CNBC Interview - Transcript

Interview

CNBC Interview - Transcript

CNBC INTERVIEW WITH SENATOR CHARLES SCHUMER (D-NY)

SUBJECT: BANK LENDING INTERVIEWERS: ERIN BURNETT, MARK HAINES

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MS. BURNETT: On the high end of estimates, bad bank costs could cost the U.S. $4 trillion. Here now one of the major players in Washington trying to stabilize Wall Street, Joint Economic Committee Chairman, the Democratic Senator of New York, Charles Schumer.

Senator Schumer, good to have you with us.

SEN. SCHUMER: Nice to be here, Erin.

MS. BURNETT: All right. I'm having a little bit of an audio issue, but I'm going to ask you my question. I'll ask my question, Mark, and then I'll move on. My question, sir, Senator Shelby has made a fair point that you have to start out by fixing the banks.

SEN. SCHUMER: Right.

MS. BURNETT: Before you even talk about stimulus. So I wanted to start the interview that way. We're going to be getting an announcement out of Capitol Hill.

Are you a supporter of a bad bank solution?

SEN. SCHUMER: No, I think the bad bank solution has two problems, one is the cost, it's usually expensive, and second, if you have the bad bank where the government has to buy the assets at the price right now, A, you don't know how to value them. If you value them too high, the banks get a windfall. If you value them too low, you could have collapse of many, many, many banks who have not marked their stuff to market.

So a much better solution in my opinion, which is somewhat modeled on the bad bank is not for the government to buy the assets, but rather to guarantee them and guarantee them below an amount that the banks now have them in their books.

So if the asset was originally $100, the bank is valuing it at $80, it would be guaranteed if it fell below $65. The banks would not get away scot-free here. They'd have to pay an insurance fee for the guarantee, but they're not looking into the abyss. They know below $65, they're protected and that might help them to start lending again.

So a guarantee makes a good deal of sense. It's one of the options before the administration and the guarantee would be done by a third party so that it would be valued as to what the asset would be down the road in the future. If you immediately value these assets at their present value, A, it's hard to do, B, it's probably a lot lower than they would be two years from now and you could cause a calamitous collapse of many, many banks.

MS. BURNETT: And the nationalization issue. Are you confident though that your solution in terms of how you're getting to pricing would enable you to get around -- held this up the first time around and that is overpaying on the part of the taxpayer?

SEN. SCHUMER: Yes. Well, you'd have a third party do the estimation of what the value is, but it would be an estimation of what it would be a couple of years from now down the road. It's a hard estimate to do, but it's a lot better than the overly low values right now given economic recovery.

The other benefit of this is, I think, Americans are not for nationalization. There are a bunch of problems there, but for the government to nationalize many, many, many banks, it's not like Sweden where there are only seven or eight, how does the government make decisions in terms of lending and everything else? You'd need new personnel. We don't have them. There would be a huge number of banks that would be involved and you'd run the risk of political interference. Congress would say you have to loan to this or you can't loan to that.

So the guaranteed solution is the best of the bunch.

MS. BURNETT: Right.

SEN. SCHUMER: It has its problems as well, but at least as I've studied it and I'm still studying it, it seems to me to be the best way out.

One thing for sure, Erin, we can't die a death of a thousand cuts. We can't keep just saving this institution and that institution and then they come back for more.

MS. BURNETT: Right.

SEN. SCHUMER: That's the worst solution, a large solution that tries to find a floor to many of these troubled assets, that's comprehensive and makes sense.

MS. BURNETT: Senator Schumer, I'm sorry to jump in, I just want to ask one more question before Mark gets in and that is, I have a 42- page report here from Citigroup of them going through how they're spending the TARP money and they do lay it out, this is what everyone wanted. They have got $45 billion in and they laid out how they're spending $36.5 (billion) of it.

Do you feel these banks are answering peoples' questions? Or are you concerned that there's a witch hunt out there?

SEN. SCHUMER: Well, no, there was a huge and legitimate outcry, not just from Washington, but from the public across the country. They said, look, if we're going to give all this TARP money away, it ought to help Main Street. It ought to help Main Street maybe through Wall Street, but not just help Wall Street alone.

MS. BURNETT: And they've laid that out here. All of these are credit card loans, student loans, personal business, residential, mortgage. Have they met that bar?

SEN. SCHUMER: Erin, I think what's happening, excuse me, is that they're hearing the message and I think for sure in the next $350 billion if there isn't more conditionality and aren't more guarantees that the money will actually find its way to Main Street, to small businesses, to car loans, to home loans. You're going to have a great deal of difficulty doing anything else.

MR. HAINES: God bless you for your optimism about Wall Street getting a message, but let me ask you this on a slightly different subject.

SEN. SCHUMER: Hope springs eternal.

MR. HAINES: Senator, let's talk about the Buy American provisions. Do you worry that this might be starting us down the slippery slope to protectionism?

SEN. SCHUMER: Okay. It's a good question. There are two kinds of Buy American provisions. Some might be completely protectionist, keep other goods out and all that kind of stuff and that would get us on that slippery slope. But in a stimulus package that's supposed to create American jobs to say when you're doing construction you ought to try to hire American steelworkers rather than foreign steelworkers because these are government funds, not just free market funds going to work with lots of different values behind them, that doesn't bother me much and let's remember one thing, if we get our economy going again, not only will the American people benefit, but those countries that do a lot of exporting will benefit as well.

MR. HAINES: I believe Steve Liesman wanted in, right? No?

MS. BURNETT: No, he doesn't.

MR. HAINES: Okay. I will continue. Yeah, it makes sense to me to require, for example, American raw materials, but finished goods, you know, it's very difficult to tell if you buy a car for example, even if it's an American -- I'm told I have to cut this off because the president is speaking.

MS. BURNETT: Sorry, senator.

MR. HAINES: Sorry, senator.

END.

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