ABC "This Week with George Stephanopoulos" - Transcript

Interview

ABC "This Week with George Stephanopoulos"

MR. STEPHANOPOULOS: Good morning, everyone. And for all of you celebrating today, Happy Easter. We begin with issue number one for most Americans, the economy, and the question of whether the government is doing all it can or should do to address tough times on Main Street and a financial crisis on Wall Street. For both sides of that debate, I'm joined by Democratic Senator Chuck Schumer from New York and Republican Senator Jon Kyle of Arizona.

Gentlemen, welcome to both of you.

SEN. JON KYL (R-AZ): Thank you. Good morning.

SEN. CHARLES SCHUMER (D-NY): Good morning.

MR. STEPHANOPOULOS: And, Senator Kyl, let me begin with you. We've seen a series of extraordinary actions by the Fed Chairman Ben Bernanke in recent weeks and months -- a series of rate cuts. He's sent hundreds of billions of dollars to investment banks through though his discount window and we saw him engineer that takeover of Bear Stearns by J.P. Morgan using a taxpayer financed loan. Has he gone too far?

SEN. KYL: Well, we'll see. I don't think he's gone too far, but your question is a good one because balance here is really critical. Taxpayers cannot be put on the hook to bail people out who were in effect speculating on this very hot housing market. And as a result, I think he's been very careful to try to inject cash into the system where it will do the most good and where it does not help the speculators. For example, you mentioned the Bear Stearns proposition. He prevented them from -- or he allowed J.P. Morgan to prevent them from going into bankruptcy, thus hurting a lot of other innocent creditors for example, but he did not prevent the significant write- down of the value of the stock, thus hurting the people who actually owned the company. So I think he's been careful about what he's done so far. I think it's probably wise to let the investment banks also have access to that credit, as you mentioned. But he's got to be very, very careful that he doesn't put the taxpayer too much on the line here.

MR. STEPHANOPOULOS: Senator Schumer, it sounded like a qualified thumbs up for Chairman Bernanke. You have the same?

SEN. SCHUMER: Well, on this particular issue I do, and I don't think it's a bailout. Ask any Bear Stearns shareholder who's getting $2 a share. They're howling. But I don't think they've done enough and, in fact, it shouldn't have come to this. Had the administration acted more proactively earlier, particularly about the housing crisis when many of us were asking them to, we wouldn't have gotten up to this point. And unfortunately, this administration has sort of a Herbert Hoover mentality. Don't do anything. And we've learned over 100 years of economic history that smart, measured government involvement to try and deal with problems in the economy, particularly to prevent innocent people from being hurt, makes a great deal of sense. And yet every time we propose something -- particularly on the housing market, which is the bull's-eye of this crisis -- the administration says, no.

The next week when we come back, we're going to have a modest, thoughtful housing package on the floor of the Senate. And thus far the administration -- the Bush administration is saying, no, even thought most thoughtful people, Democrats and Republican economists, say this is the right thing to do.

MR. STEPHANOPOULOS: You say modest and thoughtful. I've seen several different proposals from Senator Dodd, from Congressman Frank that would essentially guarantee $300 billion or so of new loans if the holders of the mortgages wrote down some of the loans right now and took a cut. Is that what you're talking about? Is that what you're going to do now?

SEN. SCHUMER: No, that is not. We proposed five things. Most important, more counseling for those who are prime borrowers, yet because they were duped on their mortgages will go into foreclosure but don't have to. We also proposed something the president supported -- an increase in mortgage revenue bonds -- so that there might be some money available so all of these people who are on the edge of foreclosure would have something to refinance. We propose a forward -- a carry-forward loss so that homebuilders could continue to build in places where there was some demand but can't right now. These are modest things.

The proposal that Senator Dodd and Barney Frank has made is something that needs thoughtful, careful examination. My inclination is to be for it, but it has to be done in a careful way, and we're not proposing that. The things that we've proposed, George, are much more modest, but the administration with it's sort of, again, Hoover-like, hands-off, no government involvement attitude has said no.

MR. STEPHANOPOULOS: Let me get to Senator Kyl on that. On both propositions, Senator Kyl, first the package of measures that Senator Schumer says is going to be brought to the Senate when you all get back from your Easter recess and then the broader guarantee -- basically a new homeowner financing corporation for people who are basically going under right now.

SEN. KYL: Well, first, I wondered how long it would take my friend Chuck Schumer to blame the Bush administration here. Of course, it wasn't the Bush administration as much as it was Democrats in Congress who were pushing the lending institutions to get out there and lend more money even to unqualified buyers -- to the minorities, to the poor, to the young -- so that everyone could own a home. The Bush administration was somewhat to blame for that as well, but Democrats in Congress were making that push. And as a result, a lot of people took loans who couldn't qualify. In fact, they didn't have to qualify. No money down. There was no credit reporting, and a lot of them frankly couldn't afford it. So let's don't blame the Bush administration for this.

And as to Hooverism, it's Senator Schumer and his Democratic colleagues who want to raise taxes like Hoover did when he refused to allow the Coolidge tax breaks to stay in effect and put in the Smoot- Hawley, and they of course are opposing the free trade agreements that the president is trying to bring up. So let's understand here that the Bush administration is trying to be very proactive on both the tax and trade fronts, and it does not oppose some of the things that Chuck talked about. For example, it's a loss carry-back, not a net operating loss forward, but they want to go back five years. I think that's a good idea, but some of the other ideas --

SEN. SCHUMER: And then they carry it forward. Yes.

SEN. KYL: Yes. And some of the other proposals in the measure that Senator Schumer would not be good ideas.

There are good ideas out there and I think that both of us can agree that we need to separate out those things that don't put the taxpayers on the hook. But don't force these companies to write down the loans and then cause the taxpayers to make up the difference. We've already voluntarily written down about a million bad loans. And it's all right if you can do it voluntarily, but don't cram it down, in other words, don't force the lender to do that or you're just going to increase the borrowing cost the lender has to charge.

MR. STEPHANOPOULOS: Go ahead, Senator Schumer.

SEN. SCHUMER: George, let me just say this. This is what we hear -- just more tax cuts, more tax cuts. Now, we've done a whole lot of tax cuts and look at the economy over the last seven years. We have middle-class people actually earning less than they did before. We have the most anemic job growth since Hebert Hoover. We've had do nothing on anything else such as fuel, such as energy efficiency and changing tax policies there, and as a result the average person actually will pay more in increased gasoline prices than they've got back from the Bush tax cuts.

We have a narrow program focused on housing. We can debate the Bush tax cuts and trade agreements with Colombia. They're basically irrelevant to this crisis. The Bush tax debate won't take effect until 2011 because they're in effect until 2010. And we can debate those until the cows come home, but when we put together a smart, directed package, we hear no from Mitch McConnell and the Republican leadership, you can't bring that to the floor. We tried three weeks ago. They said no. We're going to try right when we get back.

MR. STEPHANOPOULOS: How about the question of new regulation for the financial industry, Senator Kyl? Congressman Frank also this week said that we need to look at this -- that some of these instruments they've been developing just have to be subject to regulation. I saw in the paper this morning, Senator Schumer said he could sign on to something like that. Could you?

SEN. KYL: This may be something Senator Schumer and I could agree on. The details would be important, but I saw him quoted in the "Times" this morning as well. And I believe the administration is also willing to look at some regulation of this previously relatively unregulated aspect of the investment community, which could not know the value of the securities that they were holding and trading. And clearly there has to be something done about that.

MR. STEPHANOPOULOS: Senator Schumer, let me ask you about this because two years ago, back in 2006, you wrote an op-ed in the "Wall Street Journal" which was entitled "To Save New York, Learn from London," and you wrote "industry experts estimate that the gross financial regulatory cost to U.S. companies are 15 times higher than in Britain. We have to carefully redefine this balance of innovation and regulation." In that op-ed you said the problem was overregulation and overzealous regulators. Were you wrong? Did you miss something?

SEN. SCHUMER: No, no, no. What we called for there is very simple. It's just what Barney Frank and I called for in the "Times" now, which is one unified regulator. Jon Kyl is exactly right. The financial markets have evolved, but the regulation has not. And London does it much better. They have a single regulator in charge of everything. That regulator is tough. The regulation in London is probably tougher, but it's smarter and more effective. It's results oriented and proactive. Here, we have 30 different regulators dating back from the '40s when the economy was much different, they tell companies different things and many areas they don't cover at all. So if Bear Stearns had occurred in London, the FSA -- the London regulator -- would have probably called them in months before -- said, look, Bear Stearns, you have too many mortgages and not enough capital, even though it would lower your profits and your results to your shareholders, change results oriented, not in public, to not scare anybody. That's what Michael Bloomberg and I argued in our piece and it's proving to be the right thing to do.

MR. STEPHANOPOULOS: Senator Kyl, Alan Greenspan also wrote an op-ed this week in the "Financial Times" where he said we're facing the most wrenching financial crisis in a generation. He says, "The current financial crisis in the U.S. is likely to be judged in retrospect as the most wrenching since the end of the Second World War. It will end eventually when home prices stabilize. That point however is still an indeterminate number of months in the future." He says we haven't even come close to hitting the bottom of the housing market, if I read him correctly. Are you worried that all of this shakeout is going to doom your Arizona colleague's -- John McCain's -- chance in the presidential election?

SEN. KYL: Well, first of all, that's not the important thing here. Obviously, I'm concerned about the economy. I'm concerned about its effects on the people who are directly affected and I hope it doesn't adversely affect John McCain's candidacy. He had nothing to do with creating this. In fact, Alan Greenspan, by keeping rates as low as they were for as long as they were probably had a lot more about his heated up mortgage market than any of the politicians did. But I think Alan Greenspan is right that we've got to find the bottom of the market and the sooner, the better. And that's one reason why I don't think we can have too many proposals floating out there that create uncertainty in the market causing the speculators to hold back and wonder if we've got to bottom yet. We need to find that bottom very quickly so that the market can begin to rebound.

MR. STEPHANOPOULOS: Senator Schumer, you get the last word.

SEN. SCHUMER: George, let me -- yes. Let me say this. People are going to compare in this election Bill Clinton's presidency, where the middle class actually had income growth, a much greater job growth, a much greater leveling of prices, and they're going to look at George Bush who has an instinct of tax cuts for the wealthy are the answer to everything. That hasn't worked. No regulation -- not on the mortgage brokers, nothing involving some of these agencies that needed to be looked into. And they're going to say they want to change, they want change in the economy and that will be John McCain's biggest burden, even bigger than his view on the Iraq war.

MR. STEPHANOPOULOS: We will see. Senator Schumer, Senator Kyl, thank you both very much.

SEN. KYL: Thank you, George.

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