'Meet the Press' transcript for Feb. 1, 2009

MR. DAVID GREGORY:  Our issues this Sunday:  From bad to worse, the U.S. economy shrinks at its fastest pace in nearly 27 years and the number of unemployed Americans reaches a record high as more major U.S. companies lay off thousands of workers.


PRES. BARACK OBAMA:  This isn't just an economic concept, this is a continuing disaster for America's working families.

(End videotape)

MR. GREGORY:  But on Capitol Hill, no bipartisan support for a solution as the economic stimulus bill passes the House without a single Republican vote. Now this critical debate moves to the Senate.  Will President Obama attract Republican support there?  Our guests:  two senators who will debate the package this week, a member of the Banking Committee, Republican Senator Kay Bailey Hutchison of Texas; and a member of the Finance Committee, Democratic Senator John Kerry of Massachusetts.

Then, the other trillion-dollar question:  What should government do about America's struggling banks and crumbling housing market?  Will taxpayers be called on to provide yet more bailout money?  The hard sell for rescuing America's financial industries and why it matters.  Insights and analysis from our economic roundtable:  anchor of CNBC's "Street Signs" and co-anchor of CNBC's "Squawk on the Street," Erin Burnett; president and CEO of Forbes, editor in chief of Forbes magazine and a GOP presidential candidate in 2000, Steve Forbes; and chief economist of moodyseconomy.com and the author of "Financial Shock:  A 360-Degree Look at the Subprime Mortgage Implosion and How to Avoid the Next Financial Crisis," Mark Zandi.

But first, the debate on the president's stimulus package moves to the Senate, and with us this morning, Republican Senator Kay Bailey Hutchison and Democratic Senator John Kerry.

Welcome to both of you, back to MEET THE PRESS.

SEN. JOHN KERRY (D-MA):  Glad to be here.

MR. GREGORY:  So here's where we stand.  The House bill for the stimulus, it now moves to the Senate, looks like this.  Here is a breakdown.  Total of $819 billion:  the spending side is the bigger of the two, $544 billion; tax cuts about a third at $275 billion.  After it passed with no Republican votes, President Obama said this:

(Videotape, Friday)

PRES. OBAMA:  I'm pleased that the House has acted with the urgency necessary in passing this plan.  I hope we can strengthen it further in the Senate.

(End videotape)

MR. GREGORY:  So, Senator Kerry, how does he do that?

SEN. KERRY:  Well, we're going to have an open process in the Senate. Starting tomorrow there will be amendments.  We will bring amendments ourselves, I know we're planning one with respect to transit, water, various infrastructure investments.  And I think we're going to add, frankly, to that ability to get money into the economy and put people to work immediately.  We have to create jobs, David.  I mean, the key focus of the senators is jobs. And we want to create those jobs as fast as we can, put as much money out, and I think we're at about 75 percent of this money will now go out in the first 18 months.  That's good.

But we also have to invest in long-term job creation.  So there's money in here to create 10,000 libraries, laboratories, classrooms.  There's money in here to help get the Internet out, broadband, into communities that hadn't been able to afford it--which incidentally was a plan of President Bush's in 2004, but never implemented.  So if we can do these things, we can make our economy more competitive.  But the most important thing is that we act.

One final comment.  Not only must we do this component of, of spending and creating immediate jobs, we have to have a sufficient safety net to help people who are hurting at the lower end; food stamps, extended unemployment benefit, all of those things are critical.  And we need to fix the banking structure, fix the rules of the road, fix the, the question of the capitalization of banks and finally, housing.  Housing has to be a component of this.

MR. GREGORY:  But are you suggesting that the way you strengthen it is you make that target on creating jobs bigger, you have more of a focus on that than the House version?

SEN. KERRY:  Yes.  I think we can do better with respect to some of the immediate expenditures.  For jobs we could expand--for instance, we could do better, I think, on the energy grid.  We could modernize faster, do some more to put people to work in those sectors.  So I think that we could hopefully find common agreement about some ways to create jobs out there.

MR. GREGORY:  Senator Hutchison, this is what the Concord Coalition, a bipartisan group, said about the stimulus plan thus far:  "Tax cuts or public spending increases that are intended to stimulate demand in the short term should be `timely, targeted and temporary' to maximize the economic bang for the buck.  Policies that are not likely to generate much additional, immediate consumer and business spending do not constitute effective stimulus and should not be considered in the context of `emergency' legislation." Does this bill have to be reworked as it gets into the Senate?

SEN. KAY BAILEY HUTCHISON (R-TX):  You know, David, that's the key point.  I think we need to take a look at the big picture and really look at what this bill does, and the amount of it.  Eight hundred billion dollars, we're talking about basically a trillion when you add the interest, on top of a $10 trillion debt.  We need to look at the enormity of it.  And everyone agrees that we need stimulus.  We do.  But when we're talking about redoing this bill, if we're talking about just adding more, I think we will be wasting a lot of money and adding to the debt.  My focus would be on more infrastructure; I agree with Senator Kerry and others.  For instance, military construction, that is one of the points that we have $7 billion out of 800 billion in this bill.  It's something that we're going to do anyway.  I think we could have a policy of looking at the spending for infrastructure that is going to be needed, but we move it up, rather than things that might be temporary or create temporary jobs that wouldn't lead to a future.  Military spending, military construction, those are going to be jobs in America.  And we can look at the five-year plan that the Department of Defense already has and let's just move up everything that is ready right now.

On the other hand, on tax cuts, I think tax cuts should be strong, I think they should be a lot and I think they should be something that will have an impact.

MR. GREGORY:  Right.

SEN. HUTCHISON:  Five hundred dollars a person hasn't worked.  We've got to do something that makes business want to create jobs.

MR. GREGORY:  All right, I want to come back to taxes in just a minute, because it's an important debate.  But I want to stick on the spending side of this, $544 billion.  Ron Brownstein wrote this in his column in the National Journal:  "In normal times, Congress might never enlarge so many programs at once.  But as with Reagan's tax cut, the crisis-induced demand for action may suspend the normal laws of political gravity--and allow Democrats to redirect federal priorities as boldly as Reagan did.  `This is a once-in-a-25-year opportunity to [implement] a lot of our agenda,' a top House Democratic aide says."

Senator Kerry, why couldn't the Obama team be accused in the same way that the Bush White House was criticized after 9/11, when in a crisis atmosphere the Bush administration, in the view of its critics, rammed through legislation that were priorities for them after 9/11 that maybe they didn't get all the consultation on, maybe they didn't get all the agreement on?

SEN. KERRY:  It happens, David.  And, and I think this is coincidence, but it happens that in this particular circumstance, where our economy is in a crisis as unprecedented as anything since the Great Depression--I mean, the dynamics of what are happening now are complicated, enormous, and they're going to be very, very difficult to fix quickly.  Given that, it's inevitable that something like rapid broadband expansion into communities that can't afford it, which has been a Democratic priority, is going to dovetail with creating jobs.  Likewise, we've been pressing for years--we've had a $1.6 trillion infrastructure deficit in America.  Many of us have been fighting for years to get high-speed rail, to, to, to fix community schools.  We have, we have--you know, I think 50 percent--most of the schools in America about 50 years old.

MR. GREGORY:  Mm-hmm.

SEN. KERRY:  They desperately need modern laboratories so our kids learn properly, so we can compete in the--in, in, in the future global economy. Those are things that dovetail.  But none of them...

MR. GREGORY:  But if...

SEN. KERRY:  But let me just finish.  They will, all of them, be put to the test of a vote on the floor of the United States Senate to open debate.  None of this is being done behind closed doors.  None of this is a secret.  In fact, we accepted representative--Republican Representative Eric Cantor's suggestion that the entire bill be put on the Internet.  Everybody can go look at every provision in it.  We've accepted Republican proposals.  Arlen Specter's going to put in $12 billion for NIH.  One of the largest increases in the bill is the Alternative Minimum Tax fix.  That came with the advocacy of Chuck Grassley, Republican Finance ranking member.  So there's a bipartisan effort here.  I think those priorities happen to dovetail with what we need to do to put America back to work.  But this is unprecedented.

MR. GREGORY:  All right, but...

SEN. KERRY:  We, we have to break a cycle, a downward, vicious cycle where the psychology of the marketplace is locked into consumer contraction, housing failures.

MR. GREGORY:  Understood, understood.  But if the issue here is the--you're making the case for long-term spending...

SEN. KERRY:  I'm making the case for a combination.

MR. GREGORY:  ...that ultimately...

SEN. KERRY:  You have to do both.

MR. GREGORY:  I understand.  I understand.  But...

SEN. KERRY:  It doesn't do you any good to spend money immediately.

MR. GREGORY:  But here was the issue...

SEN. KERRY:  All the jobs end and you haven't laid the foundation of the economy.

MR. GREGORY:  Senator Hutchison, Alice Rivlin, who, who was budget director for President Clinton, made the observation that if you want to focus on up-front stimulus, that should be the focus.  That's what this crisis should be geared toward.  Why not separate some of this longer-term spending and address that separately down the road, particularly if the size of the package is of political and economic concern?

SEN. HUTCHISON:  I think that is exactly what we ought to do, David, exactly. Because if you took out the increases in spending that are not going to have the lasting impact on jobs--our focus should be keeping people in their homes, trying to get the financial markets back on track and creating jobs.  That should be our focus.  And about 200 billion of this is just added spending that are--they're good programs, but they are not programs that are going to create jobs, and I think that should be our focus right now.

MR. GREGORY:  Well, let me turn this around on you.  If that's your position...


MR. GREGORY:  ...what happens after the recovery in this economy?  Isn't it necessary for the economy to be in a position for longer-term growth, that there will be new markets?  If we can't rely on Silicon Valley or Wall Street, don't we need, you know, green jobs and the capacity to have job creation in new areas if we're going to really recover long term?

SEN. HUTCHISON:  Well, yes.  But I hope that the jobs would be created in the private sector so that they would continue in the economy.  We're talking about a quick fix that does make people start investing again, and, and tax cuts.  If you talk about 2001 after 9/11, it was the tax cuts that stimulated the economy and started the stock market to go in the right direction, and then capital spending and then the economy was going in the right direction. So I think tax cuts cannot be forgotten as stimulus.  But when you're talking about the spending...

MR. GREGORY:  But let's just stipulate one thing, that, that, that there is a big ideological and philosophical divide about whether you need an infusion of government spending or tax cuts, which moves the fastest.  Nobody's got a monopoly on the truth here in terms of what will actually work.  Would you concede that?

SEN. HUTCHISON:  Yes, absolutely, because it is uncharted waters.

MR. GREGORY:  All right.  But let me, Senator...

SEN. KERRY:  Actually, I would not concede that.  We've had eight years of a, of, of, of this experiment of massive tax cuts without investing in America's future, and the result is we have gone from fourth in broadband to 17th in the world.  The fact is our transportation system is neglected, you can't move products from here to there as effectively as other places.  We waste countless hours of American productivity on roads that are clogged with traffic because we don't invest in mass transit.  I think the experiment in the last eight years, that's what this election was about.  We just had an election.  The American people overwhelmingly voted for change.

SEN. HUTCHISON:  I, I just--but I--but I disagree with that.

MR. GREGORY:  But I was asking the narrow point, which is what's the most stimulative to the economy?

SEN. HUTCHISON:  I disagree.

SEN. KERRY:  But--well, let, let me come back.  In terms of stimulation of the economy...


SEN. KERRY:  ...what you need to do now, according to everybody that I've talked to who's smarter than I am and invests every day, you've got to break this psychology.  You're not going to do it with one piece alone.  Just this package will not fix this if we don't also do something about housing to keep people in their homes and stem the hemorrhaging there, and fix the banking capitalization situation so that people will lend.  And, and I beg to differ with Kay.  I mean, if you--we've had these nontargeted tax breaks.  There's no guarantee whatsoever in today's climate that an investor is going to feel confidence enough to put money into one of these things.

SEN. HUTCHISON:  I--David...

SEN. KERRY:  So you need to create a change in the dynamic.

MR. GREGORY:  Go ahead.

SEN. HUTCHISON:  It is the tax cuts that caused the economy to start going in the right direction.  It was the 15 percent capital gains and dividends break that made people go back into the stock market.  It was lowering everyone's tax bracket.  It was having $1,000 per child tax credit and lowering the marriage penalty.  Those are good tax cuts.  And I disagree with Senator Kerry.  On the last eight years we have increased spending.  We've increasing--increased spending on military, certainly the war on terror has had a lot of infrastructure and buying of equipment for the war on terror.  We have neglected our highways.  The Highway Trust Fund has increased exponentially.  I think that what we're talking about now is not the result of low taxes, it is the result of the, the mortgage crisis and the subprime lending and these derivative packages that the fancy people on Wall Street started putting together...

MR. GREGORY:  All right, let...

SEN. HUTCHISON:  ...and not enough regulation in that area.  But we...

MR. GREGORY:  I want to ask one specific question about taxes, because this--the piece--the signature part of the tax cuts, the $275 billion, have to do with a, a credit to individuals and couples.  Martin Feldstein, conservative economist at Harvard but a proponent of the stimulus plan, offered criticism this week about that.  This is what he said:  "The plan is to give a tax cut of $500 a year for two years to each" unemployed "person. That's not a good way to increase consumer spending.  Experience shows that the money from such temporary, lump-sum tax cuts is largely saved or used to pay down debt.  Only about 15 percent of last year's tax rebates led to additional spending."

Senator Kerry, is this enough stimulus when we know the personal savings rate in this country is going up to perhaps 10 percent this year?  Will people go out and spend this money?

SEN. KERRY:  Probably not.  Some of them will, obviously, pay down debts; some of them will pay their rent, stay in their--hopefully stay in their rental home at this point.  But by and large, what we want to do is create jobs.  That's why I started out saying the preponderance of this is creating jobs; jobs now and jobs in the long term.  And I, I think there's a consensus among most experts that we have neglected to invest in that kind of long-term infrastructure.

MR. GREGORY:  And just to be clear, what you're saying--we talk about long-term infrastructure--you believe that the Senate bill should spend more money on these shovel-ready projects, infrastructure payments that could stimulate jobs now.  The long-term spending will be paid out slowly, you think they should do more for infrastructure now.

SEN. KERRY:  If--the answer is yes, and, and providing that we also do the bank fix and the housing.

MR. GREGORY:  Right.

SEN. KERRY:  Because if you do one without the others, you're still not going to restore the kind of investor confidence that you need and you're not going to create a sustainable economy.

MR. GREGORY:  Would you raise the total price tag to accomplish both those goals?

SEN. KERRY:  I would, absolutely.

SEN. HUTCHISON:  See, that's the key.  I don't think you have to raise the total price tag.  I think you should take out the social spending that is not going to create jobs and add to the infrastructure spending which will create jobs.  And add that to the tax cuts, and that would be a balanced package.

SEN. KERRY:  But this is a matter--I think Mark Zandi's coming on later, he'll talk perhaps some to the stimulative impact of food stamps and of extended unemployment insurance.  These are important issues.  They're also a matter of a moral structure in your government, your relationship with citizens.  People need to pay their rent.

MR. GREGORY:  Right.

SEN. KERRY:  If you don't extend unemployment insurance and people are going to be a long-term unemployed...

SEN. HUTCHISON:  I would extend unemployment insurance.  That is...

SEN. KERRY:  Well, that's a social safety net component of this.

MR. GREGORY:  All right.

SEN. HUTCHISON:  That's given, and it's bipartisan, and we have never failed to extend unemployment insurance.  But that's not the huge funding levels that we have in other areas in this bill.

SEN. KERRY:  Well, let me give you another example.

MR. GREGORY:  OK, I want to, I want to, I want to keep moving, actually.  Why don't--you just mentioned the word bipartisan.  That's a big part of this, because it has not been up till now.  The president said he wanted that, no Republican votes in the, in the, in the House.

Rush Limbaugh, the conservative talk show host, of course, issued a challenge to you and other Senate Republicans on his radio program this week.  Listen.

(Videotape, Thursday)

MR. RUSH LIMBAUGH:  Republicans in the Senate have an obligation to tell the people the truth, what's in this bill, and not support it because it is morally wrong to do otherwise.

The Republicans in the Senate actually have the ability to slow down and even stop major parts of this bill, because of the Senate's rules.

This is a seminal moment.  This vote will determine which senators are statesmen, this vote will determine which senators are reckless hacks.

(End videotape)

MR. GREGORY:  Senator Hutchison, are you prepared to stand up and fight this bill, as he says, and maybe block parts of it, or all of it?

SEN. HUTCHISON:  Oh, I would fight this bill as it is, absolutely, because I think it is the wrong emphasis.  When we talk about bipartisanship, it means that some of the ideas that would be incorporated would be the Republican ideas.  If this bill comes to the Senate floor...

MR. GREGORY:  You'll vote against it.

SEN. HUTCHISON:  Oh, yes, absolutely.

MR. GREGORY:  Well, the--it's interesting, because this is...

SEN. HUTCHISON:  But I think we could fashion a bill...

MR. GREGORY:  Right.

SEN. HUTCHISON:  ...that would take out some of that nice spending, but not necessary right now and not job stimulative.  Put the stimulation in, put the tax cuts in, I think you could have a bipartisan bill.  But just talking a good game and then not having any real input or change is not going to make a difference.

MR. GREGORY:  You say you voted against it.  This is what you said the day after Election Day about President Obama:  "I want to congratulate Barack Obama.  ... We hear the people, and now it's time to come behind our president." And yet you're not prepared to do that on the most important piece of legislation that he's beginning his administration.

SEN. HUTCHISON:  Oh, absolutely.  I cannot step back from the principle that I think is so important for my constituents and for our country, that we would do a stimulus package that has job creation, keeping people in their homes, trying to get the financial institutions to get credit out in the marketplace, which it is not doing now, and having infrastructure spending that would make sure that we are doing something that we were going to do anyway.  I agree on the broadband, the electric grill.  But--grid.  But let me just say that if there is a bipartisan effort, it's not just talking about it; it is really giving and taking, as we have done in the Senate in the past, to make this a bill that we would--at least 60 of us would feel comfortable with, or more.


SEN. HUTCHISON:  That's what I think the president has indicated he would do, but we haven't seen it yet.  Now, it's early, but we haven't seen it yet.

MR. GREGORY:  All right.  But--so, Senator Kerry, what do you specifically to get Republican votes?  And are you confident you'll get them on the Senate side?

SEN. KERRY:  I hope we can get them, and I think the--I think President Obama has done an exceptional job.  I mean, I can't remember in the eight years President Bush was here that he came to our caucus once.  The fact is President Obama came up to the Hill, spoke to the Democrats in the--to the Republicans in the House.  One hour before he spoke to them, the leader of the House Republicans sent an e-mail out saying, "Urge all of you to vote against the package." That's not give and take, that's politics.  And I think what we need here is to recognize that, that there has to be--you know, if you're going to argue for a concession, you invest in the legislation and then you hopefully support it.  I haven't seen any such offer yet.  Now, maybe that'll happen.

Secondly, I don't think we're duty-bound to accept something that we fundamentally believe is either a waste of money or not going to work.  There are differences here.  And the fact is that some of the nontargeted tax cuts are simply, in most people's judgment, not going to, at this point, do what we need to do to suddenly stimulate the economy and create jobs now.

MR. GREGORY:  Final point on this.  If this measure passes the Senate without Republican votes, would you consider it a failure, or would you say, "So be it"?

SEN. KERRY:  It, it depends on what the voting--if we do what we say we're going to do in the next days, and we will, have an open debate with these amendments, rising and falling on the merits of the argument, and the Senate votes its will and we then pass something, I think, I think that's a success.

MR. GREGORY:  Let me ask a broader question here about the next $2 trillion question, and that is what to do about America's banks.  Senator Hutchison, can we expect that the stimulus package is going to have any impact unless the government does enough to recapitalize America's banks?

SEN. HUTCHISON:  Absolutely not.  The 700 billion that we have already put into the system is not working.  The money is not getting out to the businesses of our country, nor to the individuals in our country who need that help.  And if we don't open up the credit markets, nothing is going to work. Just a lot of government spending is not going to do the job.  So I do think that a component of this has to be getting the money out.  Now, I do believe that the Obama administration is saying the right things about the 700 billion.

SEN. KERRY:  Mm-hmm.

SEN. HUTCHISON:  To try to direct it, get the bad assets off, let the good asset banks be required to start getting the money out there, because they do then have enough capital to do it.  And then on the bad assets--and this is so important to me, David.

MR. GREGORY:  These are the toxic assets that are really weighing down the banks, their balance sheets.

SEN. HUTCHISON:  Yes.  Back in the '80s, the RTC had a habit of just going in there and lowering all the collateral value around an area where they were just doing fire sales and good-performing loans were being called.  I would ask--if, if there is anything that we do on bad asset banks, it is to have workouts that try to bring people in, and never call a performing loan.  Even if the collateral goes down, if the loan is performing it should not be called, and that should be a policy in this administration.

MR. GREGORY:  Senator Kerry, I just--I want you quickly on this, because I want to get to a couple of other matters.  What we're talking about here, one idea is for the government to go in and purchase these toxic assets, primarily subprime and other mortgage-backed assets on the banks' balance sheets, that if in fact they're sold at what they're worth right now could make the banks insolvent.  So that's why they would want to buy them, put them in another entity, so the banks could maybe get some more capital and start lending again.  Do you think that's how the government should proceed?

SEN. KERRY:  Well, it's not my preferred way to do it, because I don't think it provides the maximum protection to the American taxpayer.  I was on the Banking Committee when we did the RTC, and we created the good bank, bad bank, and I recognize the problem that Kay has just talked about.  But I think the best way to do it is to basically dilute the shareholders by writing down those assets within the banks themselves, either taking warrants...

MR. GREGORY:  Actually take the loss.  Take the loss, put them on their books...

SEN. KERRY:  Take the loss...

MR. GREGORY:  ...and say, "We lost one."

SEN. KERRY:  Well, there's no reason that the American taxpayer should be required to basically subsidize further the shareholder, which is what happens if you just buy the assets off.  And, and then someone's going to walk away--some government employee is going to wind up selling those assets, and someone's going to make a lot of money in two years.  I want the taxpayer to be protected against their investment in those banks if they're going to recapitalize them, and I think that's an appropriate thing for us to ask.

Now, how you structure it, whether you do it with taking warrants, which allow you to set a price down the road, and you can argue what it's going to be and you get the upside if it comes, or taking common stock or preferred stock. These are technical--you can--they all have impact.  They all have a profound impact on how much money you're talking about and what the impact is on the banks.  But the bottom line is we ought to be thinking about the taxpayer here, and in the long term many of those assets are going to revalue.  So if you did have a warrant, you're going to get the value back to the taxpayer for their investment, and you let the banks work out those properties.

MR. GREGORY:  But bottom line, the taxpayers have to get prepared for the government perhaps borrowing...

SEN. KERRY:  Bottom line is this is...

MR. GREGORY:  ...almost a trillion dollars to help the banks, whether they like the banks or not.

SEN. KERRY:  Whether they like them or not.  This is not about the banks, per se, this is about how you get Main Street America back to work, and how you release the money that lets any small business in any community to be able to borrow so that they can pay their payroll, buy the next set of goods they use to produce their products and go on and grow our economy.

MR. GREGORY:  I just want...

SEN. HUTCHISON:  I'd like to add to that, David.

MR. GREGORY:  I just--I want to cut this off, but I just want to...

SEN. HUTCHISON:  Targeted spending is so important in this $800 billion bill...

MR. GREGORY:  Because of the other...

SEN. HUTCHISON:  ...because you do know that the other is coming, coming behind it.

MR. GREGORY:  Little bit of Cabinet news before I let you go.  Senator Hutchison, is Judd Gregg, senator from New Hampshire, going to be the Commerce secretary?  And if he is, will he be replaced by a Republican so it doesn't affect the balance of power in the Senate?  Has a deal been worked out?

SEN. HUTCHISON:  I do think it would be important that--and I, I'm sure Senator Gregg would not leave his seat if he thought a Democrat would take his seat.  I just know he would not do that.

MR. GREGORY:  Do you know, is he going to be Commerce secretary?

SEN. HUTCHISON:  I, I can't say that I know anything.  It certainly, I think, is a good possibility.  I think he's a very good person for it.  He's very, very strong.  But he would never walk away and leave the balance in the Senate for the Democrats.

MR. GREGORY:  And, Senator Kerry, questions now about Senator Tom Daschle, the designate, of course, to be secretary of Health and Human Services.  He, too, like Tim Geithner, has a back tax issue.  He had to amend his tax returns; questions about whether he informed the Obama team in time, or not before he was actually nominated.  You're on the Finance Committee.  Will this impair or imperil, I should say, his nomination?

SEN. KERRY:  Well, not for me, and I hope not for fair-minded and thoughtful people.  I think that--you know, I voted for Tim Geithner.  I thought he made an innocent mistake, he corrected it.  And in the case of Tom Daschle, I mean, I've known Tom for 25 years.  There is--he's a, he's a person of enormous integrity.  If you look at all of the positions he's taken on health care, many of them have been opposed to, you know, the sort of special interests, as they're called.  And I think Tom is the man to, to fix the system and he can do the job.  I also believe he notified--you know, he voluntarily informed his accountant.  His accountant went to work to pull the pieces together.  He, he informed the, the vetting process.  And, and I just think, you know, this is, you know, it's obviously a mistake, but I think it's an innocent mistake.  I don't think it affects one iota his ability to do the job.

MR. GREGORY:  Senator Hutchison, Senator Kyl says he's troubled by this.  Are you still for Senator Daschle in this post?

SEN. HUTCHISON:  I like Tom Daschle personally, and I think that on the merits of the job he is, is very qualified.  However, I certainly want to see more of the background about what wasn't, what wasn't in the tax that he is now paying, what wasn't paid before, when it came forward.  I do need to know more information.

MR. GREGORY:  So this is--this troubles you.

SEN. HUTCHISON:  Yes, it does.  I, I, I like him as a person, I do, and I would have leaned for him without question but for this.  I just want to know more.

MR. GREGORY:  All right, Senators, we'll leave it there.  Thank you very much for being here.

SEN. KERRY:  Thanks for...(unintelligible).

MR. GREGORY:  Coming next:  the stimulus package, the bank bailout, the crumbling housing market.  What does it all mean for the American taxpayer? Our conversation continues when our roundtable weighs in.  Mark Zandi, Erin Burnett and Steve Forbes all here, only on MEET THE PRESS.


MR. GREGORY:  Our economic roundtable weighs in on the stimulus package and the financial bailout after this brief station break.


MR. GREGORY:  We are back, joined by Mark Zandi of moodyseconomy.com; Steve Forbes, president and CEO of Forbes; and Erin Burnett of CNBC.

Thank you for all being here.

MR. STEVE FORBES:  Thank you.

MR. GREGORY:  This is such an important issue, and it can be very difficult to follow, so let's get into some of it.

First of all, Mark Zandi, terrible news this week.  The new statistics:  the economy, the GDP underperformed in the fourth quarter, actually went down 3.8 percent; job losses, now 2.6 million jobs lost in 2008.  And we saw job losses from some really big companies last week.  That decline of nearly 4 percent, it's actually worse than it appears.  Explain how.

MR. MARK ZANDI:  It is worse.  Part of the reason it didn't decline more is because businesses put stuff on the store shelves.  They couldn't sell it, it just piled up on the store shelves and in warehouses.  And of course they're going to get rid of that over the course of the current quarter, the next quarter, the next quarter after that.  So what it means is that the worst is yet to come.  And GDP, which you--as you said, declined 4 percent in the fourth quarter, will decline at least 5 percent in Q one, and that translates into lots of jobs, hundreds of thousands.

MR. GREGORY:  That's the first three months of this year.  You have all this excess inventory, American companies are not producing any more than in the first quarter, so our output goes down even further.

MR. ZANDI:  Right.  They, they just misjudged the collapse in spending by consumers and businesspeople in the fourth quarter, so they produced too much. And now they've got to cut back on that production, and that means less jobs for everybody in the first half of 2009.

MR. GREGORY:  Steve, Steve Forbes, I think it's important for everybody to think about what is really happening to the economy and what's it going to mean on the other end.  Steve Ballmer, who is Microsoft's CEO, on an investor conference call said this, I'll put it up on the screen:  "Our model is not for a quick rebound.  Our model is:  things go down, and then they reset." In other words, there is no rebound; on the other end of this recession is going to be a much different economy.  What's it going to be?

MR. FORBES:  Well, it'll be a different economy, but there's no reason why it can't resume some real vigorous growth.  The key thing is while we're all focused on this stimulus package, we've got to get this banking system, credit system working again.  It's like the heart of the body.  You can have a lot of muscle, good brains...

MR. GREGORY:  Mm-hmm.

MR. FORBES:  ...but if the heart's not working it ain't going to function. And once the banking system is made to work again, then I think you're going to see some real recovery.  The basic strengths of the economy are there, and his sector, innovation, is coming along, like we had in the early 1990s. Right environment, this stuff will come to market again.

MR. GREGORY:  But, Erin Burnett, the reality is that American investors lost $7 trillion in the stock market in 2008, wiping out gains of the past six years.  The decline in home equity values in our housing across the country has resulted in another loss of $7 trillion of perceived wealth--you know, sort of paper wealth.


MR. GREGORY:  That's not necessarily going to come back.  The economy is going to contract and stay that way.

MS. BURNETT:  I think that's a great point.  When you look at the U.S. economy, we used to call it the $12 trillion question.  Now we're at more like 10, it has gotten a lot smaller.  But, but I think you're raising the point of this country consumed up here, and we did it--whether it was fueled by debt or borrowing in home prices, artificial asset values, we consumed up here, and now we're going to have to consume--we don't know exactly how much lower, but lower.  And that means likely a lower standard of living.  So you may return to vigorous growth, but likely that debt-fueled expansion, you're not going to have that.  And that's a tough message to tell people, your standard of living is going to be lower for a long time.

MR. GREGORY:  You talk about the debt.  I want to do this before you even talk about the stimulus package, because the economy's worth about $14 trillion.  We talk about deficit for this year's projected to be $1.2 trillion.  This is what the Heritage Foundation released this week with regard to the debt picture:  "The combination of current law programs plus the stimulus--and without any additional borrowings for additional financial market interventions or other new spending--suggests at least another $1.6 trillion of new government debt, bringing the total of publicly traded federal debt to $9.9 trillion by the end of 2010...[and] the debt-to-GDP ratio will have reached 67.9 percent for a two-year increase of 23 percentage" point.

Now, Steve Forbes, for context here, if we have a, that total debt picture as compared to the deficit, back at the end of World War II that ratio of debt to what our economy produces was at 122 percent.  So we're not at that level. But is this still pretty bad?

MR. FORBES:  Well, it's bad, but the key thing is how do you get an environment where you can restore value again, where you get economic activity again?  Yes, asset values have fallen, but as we've seen before in great market declines like the early '80s, mid-1970s, these things can come back if you have the right environment.  That means here getting the banking system working, making some tax changes in the stimulus package, and things will start to mend again.  Because markets try to anticipate the future, and if it sees that banks and the financial system can function again, asset values will go up and then we get in a virtuous circle again instead of this death spiral.

MR. GREGORY:  Mm-hmm.

MR. ZANDI:  David, can I make...

MR. GREGORY:  Let--yeah, go ahead.

MR. ZANDI:  ...make a, a point about the debt?  It's 40 percent of GDP now. If the projections are right, we get to 60, maybe 70 percent of GDP, which is high, but it's manageable in our historic--in our history we've been higher, as you pointed out.  And moreover, it's very consistent with other countries and their debt loads.  And more--just as important, investors understand this. They know this and they're still buying our debt and interest rates are still very, very low.  So we need to take this opportunity and be very aggressive and use the resources that we have at our disposal.

MS. BURNETT:  It's true.  But you look at 67 percent, that's where Japan was when they did their first stimulus package back in 1989, and then they ended up going, obviously, significantly higher than that.  Which is why it all comes down to--you're right, it's manageable, other counties are there.  But if you don't get--if you're not spending that money well, you're going to have to keep spending more and more and more.  So it's a significant point.  They went to one...

MR. ZANDI:  (Unintelligible)

MR. GREGORY:  And in terms of government spending, you, you, you have that. If it's at 70 percent, we're not factoring in some of these unfunded entitlement programs like Medicare.

MS. BURNETT:  Right.

MR. GREGORY:  The fact that Social Security is about to go--pay out more than it's taking in by 2010.  So there are some real concerns down the road.

MR. ZANDI:  Well, here's the other thing.  If we don't do anything, the deficit's going to rise anyway.


MR. ZANDI:  We're going to have a much worse recession.  Tax revenues are going to fall even more significantly, government spending will rise because of the income support program.  So it could be that that will be even higher.

MR. GREGORY:  All right.  Let's enter the stimulus.  And, Mark Zandi, let me start with you.  And I should just point out here, while you advised Senator McCain during the campaign, you have also now advised both the administration and Senate Democrats on the stimulus plan, and you support this stimulus. Make the case for why you think this will do job one, which is to create jobs.

MR. ZANDI:  Well, it's a, it's a big package.  It's 800 and plus billion dollars, in the Senate it's $900 billion.  That's a big part of GDP.  It's a nice mix of spending, which will help the economy in 2010 and '11, when we really need it.  The--this economy isn't going to come roaring back.  And the tax cuts are also very efficacious, particularly because they get into the economy more quickly.  Now, if I were king for the day, I'd design a different package.  But given that I'm not, I think this is a reasonably good package. But most importantly of all, it has to be passed quickly.  If we don't pass it quickly, then the, the economic benefit will be significantly reduced, because it's, it's really about confidence.  We--it's not only dollars and cents, it's about shoring up confidence.  And if we dillydally and if we debate in the Congress and we don't get this done, confidence won't be restored.

MR. GREGORY:  Steve Forbes, does it work?

MR. FORBES:  The answer is, sadly, no.  It's the economic equivalent of trench warfare in World War I, where you put a lot of resources for very small gains.  Japan proved that in the 1990s, spending alone isn't going to do it. We have to do it...

MR. GREGORY:  They had eight different stimulus plans, I think.

MR. FORBES:  Eight different stimulus plans.  And that's why they have a high debt and still a stagnant economy.  So in terms of getting the economy moving, you've got to do, and I hope the Senate will do this, is work more on the tax side; like, say, having the payroll tax for two years.  That lowers the price of hiring people, also...

MR. GREGORY:  A payroll tax holiday, right?

MR. FORBES:  Payroll tax holiday.  That way people get more money and it's cheaper to hire labor.  Reduce the capital gains levee for a couple of years, positive things like that.  And then get back--again, the banking system, Japan did not fix their banking system, which is why they stagnated.  We have to fix ours, starting by one of the most boring subjects in the world but devastating banks today, get rid of this mark-to-market accounting, which is destroying banks.  Every time they make a loan, David...

MR. GREGORY:  Right.

MR. FORBES:  ...they have to take a hit to capital.  So guess what, loans aren't being made.

MR. GREGORY:  Let's just, let's just explain what that means.  If you mark something to market, you value what, what is the current market price, and in your internal accounting you have to market at that price, which means take the loss, which affects your, your, your net worth, essentially, is how an individual would describe it.  That's what it accompanies.

MR. FORBES:  That's, that's what it is.  And it hits banks, what you might call their regulatory capital.  And...

MR. GREGORY:  Right.  Because they're required to keep a certain level of capital by the government.

MR. FORBES:  That's right.  So when it go--and what this means is even if a loan is being serviced--interest being paid, principal being paid--because you don't have a functioning market they have to write it down.  so they take a hit every time they do something we want them to do.

MR. GREGORY:  All right.  I, I, I want to talk more broadly about the, the banks in this country, what's happening to them and what the government should do about it.  Now, here's a chart that struck us.  This is the market value of some of the biggest U.S. banks.  The big circle here is back in 2007, the little circle is here in January of 2009.  And look at that, Citigroup in 2007 had a market value of $254 billion, now $19 billion.  J.P.Morgan, $166 billion, now $94 billion.  Wells Fargo, $118 billion, now $68 billion.

Erin Burnett, why hasn't the administration been able to do a better job explaining how severe this crisis is to the American taxpayer?

MS. BURNETT:  That is, that is the ultimate question here.  It is amazing, when you listen to so much of the commentary out there, that it focuses on bonuses or private jet use or, or also just that they're not lending.  None of these things, really, are, are the real issue here.  And it has been very poor public relations on behalf of the Treasury under Paulson, and even now so far under the Obama administration, to explain to the American people how you cannot have an economy that grows without a healthy banking system.  Japan is the perfect example of that.  They spent their way from a--the, the ratio of 68 percent to 128 percent, they got nothing, because the banks never got rid of those bad loans.  And if banks don't get rid of bad loans, they don't lend. And that means new businesses don't start, people can't buy homes, they can't buy cars.  It, it makes sense to people.  And that's, that's why you must deal with the banks.

MR. GREGORY:  Right.

MS. BURNETT:  That, that, that--it isn't choosing Main Street vs.  Wall Street.  That is a completely false choice that is being put out there.

MR. GREGORY:  All right, so let's go through one of the big ideas here in terms of how to help the banks lend more money.  They need more capital, and one of the ways they can get that is if they could get some of this toxic stuff off their books, these toxic assets--subprime mortgages, mortgages that have just gone way down in value.  So here's one of the ideas, the idea of creating a bad bank, and this is how Time magazine describes the plan:  "The Federal Deposit Insurance Corporation is backing a plan to create what it calls an aggregator bank," that's also called a bad bank, "which would buy up the loans of [Bank of America], Citigroup and the rest of our now troubled system, theoretically putting an end to the escalating losses eating away at the banks' capital.  But if the government buys those assets at current market rates"--that was what we talked about before, mark-to-market--"banks would be forced to take immediate losses on the sales, doing more harm than if the government just left the troubled loans where they are." Here's the other point.  To buy up these troubled assets could cost upwards of $2 trillion.

MR. ZANDI:  Yeah, I don't think so.  I mean, I think if you take all of the loans and securities on the books of the banking system, the financial system in total, the consensus view on the losses will be $2 trillion.  But one trillion write-downs have already occurred, banks have already taken those write-downs on those assets, so we have one trillion left.  Half of that is in the U.S. financial system, the other half is in institutions overseas.  So that's 500 billion.  So that, that's going to be the cost, $500 billion, under the consensus view of what's going to happen.  Now, that's not an insignificant number, but that's a manageable number.

And I do think the right approach is to take some of these bad assets off the books of the banks purchasing them, but not at current distressed market prices.  I mean, if I--if you told me to sell my home tomorrow, I had one day to sell it, I'd, I'd get a pretty rotten price now, wouldn't I?

MR. GREGORY:  Right.

MR. ZANDI:  If you told me I had a year to sell it, I'd get a pretty reasonable price.  So you need the government to step in and say, "Listen, I'm going to buy this and put on the, the price at what it takes to sell it in a reasonable period of time."

MR. GREGORY:  And that's the idea here, right, Steve, which is that the government goes in, it does something that other purchase, purchasers will not do, and that is they'll buy.  They'll create a market, they might set a floor for these assets, and then one can hope that they'll go back up in value, the government can hold on to them, maybe the taxpayer is not out all this money.

MR. FORBES:  Well, this gets to something very important about $1 trillion of losses that we've taken.  Most of those are book losses, not actual cash losses.  This, again, gets back to this mark-to-market.  They don't need a bad bank if they get rid of mark-to-market, so you don't have to take these constant write-downs, so the assets can be more regulatory prices instead of distress prices.

MR. GREGORY:  But...

MS. BURNETT:  It is true, though, that, that when you go to that sort of a model, every bank--and that's part of the problem of why we're here, every bank will say, "Well, well, we assume 80 percent of people will pay us back," and another bank will say, "Well, we're only assuming 70 percent of people are going to pay us back." So everybody values it at a different price, and then investors don't really know what the real price is.

MR. GREGORY:  Right.

MS. BURNETT:  Then they don't want to invest in the banks and you start to get to where we are now.  So they're...

MR. FORBES:  So that's that key thing...

MS. BURNETT:  You're looking for a middle ground.

MR. FORBES:  The key thing is if a bank makes a loan, like they will for Pfizer to buy Wyeth, that one of the reasons why Wyeth--Pfizer's going to pay 9 percent for one year money--perfectly good company, ridiculous--is the banks know they're going to have to take an immediate hit to capital when they make that loan.

MR. GREGORY:  Mm-hmm.

MR. FORBES:  You get--suspend mark-to-market on regulator capital, then they will pay 2 or 3 percent, which is what they should be paying.

MR. GREGORY:  In, in just a couple of minutes left, I want to talk about something about everybody understands, and that is bonuses on Wall Street. And we find out this week from the New York comptroller's office that Wall Street allocated $20 billion in bonus money, the same amount as 2004.  It created some pretty strong reaction from the White House to Capitol Hill. Watch.

(Videotape, Thursday)

PRES. OBAMA:  It is shameful, and part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.  You know, the American people understand that we've got a big hole that we've got to dig ourselves out of, but they don't like the idea that people are digging a bigger hole even as they're being asked to fill it up.

(End videotape)

(Videotape, Friday)

SEN. CLAIRE McCASKILL (D-MO):  We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer.  They don't get it. These people are idiots.  You can't use taxpayer money to pay out $18 billion in bonuses.  What planet are these people on?

(End videotape)

MR. GREGORY:  Fair question, Erin?

MS. BURNETT:  I understand the outrage, and you understand the populism. There are, though--well, how should we say this?  The taxpayer money is not being used to pay the bonuses.  I think people could understand if you work for a company--right?  If the three us worked for a company, your guests, and I lost $10 billion but Steve over there, he made a billion dollars.  So overall the company actually loses money, but Steve went and did his very darndest for that company and he made money.  So should he be paid for his work?  That's essentially what we're talking about here.  And reasonable people could argue about this, but many reasonable people would conclude, yes, he should be paid for that.  And I think, David, you've raised a fair point, which is maybe it's the whole use of the word "bonus."

MR. GREGORY:  Mm-hmm.

MS. BURNETT:  If you explained to people this is how they are compensated, that might make a difference.  But there is also a fundamental misunderstanding.  The taxpayer money isn't being taken and paid out in the form of bonuses.  It goes in a, a separate pool, shall we say, a separate account for banks.  So maybe people don't care about that distinction, but it is there.

MR. ZANDI:  Well, this, this highlights a very significant risk...

MS. BURNETT:  Mm-hmm.

MR. ZANDI:  ...of the government coming in and giving this money to the banking system, that we're effectively nationally the system in one form or another.  And by doing that, then taxpayers, rightfully so, are saying, "Well, I want some control of what you do with this money." So now we're talking about compensation, which I think is a reasonable thing to do, but it is a slippery slope.  And one thing I do worry about is that maybe the next thing is that we start making strictures on what kind of loans they can make or what kinds of deals they can fund or can I, can I fund a bank that's going to produce a factory in, in Mexico?  I mean, these are decisions that are very difficult for government to make and can't make wisely.

MR. FORBES:  And this gets to the danger of what you might call financial protectionism; that is, a return for these new monies, new capital, banks won't be able to lend overseas, which is a form of protectionism and gets in the way of the system.

MR. GREGORY:  But as--does Wall Street need to absorb the fact that if they need lots of taxpayer help, they have to find a way to speak directly to the American people about what they do...


MR. GREGORY:  ...and the importance of what they do, if they want $1 trillion, $2 trillion worth of taxpayer money?

MR. FORBES:  Yes.  Well, Wall--yes.  Wall Street has to learn the golden rule:  He who has the money makes the rules.  And in Washington, they have the money so they're going to make the rules.  Get used to it.  You want the help, you pay the price for it.  And I think they've been slow in doing that.

MS. BURNETT:  The rise in populism, though, has been amazing.  I mean, just the rhetoric out of Barack Obama and Joe Biden this week, that they talk--used the word shameful and outrageous to refer to Wall Street practices.  You know, and I'm hearing that that's much more they know that they're going to have to bail them out and they don't want to look like they're doing it because they want to, as opposed to a real shift of populism.

MR. GREGORY:  All right, we are going to leave it there, to be continued. Thank you all very much.

Now we're going to switch gears and go live to the site of Super Bowl XLIII in Tampa with Bob Costas of NBC Sports.

Bob, good to see you.  Set the scene for us down there.

MR. BOB COSTAS:  Well, David, obviously the people haven't begun to arrive yet.  We're about six and a half, a little more than six and a half hours from kickoff, but this place will be packed by then.

And you could not ask for a greater contrast.  At the beginning of the year if you asked football experts to pick five teams likely to make it to the Super Bowl, the Pittsburgh Steelers--who have been in the playoffs 24 of the last 37 years, a perpetual contender--they would be on that list.  The Arizona Cardinals have never been on that list, ever.  No team in all of American sports, except the Chicago Cubs, has gone longer without a championship than the Cardinals, who last won in 1947--which is what, 62 years and two cities ago.  Because they were in Chicago then, then St.  Louis, on to Arizona.  And there's almost no romance surrounding them, the way loveable losers like the Cubs or, before recent years, the Red Sox had that sort of passionate following and romance.  Arizona virtually off the radar until they started this incredible playoff run about a month ago, prior to which people were calling them the worst playoff team ever at just 9-and-7.  It's an extremely unlikely story.  So you've got a national team like the Steelers against a team that is a true Cinderella, like the Cardinals.

MR. GREGORY:  Bob, I know there's no place you would rather be, but a lot of people have to wonder whether it's better to be at the Super Bowl or perhaps at the White House, where the president is hosting a pretty big party with lawmakers on both sides of the aisle to watch the game with him.

MR. COSTAS:  Yeah.  This, I guess, is one event that brings America together, because both the president and Rush Limbaugh are Steeler fans.  So, so I guess it's about as ecumenical an event as you can find in, in all of America.  And as you know, David, Matt Lauer will talk live with President Obama from the White House during the pregame show.

And thinking about this day, our beloved colleague Tim Russert was such a huge football fan.  His Bills aren't in it, but two representatives of his Buffalo Bills were named to the Hall of Fame yesterday--their 90-year-old owner, Ralph Wilson, and their great defensive lineman Bruce Smith--and that's something that Tim would've cheered.

MR. GREGORY:  Absolutely right.  Bob Costas, good luck with everything. We'll be watching throughout the afternoon and, of course, tonight.  Thank you very much for being here.

MR. COSTAS:  Thanks, David.

MR. GREGORY:  And we'll be right back.


MR. GREGORY:  That's all for today.  Stay with NBC for coverage of Super Bowl XLIII, starting at noon Eastern with "Road to the Super Bowl," followed by the pregame show--including, by the way, as Bob Costas mentioned, Matt Lauer's exclusive interview with President Obama live from the White House--and then finally, the game, kickoff tonight just after 6 p.m.  We'll be back next week at our normal time.  If it's Sunday, it's MEET THE PRESS.