CANDIDATE:  We won't solve a problem caused by poor oversight with a plan that has no oversight.  I believe we need a high-level oversight board to impose accountability and establish concrete criteria for who gets help and who doesn't.  They must ensure that throughout this crisis, the government is a careful steward of the taxpayers' dollars. 


GREGORY:  One candidate high on McCain's list to head his proposed oversight board is former Republican presidential candidate Mitt Romney, who joins me now from Boston. 

Governor Romney, always good to see you. 

MITT ROMNEY ®, FMR. PRESIDENTIAL CANDIDATE:  Thanks, David.  Good to be with you. 

GREGORY:  Let me ask you what McCain's general problem is with the way this bailout plan is unfolding from the Bush administration. 

ROMNEY:  Well, he has a couple points that he thinks need to be kept in mind.  One is, he doesn't want the Treasury secretary alone to be responsible for acquiring these troubled assets from all these financial institutions.  He would like there to be an independent oversight board making sure that politics is not part of the process, and that the values and the direction of Congress is followed.  And so he wants to see a board of that nature.  The second thing he wants to make sure happens is that managers of these enterprises that are saved on behalf of the taxpayers of America, the citizens of America, that these managers don't pay themselves big bonuses and get a lot of cash.  Because this is being done not to help managers who made mistakes, but instead to keep credit available for the American consumer. 

GREGORY:  And it is interesting, there is all this talk about buying some of these securities, some of these assets that are so devalued from the investment bank.  But there's no real ownership of the government besides Fannie Mae and Freddie Mac of the particular companies. 

Is that a problem? 

ROMNEY:  Well, it depends on the circumstance.  But what you hope to have happen is to have some of these assets bought at their fair mark value, not a fire sale value, but a fair market value, purchased.  And then over a period of time, those-hopefully those assets will be restructured, people's mortgages can be restructured, they can stay in their homes and these things will be repaid. 

And this is designed of course to keep our credit markets from falling apart.  In some cases, I think that the Treasury secretary may say, hey, look, if we're going to be making the scale of investment we're making, we do want warrants or the right to purchase equity in your company, or to receive equity in your company for having purchased some of these assets that are under water.  So you want that kind of flexibility. 

GREGORY:  OK.  So here we're talking about more regulation.  Senator McCain is talking about a government oversight board here that gets involved. 

Here's Senator Barack Obama criticizing on the grounds of philosophy, Senator McCain's approach to all this.  Listen to this. 


OBAMA:  Let's be clear.  When it comes to regulatory reform, Senator McCain has fought time and time again against the commonsense rules of the road that could have prevented this crisis. 


GREGORY:  Now, is there any dispute about that, Senator Romney, that Senator McCain has a record of supporting deregulation? 

ROMNEY:  You know, everybody supports certain regulation and dislikes certain other kinds of regulation.  And Barack Obama's statement is completely off the mark.  I have no idea what he is referring to as to regulations that would have prevented this crisis that John McCain supposedly didn't support.  John McCain-while Barack Obama was sitting on the sidelines, John McCain was calling for new reform and regulation for Fannie Mae and Freddie Mac.  That's the reality.  And Barack Obama didn't do anything, didn't get involved in the effort.  John McCain has been fighting for regulation in those arenas for some time.  Regulations that make our markets work better are always something which we support.  They need to be modernized and updated.  Of course the kind of thing we all oppose are the kind of burdensome, unnecessary regulations, particularly on small businesses, that make it difficult for jobs to be created. 

GREGORY:  Right.  But didn't Senator McCain support SEC rules that would have allowed the investment banks to become more heavily leveraged? 

ROMNEY:  You know, I don't know the specific rule that you're referring to.  I can tell that you the decisions of the last several years that really hurt our economy were decisions to allow individuals to take out loans from banks where they had virtually no ability to repay those obligations.  That's what is at the heart and what's going on in our economy.  And the fact that those loans are now, in some cases, losing a lot of value, is something which is hurting this economy.  So that's at the heart.  And by the way, Democrats fought for that, Republicans fought for that.  Everybody was excited about giving loans to people who really didn't have the ability to repay them. 

GREGORY:  OK.  Let's talk about change.  Senator McCain last night on CBS's "60 Minutes" talking about the Bush administration.  Let show it here. 


UNIDENTIFIED MALE:  Are you spaying the Bush administration has failed? 

MCCAIN:  I say the Bush administration has failed.  I stay Congress has failed, Democrats and Republicans. 

I remind you, the Democrats have had the majority in Congress for the last two years.  So everybody has failed.  And the cozy, old boy special interests that have prevailed in Washington have harmed the American people, frankly, in the most terrible fashion. 


GREGORY:  Now, Governor, I remember covering you on the campaign trail in New Hampshire this very year, this campaign season, when you made it very clear, when you were facing your Republican rivals, including John McCain, that the question would be, who could stack up with Barack Obama on the issue of change?  And you made the argument that John McCain couldn't. 

And I bring that up to ask this question.  Is it too late for Senator McCain to try to separate from President Bush on this issue in the middle of this crisis? 

ROMNEY:  Well, I think people in this country recognize that John McCain has been a maverick, some would even say-his opposition would say a stick in the eye to the Bush administration on a number of fronts.  And so the effort on the part of Barack Obama to say, this is just a continuation of George Bush, I just don't think sells, because people know, for instance, that John McCain-well, remember what he said about Don Rumsfeld?  He said Secretary Rumsfeld is the worst secretary of defense in the history of our nation.  Look, he was out there...

GREGORY:  But he never called for his resignation.  The only

resignation he wants is for Chris Cox to get out of the way as head of the


ROMNEY:  You know, your reporting of the news is perhaps more accurate than my memory, but I thought he call for Don Rumsfeld to get out of there.  He certainly said he was the worst in history. 

GREGORY:  No, never once.  He said it was President Bush's decision. 

ROMNEY:  Well, then that's fine.  I'll respect his feeling.  But if he says he is the worst in history, that's a pretty clear indication of what he thoughtful.

And, of course, he also said that the surge would work well before the administration got on board.  He said we didn't have enough troops there. 

Look, he's been right.  He's been opposed to the president.  Medicare Part D, he fought the president on that. 

GREGORY:  But Governor...

ROMNEY:  He is a guy of his own thinking and his own mind.  But surely...

GREGORY:  That's true.  But Governor, the reality is-and I understand that you're supporting John McCain now and that the primary season is over.  But is it, as a political matter, as somebody who is looking at his record, who wanted to create contrast, is he not vulnerable to this question of why he is trying to separate from the president now, even on financial, economic philosophy questions at this stage of the game?  Isn't that a problem for him? 

ROMNEY:  Well, you know, if you're talking about change, you might always like to say that you came from another planet and you had nothing to do with what's going on here.  But his record in the United States Senate over 25 years is one of standing up for what he believes and not towing the line of his party or his president.  And by the way, that's why he's gotten a lot of grief over the years by his party and his president.  And I think it's why so many people who are Independent voters are looking to John McCain and why you see him getting such extraordinary support across the nation.  He is an independent-minded guy.  And any effort to try and characterize him as the continuation of the past, I just don't think it's going to work. 

GREGORY:  Real quick, Governor, do you think Hank Paulson is doing a good job in managing all of this? 

ROMNEY:  You know, I believe he is.  I do believe that we're fortunate to have as the secretary of the Treasury, a person who has so many years of experience on Wall Street and who is such a bright person. 

I believe he is doing everything in his power that he can to help our country at such a critical time.  I don't believe he is being partisan or political in this.  And I think we're fortunate to have him there.  I'm sure he is making mistakes that he'll regret down the road.  We all do in positions of leadership.  But I think he is doing what he thinks is right. 

GREGORY:  All right.  Governor Mitt Romney from Boston tonight. Always a pleasure to have you on. 

ROMNEY:  Thank you, David.  Good to be with you. 

GREGORY:  And coming next, the proposed Wall Street bailout would stick an extra $700 billion on the next president.  So how would Obama plan to pay for the health care plan he's been promising and other programs as well?  I'll go one on one with Obama economic advisor Austan Goolsbee when RACE FOR THE WHITE HOUSE returns right after this.



MCCAIN:  Senator Obama has declined to put forth a plan of his own at a time of crisis when leadership is needed.  Senator Obama has simply not provided it.  And the truth is that we don't have time to wait for Senator Obama's input for our nation to act.



That was Senator McCain taking a swipe at Senator Obama's economic plan while at a town hall in Scranton, Pennsylvania, today.

Joining me now from Chicago is Obama senior economic advisor Austan Goolsbee. Austan, welcome to the program.


GREGORY:  How about that particular point?  What is Senator Obama's vision for managing this crisis?  And why not really take concrete steps to influence what the administration does?

GOOLSBEE:  David, that was crazy.  He absolutely has taken concrete steps and has been taking them for a long time, unlike John McCain.  So for the last year, has been outlining how we needed to reestablish public trust in our capital markets and outlined a specific six-point plan to reestablish public oversight in the rules of the road just this week. 

Now, John McCain apparently forgot about that when he was writing his own plan.  And the plan he wrote that he is saying is his own plan could literally fit on a gas station receipt.  I mean, it was 10 sentences long.  It was nothing. 

GREGORY:  Let's talk about the vision, the way forward here.  There is a big debate that's going to unfold on Capitol Hill about how to proceed.  Is Senator Obama 100 percent happy with this bailout plan as the administration has laid it out? 

GOOLSBEE:  No, certainly not.  And you've seen him specifying his concerns.  Now, he starts from a position of, it's obvious we're in an extremely precarious situation.  We've got the retirement savings of millions of Americans at risk because of this irresponsible, no rules of the road, Bush kind of McCain philosophy.  But that said, once you're in the crisis and your house is on fire, you have got to put the fire out.  So he's not trying to play politics.  What he is insisting on is that we have several basic thing that must be included.  A, we can't give a blank check to this administration.  Given their track record, that would just be irresponsible.  There has to be some oversight of something with a price tag of $700 billion.  They can't just buy whatever they want at whatever prices they want. 

Two, there has to be concern about the core economic issues that got us into this crisis and that continue to face us.  That means the state of the economy.  We need more stimulus.   It means dealing with the homeownership and the foreclosure crisis directly.  It means looking at the behavior of the financial institutions who are going to be getting this rescue so that they don't just take the money and run and play business the same way they always have. 

GREGORY:  All right.  Let's talk about priorities here.  David Broder, writing in "The Washington Post," said this about how this financial crisis impacts the next administration, whoever is elected.  To the quote board here."The next president, whoever he is, will inherit a budget that is at least $500 billion out of balance-a record sum that will limit his ability to do any of the wonderful things being promised daily in the upbeat rhetoric of the campaign.  The last thing candidates want to admit is that, if they win, they will be unable to deliver the goodies they have promised the voters." So here's the question then.  How is this financial crisis that has hit Wall Street, hit the country, changed Senator Obama's priorities for his initial time in office? 

GOOLSBEE:  Well, look, the first priority is, if the marketplace and the economy, facing the financial institutions or regular Americans, looks like it does this week, then we have a new priority.  We have to deal with that right out of the gate.  So there's no question about that.  But on the core issue which is-it sound like it's sort of behind your question of, would Senator Obama abandon the things that he's talking about to foster the strength of the middle class because we have to deal with this, let us not forget how we got into this problem.  It is exactly the struggle of ordinary Americans unable to make their mortgage payments that got us into this situation.  So if you truly were going to abandon all of the paid for, I might add, programs that Obama is talking about, and the direct tax relief for ordinary Americans, you would be setting yourself up for another one of these huge bailouts.  So I really don't think that's the way to go. 

GREGORY:  Well, here's an exchange between CNBC's John Harwood and Senator Obama on the issue of taxes and spending.  Let watch. 


OBAMA:  Well, on the spending side, I think it's going to be important for us to deal with the health care crisis. 

JOHN HARWOOD, CNBC:  So no change in your health care plan? 

OBAMA:  Well, but keep in mind, my health care plan is paid for.  And I continue to believe that rolling back the Bush tax cuts on the wealthiest Americans makes sense. 

They are still going to be wealthy after those are rolled back.  I still believe that it is important for to us make college more affordable.  And I think it's important that all those things are paid for in light of this huge additional potential expense. 


GREGORY:  Austan, he's moving forward on some of these plans.  And he still wants to move forward, as you alluded to just a second ago, with tax cuts, in addition to raising taxes, by reversing the Bush tax cuts.  How do you afford that at a time when the country is facing a budget deficit of what could approach $500 billion?  Let alone, what the real cost of this bailout will be? 

GOOLSBEE:  Senator Obama said it exactly right.  As he has progressed through the last year and a half of this campaign, he has come up with pay-fors for every single thing that he has discussed.  His program would reduce the deficit if enacted whole hog.  If you took everything he had, he would shrink it.  And you should be asking this question of the McCain campaign, because they are talking about tax cuts for the biggest corporations and the highest income people, and the most well-off CEOs that would literally add $350 billion a year to the deficit.  Obama's program is paid for. 

GREGORY:  Let me ask you in general terms, this is the first time since 1932 that we have a presidential election in the middle of a financial crisis. 


GREGORY:  What is it about Senator Obama, personal characteristics, that you can say to voters makes him the right guy to lead us out of this? 

GOOLSBEE:  Well, I would say three things.  First, he's been very thoughtful and very foresighted on this issue.  Has been talking in specific terms about how we needed to reestablish oversight of our financial markets for more than a year, in great contrast to John McCain, who has been trying to deregulate our financial markets for the last 26 years.  Second, he is surrounded by a lot of extremely informed people: Paul Volcker, Warren Buffett, Bob Rubin, Larry Summers, Laura Tyson.  The list of advisers that he has, including Republicans like Bill Donaldson-he's talked with Paul O'Neill-a bipartisan approach at a time of crisis is exactly what we need.  Not playing politics.  And the third, he's been extremely vocal on what goes wrong if you start tearing up the rules of the road as John McCain and George Bush and Phil Gramm have tried to do.  It's one of these things where John McCain has now discovered that he's complaining about recklessness of CEOs and financial institutions and reckless driving, but this is what happens when you tear down the road signs, when you slash the tires of the police cars, and you legalize carjacking.  I mean, that's where we are. 

GREGORY:  I understand that, but this is the rhetoric of a campaign.  I'm asking you both what makes him tick, but also, who's going to be the strongest voice in his ear on the economy when he's going to have unsettled ground underneath him in this climate? 

GOOLSBEE:  Well, I think you can look at the course of this campaign as a good indicator.  He is the most important voice on the economy.  He has gotten input from all sides. 

We've talked regularly with Bob Reich, with Jared Bernstein, with people from Wall Street, with people from industry across the board, and that is the way he ticks.  That's not invented for this campaign.  That is the way he has always been. 

GREGORY:  Finally, might he keep Secretary Paulson on? 

GOOLSBEE:  I don't know that.  That's way above my pay grade.  I don't know anything about it. 

GREGORY:  But you advise him.  Do you think that would be a good idea? 

GOOLSBEE:  Look, as I say, what we need to do now is address the concerns that are facing the economy in a moment of crisis. 

GREGORY:  Has Paulson done a good job in your judgment? 

GOOLSBEE:  Look, as I say, Paulson, Bernanke, the leaders in Congress, Senator Obama, we're all trying to make sure this thing doesn't morph into a Great Depression.  That's where the focus has to be. 

GREGORY:  And is he doing the job that needs to be done? 

GOOLSBEE:  As I say, Senator Obama is working with Secretary Paulson, Chairman Bernanke, leaders of Congress to try to make sure this doesn't morph into something that tanks the retirement savings of every American person. 

GREGORY:  Austan Goolsbee, senior economics advisor to Senator Obama. 

Good to see you.  Thanks for coming on.

GOOLSBEE:  Good to see you.

GREGORY:  Coming next, a deadly suicide bombing on an American-owned hotel in Pakistan.  That as the candidates prepare for their first debate on foreign policy this week.  It's on THE RACE's radar when we return.


GREGORY:  We are back with a look at what else is on THE RACE's radar for tonight.U.S. officials say al Qaeda is the prime suspect in Saturday's deadly suicide bombing at an American-owned hotel in Pakistan.  The terrorist attack on a Marriott hotel in Islamabad killed at least 60 people and wounded hundreds more.  Tomorrow, President Bush will meet with Pakistan's new president, Asif Ali Zardari, at the U.N. General Assembly to discuss the war on terror.  Zardari is the widower of former Prime Minister Benazir Bhutto, who was assassinated while running for office last year.  Also on THE RACE's radar tonight, VP nominee Sarah Palin will be at the U.N. starting tomorrow.  Her first meeting will be with Afghan president Hamid Karzai.  She will also meet with Henry Kissinger.

Coming up after a break, cash for trash.  That's what some skeptics are calling the big bailout.  More when RACE FOR THE WHITE HOUSE returns.


GREGORY:  Backing away from the bailout.  The presidential candidates express reservations about doling out nearly a trillions dollars in tax payer money to help Wall Street.  A pretty hefty sum that will go on the next administration's bill.  Welcome back to RACE FOR THE WHITE HOUSE.  I'm David Gregory.  Time for the back half.  Senators McCain and Obama are raising about the 700 billion dollar Wall Street bailout.  That's the estimate.  Both are now calling for greater oversight of the president's emergency plan.  The stock market didn't react well either, plunging nearly 400 points today, wiping out Friday's gains.  Joining me now for the latest is the managing editor of cNBC's business news and host "High Net Worth," Tyler Mathisen.  Tyler, good to have you here. 

TYLER MATHISEN, CNBC MANAGING EDITOR:  Great to be with you, David?

GREGORY:  What didn't the market like about this? 

MATHISEN:  I think Thursday and Friday's sort of sighs of relief were replaced today by a focus on two things.  One, the details in this 700 billion dollar or more plan to take bad debt off the books of many of America's financial institutions.  The details became key.  And then there was fear, fear on exactly how those details were going to affect, number one, the economy, and number two, all the companies that will be involved in this bailout. 

So that even if on Friday, it seemed like, boy, the worst is behind us; today, after a long weekend, people really focussed on maybe we have to pay attention to the details and who the winners and losers will be. 

GREGORY:  No surprise, this is topic A on the campaign trail.  Senator McCain talking about the bailout today. 


MCCAIN:  Obviously, a rescue is absolutely called for.  I respect and admire Secretary Paulson.  As far as I can tell, we're placing all those responsibilities in the hands of one person.  I think we need to appoint an oversight board of the most respected people in America, such as maybe Warren Buffet, who is an Obama supporter, Mitt Romney, Mike Bloomberg, so that there can be some kind of oversight, instead of just putting all this responsibility on a person who may be gone in four months. 


GREGORY:  Yes, there seem to be on, both sides of the aisle, some concern about whether Hank Paulson-whether the treasury secretary, no matter who it is, should have the kind of authority to not be questioned, to be responsible for this money and be solely responsible for the implementation of it. 

MATHISEN:  Absolutely.  That interview I believe from our John Harwood last night indicating what is really at work on Capitol Hill.  They're concerned about writing effectively a blank check and putting it in the hands of one individual, who, by the way, was a former chairman of Goldman Sachs, one of the companies that stands to, in some ways, benefit from this plan as it seem to be conceived right now.  There are many, many more calls for oversight, for some additional restrictions to be worked into whatever package ultimately sort of comes out of Capital Hill and is signed by the president, and a suspicion-not suspicion so much as a concern that you don't want to put too much power in one man's hands, even if it is a guy as capable as just about everybody says Hank Paulson is. 

GREGORY:  Also joining me now, your colleague Erin Burnett, anchor of cNBC's "Street Signs" and "Squawk on the Street" program.  She's down in Washington, from New York. 

ERIN BURNETT, CNBC ANCHOR:  Good to see you.  Nice to see you, Tyler. 

MATHISEN:  You bet.  Same here. 

GREGORY:  Let's hear from Barack Obama today, who talked about where there is a plan and where there are still details to be worked out today on this. 


OBAMA:  I don't think it is completely plan yet.  What we have is a request, a massive amount of money that the Treasury would have discretion over.  And we know that it will potentially take a while to work this thing out.  We haven't seen all the details. 

I think that it has to be both.  And I'm supportive of the need for quick action.  But there are some principles that I think have to be included. 


GREGORY:  Erin, we talked a little with Tyler about what the response has been like in Washington.  What about on Wall Street among these companies?  What are they expecting out of a plan, in whatever form it ultimately takes place in? 

BURNETT:  It is an interesting question.  I think the thing concerned them the most, and is perhaps most important, is something Tyler was alluding to, which is it needs to be done quickly.  And by definition, David, the stuff that the banks are going to want to put in this big federal tax payer funded pool is going to be the most toxic, nasty stuff that there is.  It is not going to be stuff the government can quickly turn around and make money on.  So it is important to know that a lot of the stuff that comes in is going to be pretty rotten, pretty bad mortgages.  And the banks might need that help now.  Their biggest concern though, to be honest, is something else Barack Obama was referring to when he said, in a considered manner, we need to think about the principles under which we're doing this.  One of the biggest concerns for them might be this cap on salaries, that if they participate, put their toxic debt in, they might have to, in return, accept caps on salaries.  It's not just Barack Obama said that.  John McCain told John Harwood yesterday, as you know, maybe these bank CEOs shouldn't be allowed to make more than the highest person in the federal government.  I believe that's 400,000 dollars. 

GREGORY:  Let's listen to something that Treasury Secretary Hank Paulson said on "Charlie Rose" earlier this year.  I want to get the date.  This was back in January, where he talked about the economy.  Let put this in context.  It was last August when a lot of the concerns first popped up.  This was August of 2007 when concern about the sub prime crisis, concerns that Fannie Mae and Freddie Mac first materialized.  This is Secretary Paulson back in January. 


HENRY PAULSON JR., SECRETARY OF THE TREASURY:  The economy is fundamentally sound.  Long term fundamentals are sound, structurally sound.  But the economy is slowing down.  There is no doubt about it.  But do I believe we'll continue to grow. 


GREGORY:  Erin, where is the accountability for an administration that felt and used the word containment throughout this last year and a half, almost, when it came to this issue?  They thought they had it contained. 

BURNETT:  They sure did, and they were wrong, along with everyone else.  One thing that he has been technically correct in is that we haven't had a formal full-blown recession.  Most people would say it feels like one, but he was right about that.  Fundamentals long term, I talked to investors overseas and they still say, thank goodness this is happening in the United States.  There is no other government in the world that could bail the world out of this crisis.  Those are pretty slim silver linings, I recognize that.  But yes, they missed it.  But so did everybody else who was supposedly smart and with it. 

MATHISEN:  If I could jump in, I think one of the things that may have been spooking the equity market, the stock market today, was the sense that heck, the economy may really be slowing down now.  And are we going to avoid a recession?  A couple of the investment banks, such as they have credibility left, came in and downgraded or said that a couple of the big technology companies, Apple and Cisco, were going to make less money because the economy globally was going to slow down. 

It is a little hard, I think-this whole problem, David, that as you rightly point out really started to build last August-it is a little hard to fault policy makers too much because I think this was so much greater than any of us could have anticipated.  The ripple effects, the knock-ons so much greater than anyone could have anticipated.  Who could have thought a long time ago that we would be sitting where we are tonight? 

GREGORY:  Let me conclude with this question.  Both of you can take this on.  What about helping the individuals?  Talking about people on main street, not just Wall Street, people who may have difficulty now making their mortgage payments.  That's really the first rung of this ladder for people to be able to do that for these mortgage assets, ultimately, to grow in value.  Right? 

MATHISEN:  I think that's right.  And certainly, that's something that lots of folks on Capitol Hill see as a real critical part of whatever package emerges.  Namely there be some kind of relief for people facing foreclosure, so that the political perception is not that Wall Street and the big banks are getting a bailout and help, but that the little guy, who is sort of taking it in the knees on this, is at least getting some kind of assistance, too. 

BURNETT:  That's a great point, Tyler.  And David, to that point, it is already interesting how the plan has muted.  The treasury secretary himself had a said at first it was just to be mortgages and mortgage related securities that would be put in this bad debt pool.  Now other things might be included like car loans and credit card loans, which is his view of trying to recognize that the problem may be spreading to a lot of other loans that regular Americans get.  And the goal, of course, is to prevent interest rates going up for any of them. 

GREGORY:  Erin Burnett and Tyler Mathisen, both from cNBC, thank you both for being here. 

MATHISEN:  Thanks so much.

GREGORY:  We're going to take a break now.  Coming next, making sense of the big bailout and what it mean for this November's election.  I'll go one-on-one with "New York Times" columnist Paul Krugman, who says the plan needs some major reworking.  We'll get to that when THE RACE returns.


GREGORY:  Welcome back to THE RACE.  One vocal critic of the president's plan to bailout Wall Street is going one-on-one with me tonight.  He is Paul Krugman, an op-ed columnist with the "New York Times."  Paul, welcome. 


GREGORY:  So as you look at this bailout plan that will be debated in earnest on Capitol Hill starting tomorrow and the Banking Committee, what is your overall impression?  Where does it seem to work?  More pointedly, to what you wrote today, where doesn't it work? 

KRUGMAN:  Well, almost everybody agrees that we need something right now.  We do need a rescue.  It doesn't have to-maybe not today, maybe not tomorrow, but soon for the rest of our lives.  The key thing, the praise that's really driving me crazy is people talk about we're going to take the bad debts off the books of the banks.  And that is going to-That tells you nothing.  The question is, at what price do you take that bad debt off the books?  If you take it off zero price, sure, then tax payers get a great deal, but the banks go bust.  If you take it off at a very high price, you save the banks, because you've thrown a lot of tax payer money at them.  But then the public loses a lot.  And is there any-how does this make sense?  How are we supposed to be saving this without throwing a lot of money at them?  Paulson has never explained this.  What we had was a major case of overreach by Hank Paulson.  He basically has not tried at all to explain how this plan is supposed to work.  He has basically said, trust me, daddy knows best.  By the way, there will be no future review of my actions. 

And I have a quarrel with Erin Burnett a little bit.  He does not have a great track record.  Some people were better than him.  What we need is something where we have a plan to actually rescue the system, but tax payers get some ownership in return. 

GREGORY:  Let's talk about that.  This is from your column this morning.  We'll put it on the screen so everybody can see.  "If the government is going to provide capital financial firms, it should get what people who provide capital are entitled to, a share in ownership, so that all the gains, if the rescue plan works, don't go to the people who made the mess in the first place.  But Mr. Paulson insists that he wants a clean plan.  Clean in this context means a tax payer financed bailout with no strings attached, no quid pro quo on part of those being bailed out."

But, Paul, are you saying that the era of big government is definitely over, that the government ought to have some ownership of these investment banks?

KRUGMAN:  At least transitionally.  Look, when the Savings and Loan Industry fell apart, the government took over the banks.  Then it sold off the bad assets.  It recapitalized them, put in enough money to them grow, and then it reprivatized them again.  It's not that we want government running Wall Street forever.  But if the government is going to pump in hundreds of billions of dollars, then it ought to have a stake in the upside here.  That by the way-since I wrote that column, Senator Chris Dodd has come out with a plan, which, on first read, looks like it's a going substantial direction-a substantial distance in that direction.  And this is, what you-people have been drawing parallels.  We rescued the savings and loans and the Paulson plan is like that.  The Paulson plan is not.  The Paulson plan is we're just going to throw money at the sector without anything accruing back to the taxpayer, except the toxic paper.  And we can do better than that. 

GREGORY:  Let's look at a new ad from Senator Obama on the economy. 

Then I have a question about what voters should be looking for. 


UNIDENTIFIED MALE:  We've seen what Bush-McCain policies have done to our economy.  Now John McCain wants to do the same to our health care.  McCain just published an article praising Wall Street deregulation, said he would reduce oversight of the health insurance agency, too, just "as we have done over the last decade in banking."  Increasing costs and threatening coverage, a prescription for disaster.  John McCain, a risk we just can't afford to take. 


GREGORY:  So, Paul, we have all the back and forth on this.  That's just from Obama.  We have the back and forth from McCain as well.  But we have a crisis that's very complex, and that's unfolding in real-time.  So for voters, what is the leadership test on the economy from your point of view? 

KRUGMAN:  I don't think voters, realistically, they'll be able to evaluate the assertions and the plans.  This is where one of my beefs with Obama has been that I think he does this post partisan thing too much.  Really all that you have to go on-most of what you have to go on is that there has been a difference between the parties here.  The Democrats are the party of more regulation, more oversight.  The Republicans have beaten them up about that in the past.  Who is it that you think is more likely to crack down on the kinds of Wall Street abuses that have taken place?  The Republican party which believes the markets are right or the Democratic party which believes that markets need to be watched over a fair bit.  The other thing you can do is you can look at the people around the candidates.  And look, until just yesterday, McCain's guru on economics was Phil Gramm, the high priest of deregulation.  He spoke glowingly about Allan Greenspan.  He once said he propped him up like the guy from "Weekend at Bernie's" if Greenspan wasn't able to actually talk.  And Greenspan-if there are two guys that I blame for this crisis, it would be in order Alan Greenspan and Phil Gramm.  That's telling you something.

GREGORY:  Let me just show quickly what you wrote in March about Barack Obama more generally: "I suspect that the Obama mystique, his carefully created image as a transformational, even transcendent figure, has created a backlash among those unconvinced that he is interested in the nuts and bolts of work of fixing things."

Do you have a sense of what Obama's core beliefs are about how government should operate in terms of managing the economy? 

KRUGMAN:  Yes.  He's a moderate, moderately liberal, pretty conventional Democrat, not too different from Bill Clinton.  And that looks pretty good right now, doesn't it? 

GREGORY:  To a lot of voters, it certainly would.  What do you think would motivate-are the core beliefs of John McCain? 

KRUGMAN:  John McCain is essentially-Politically, he is a Reagan baby.  He has been part of-he came in with the Republican revolution.  He has always been in favor of less government, government off your backs, Washington is the problem.  His whole mindset is against the kinds of things that a lot of people are thinking we need to be doing now because we've had the markets go wild. 

GREGORY:  Paul Krugman from the "New York Times" editorial and op ed page, always good to have you on.  Thank you, Paul, very much.

KRUGMAN:  Thanks a lot.

GREGORY:  Coming next, what President Bill Clinton says about Obama's chances of winning in the fall.  That's coming up next when THE RACE returns. 



JOY BEHAR, "THE VIEW":  I have to know, because I know you predict the future, who is going to win the election, Obama or McCain? 

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES:  I believe Obama will win.  Two-thirds of the American people are having trouble paying their bills.  These are difficult times.  That makes them more likely to change.  The financial crisis meltdown only makes that more likely, number one.  Number two, America is growing more diverse, racially, religiously, culturally, demographically.  The country is moving toward Democratic voters in general.  Number three, registration is up for the Democrats and flat for the Republicans in 20 of the most important states. 


GREGORY:  All right.  That was President Clinton making the case for Obama on "The View" today, setting up our hot topic as we go inside the room, measuring the Clinton impact in THE RACE.  Joining me now, Eugene Robinson, columnist and associate editor at the "Washington Post," and Michelle Bernard, president of the Independent Women's Forum, both MSNBC political analysts.  Welcome to you both.All right, Gene, here come the Clintons back in the games.  He is starting to make some appearances now, predicting that Obama will win.  Second time in the last couple weeks he's done that.  No great headline there, but what do you make of his analysis? 

EUGENE ROBINSON, "THE WASHINGTON POST":  It's an interesting analysis.  Look, Bill Clinton is a very, very smart politician.  And I suspect that his analysis is probably pretty sound.  I also suspect that he is the way he is delivering the message in this kind of pretty soft pedaling way, as more of an analyst than an advocate, I suspect that's by design as well.  We'll see if it has any impact. 

But Bill Clinton is good at this.  And he is good at delivering the sort of message that sounds perfectly reasonable and logical. 

GREGORY:  You know, Michelle, it is interesting.  The last part of what he talked about, that registration is up for Democrats and Republicans in 20 of the most important states; that is a major argument by the Obama campaign that they're just got a lot of new vote who are registering in states like Florida, Georgia, other states as well.  But it doesn't account for what may be more enthusiasm among Republicans now, particularly with Sarah Palin on the ticket. 

MICHELLE BERNARD, MSNBC POLITICAL ANALYST:  Absolutely.  I mean, even with the voter registration being up for Democrats, the big question is, are all of those newly registered Democrats going to go out and actually vote on November fourth?  That's the big challenge for the Obama campaign. 

But also, the Republican party is rejuvenated beyond any stretch of the imagination.  No one would have ever imagined that a McCain campaign would look the way it does now.  The crowds coming out to see Sarah Palin, it is almost as if she is at the top of the ticket, rather than Senator McCain.  People are excited.  The base is going to go out and they are going to vote for Senator McCain and for Sarah Palin.  The big question is, in comparison to all the Republican base that is going to go out and vote on November 4th, will Obama be able to attract independents and will he be able to get those new voters to go out and vote for him on election day? 

GREGORY:  Go ahead. 

ROBINSON:  No, David, I was going to add to what Michelle said.  Even despite the Palin phenomenon, I don't think I've yet seen a poll where pollsters tried to measure enthusiasm and the enthusiasm gap-I don't think I've yet seen a poll that shows the Palin effect as having overcome what has basically been more enthusiasm on the Democratic ranks. 

GREGORY:  Let's look at some polling now.  This is interesting.  If you go into the states now, into the battlegrounds, you see there's really no breakaway on either side.  The NBC/Mason Dixon poll out of Pennsylvania, look at the numbers there.  It's Obama 46, McCain 44, just two points.  Nobody's at 50.  And then look at Florida.  This should be more solidly McCain.  It's McCain 47 and Obama 45.  The Obama people like to say that McCain has got no real operation there to speak of, although Obama spent a lot of money there in TV advertising and he is still two points behind, although it is a pretty close race.  Michelle, this goes to the question, if we're talking about the Clinton factor, two states, Pennsylvania and Florida, both states that Hillary Clinton won in the primaries, would putting her on the ticket have made a sizable difference here when we're talking about races that are in states where the polls show a two-point spread? 

BERNARD:  That's a very interesting question.  I wish I had a crystal ball.  It might have made a difference if one assumes that an overwhelming number of women were going to vote-come out of the wood works and vote for Obama because he put Hillary Clinton on the ticket.  When we think about the gender gap, that's the question you have to ask.  Women are not a monolithic group.  And I can't necessarily say that women were going to vote for Hillary Clinton just because she might have been on the Obama ticket, just as women are not necessarily going to vote for John McCain just because Sarah Palin is on the ticket.  I don't know if the difference would have been that large. 

GREGORY:  Real quick, Bill Clinton on "The View" today, talking about whether his wife would have wanted the job.  Listen to this. 


CLINTON:  And I like Senator Biden a lot.  I think he was a good choice.  She would have been the best politically, at least in the short run, because of her enormous support. 

BARBARA WALTERS, "THE VIEW":  She didn't want it. 


GREGORY:  Well, gene, that's the bottom line.  She didn't want it. 

She wasn't asked, either.  She wasn't considered.

ROBINSON:  You know, it was always difficult for me to imagine Obama and Clinton on the same ticket.  Hillary Clinton's position was that if he asked, she was going to say yes because she thought one has to say yes.  I think the signals from both sides were that this wasn't a marriage that was going to happen. 

BERNARD:   Hillary Clinton wanted to be president.  She didn't want to be vice president.  She's looking forward to 2012 or 2016.  I think Gene is right.  That would not have been a marriage made in heaven. 

GREGORY:  I like the SNL skit where she-Sarah Palin and Tina Fey, that was a problem that I didn't want it enough.  I don't think that was the problem.  Gene Robinson, Michelle Bernard, thank you both very much.  That's the program for tonight on RACE FOR THE WHITE HOUSE.  One programming note to tell you about.  Mark your calendars.  Turn to MSNBC for the first presidential debate coming up this Friday, September 26th at 9:00 p.m. Eastern.  I'll be bringing you special coverage of the debate all night.  Thank you for watching.  We'll see you back here tomorrow night at 6:00 p.m.  Stay where you are, "HARDBALL" with Chris Matthews coming up next on MSNBC.

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