NBC "The Kudlow Report" - Transcript

Interview

NBC "THE KUDLOW REPORT" INTERVIEW WITH REP. BRAD SHERMAN (D-CA)

INTERVIEWER: GLENN BECK

SUBJECT: CONGRESSIONAL HEARING TO QUESTION CEOS OF BAILED-OUT BANKS

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MR. KUDLOW: Now, I wonder if Congress really feels better after holding up our biggest bankers for seven hours today. Let's ask two prominent members of the House Financial Services Committee, who attended today's hearing, Congressman Brad Sherman, Democrat from California, and Scott Garrett, Republican from New Jersey. We're waiting for Mr. Garrett to hook up.

Congressman Sherman, good to see you again. Thank you for coming back on, sir.

REP. SHERMAN: Good to be with you.

MR. KUDLOW: Do you feel better now? Did you get in touch with your feelings today?

REP. SHERMAN: I don't think that it does the country or me any good to have a catharsis. What we want to see is a TARP program that works a lot better. As you know, last week the congressional review panel determined that we got screwed out of $78 billion. And before we do anything else for these banks, we should be getting $78 billion of additional securities issued by them so that we get a security for every dollar we've already given them.

MR. KUDLOW: All right. I appreciate that. Those numbers will be verified. But the CEOs are not in charge of TARP. That's by the Treasury Department overseen by the Congress. What I want to ask you today is, what did you learn from today's hearings? I watched a good chunk of those hearings. And I'll be perfectly honest with you, sir. Other than the fact that the bankers seemed to want to get out of the TARP as soon as they can, I didn't really learn anything new. Victor Pandit will work for $1 a year. He's the weakest of the bunch. His bank is a ward of the state. He probably would work for zero (dollars), or maybe he'd pay you to work.

But other than that, wouldn't it be better to leave the bankers at home and let them make loans?

REP. SHERMAN: I think when you take over $250 billion, you've got to report to your shareholders. And in this case, your new shareholders. We learned a fair number of things, many of them disappointing. We learned that these companies were not willing to issue additional securities to pay us the $78 billion that we were screwed out of last year. We learned that seven out of the eight companies have private jets and are continuing to fly them, notwithstanding the big show that one of them made about not buying one more jet. And we learned that the --

MR. KUDLOW: Is that important, the private jets? Let me ask you, I know it has taken on symbolic importance. And I know -- I forget which one of the banks, Citibank, somebody was gong to buy a new jet or something. Okay, I appreciate their tin ear. But in the grand scheme of things, wasn't the real message today you asked the bankers, you and the committee, Mr. Frank, et al, Republicans and Democrats, are you making loans? And somehow, are you using the capital purchased, the capital injections to make loans? The answer came back, yes, we are. And we looked at the data -- we're going to put charts up later in our program -- they are making loans. So they're doing the best they can. To me, that's the key point, isn't it?

REP. SHERMAN: Well, I think the $78 billion we were shorted is part of the key point. And the fact that these firms are still paying dividends to their common shareholders and still buying back their common stock shows that they're taking our capital and instead of using it to support lending operations or returning it to the taxpayer --

MR. KUDLOW: Well, wait a minute. As I recall, you have a business and accounting background. Banks don't pay dividends from their capital. They pay dividends from their net income. And --

REP. SHERMAN: (Laughs.) Net income is capital! You know how the income --

MR. KUDLOW: I beg your pardon. That is not capital.

REP. SHERMAN: Do you know how the income statement and the balance sheet are linked? Through the owner's equity section of the balance sheet.

MR. KUDLOW: I understand that, but you're saying they're paying it directly out of capital. I beg to differ. They are paying it with what's left of net income. Some of these banks are losing money. Some of them are still making money but less money than they used to. Let me ask you this. Let me ask you this, Mr. Sherman. You want to screw the shareholders. How are you ever going to get private capital reengaged in this recovery process if you really want to take the shareholders out behind the barn and shoot them?

REP. SHERMAN: Well, the first is you do not pay dividends out of income, you pay it out of capital, including the most recently earned capital which is the net income of the year. The second thing is that I believe in capitalism. Capitalism means you're a shareholder, you invest. If the company goes under, you lose. If the company does spectacularly well, you win. Socialism on the way down and capitalism on the way up is not the way I invest and it's not the way the capital system is supposed to work.

MR. KUDLOW: Well, I understand that, and I appreciate your pro- capitalist point of view very much.

Did I hear, is Scott Garrett here? All right, he's not going to make it.

I appreciate that, and I appreciate your coming back and saying, yes, dividends are paid out of net income. All right. But can we agree -- can we agree -- that the bankers are making the loans? You really haven't answered that. We want to come back to this Elizabeth Warren commission which has not verified, the bankers do not agree that the Treasury overpaid, okay. Maybe they did, maybe they didn't. Bank of America today said they are turning over a massive dividend payment on the preferred stock. The taxpayers are going to come out ahead, even in the short run. See, I don't hear you saying to me what you learned today from the banks that justified a, what, seven-hour hearing. You took you guys out of the taxpayer flow, you took them out of the lending flow, Mr. Sherman. That's the part I don't get.

REP. SHERMAN: Well, we learned that they're paying billions of dollars of dividends when they should be returning that money to the taxpayer if it's surplus capital. We learned that they continue to have ridiculous perks and private planes. And most importantly, we learned that they're not going to give us the $78 billion we were shorted. Now, you say that report has not been verified. The fact is if you read the report, they used three different methods to calculate the value of the securities that we got and --

MR. KUDLOW: Then why do the bankers disagree, sir?

REP. SHERMAN: Well, because it's in their interest to disagree.

MR. KUDLOW: But these are not bad guys. They know that there's going to be a test at the end of the day, and they're willing to pay it back. Didn't every one of them -- as I heard the ending of this thing, every single one of them would like to get out from under TARP in three years. And in fact, I would ask you, why don't you make it easier for the bankers to get out of tarp? They can't repay that capital out of current earnings. I think they should be able to do that. Why not loosen those restrictions? Then you'd get your taxpayer money back even faster, sir.

REP. SHERMAN: They can pay that money back out of any money they want. And the chairman made it plain that if they can come up with some goof-ball argument that prevents them from paying back the money, we'll change the law. We want the money back and we don't want --

MR. KUDLOW: Well, that's what I'm saying.

You have to change the law, though, don't you?

REP. SHERMAN: No, we don't. They can pay back the money now.

MR. KUDLOW: I understand they cannot pay the TARP money back out of earnings. They'd have to raise the capital outside. Isn't that true?

REP. SHERMAN: That's not true.

MR. KUDLOW: You're sure that's not true?

REP. SHERMAN: No, I'm very sure that's true.

MR. KUDLOW: Because that's what I've heard from an awful lot of experts.

REP. SHERMAN: Well, they'd like as many excuses as possible to not give our money back.

MR. KUDLOW: All right. So one last time. Besides this $78 billion thing that we're going to disagree about the value of the Treasury purchases, which was an event taking place six months ago, what did you learn today?

REP. SHERMAN: We learned that their lending is down a bit but not out of line with the fact that we're in a recession. And we learned that they're paying dividends.

MR. KUDLOW: All right. Dividend is a horrible thing, isn't it, Mr. Sherman?

REP. SHERMAN: It is when you have capital from the U.S. taxpayer. Give us the capital back first before you share it with the shareholders.

MR. KUDLOW: All right. Well, all I say is I think shareholders, private capital in general, shareholders in particular, sir -- you and I will disagree -- are going to be essential to the ultimate solution if we are to keep our capitalist banking system. But I appreciate your point of view and I thank you for coming on the show.

REP. SHERMAN: Capitalism requires shareholders who are willing to take a risk, not shareholders who believe in socialism on the way down.

MR. KUDLOW: Well, I don't know how --

REP. SHERMAN: Dividends should be paid by profitable companies, not bailed-out companies.

MR. KUDLOW: All right. As I said before, most of these companies are still making money, not all but most of them. But we can argue that another time. Mr. Brad Sherman from California, we appreciate it very much.

END.

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