CNBC "CNBC Reports" Interview - Transcript

Interview

CNBC "CNBC Reports" Interview - Transcript

CNBC "CNBC REPORTS" INTERVIEW WITH SENATOR CHUCK SCHUMER (D-NY)

INTERVIEWERS: DONNY DEUTSCH, REBECCA JARVIS, DENNIS KNEALE, ANDREW ROSS SORKIN

SUBJECT: TEA PARTY RALLIES; RETURN OF TARP FUNDS; CEO COMPENSATION

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MR. DEUTSCH: Okay, he was born in Brooklyn, went to Harvard Law School, loves cereal and hates to make his bet. That's some introduction. He's an advocate for Main Street, and he's a force to be reckoned with in Congress on all matters relating to the economy and fixing the financial crisis. He is Charles Schumer, the senior senator from New York.

Welcome, Senator Schumer. I know you're a busy man. Appreciate your time.

SEN. SCHUMER: Good evening. Good evening. Great to be here, Donny.

MR. DEUTSCH: Okay, all over this country today, a lot of America was speaking and saying, we are becoming a tax-and-spend society. It was not only against too much taxes, it's against too much government, speaking of too much government. If you look at Obama's current budget, he's got in there 4 percent growth. If we don't hit that growth over the coming years, we are bankrupting ourselves, I think, in five or six years from now. So how do you defend President Obama's position?

SEN. SCHUMER: Well, it's simple. We are in the most serious recession that we've had since the Great Depression. And you talk to any economist, left, right or center, conservative economists like Martin Feldstein, and they will tell you that the greatest danger that we face in our economy is what they call a deflationary spiral, prices keep getting lower, more people get laid off, prices get lower still. The last time we had one of those? The Great Depression.

There's only two ways to get out of that. One is to lower interest rates, and we can't do that because interest rates are close to zero. The other is for the government to pump some money into the economy, putting it in the hands of the middle class, creating jobs, getting money flowing. And I know there are some, you know, people in the tea parties today who disagree with that, but they're sort of reminiscent of Herbert Hoover. About this time in 1930, we were in the same stage of recession that we are today. Herbert Hoover said, do nothing, the government should do nothing, and we ended up in the Great Depression. So it's not a great situation to be in, but when faced with the choice of getting some money into the economy and getting it moving again or doing nothing, not spending, cutting back -- I don't know if these tea party people actually want to cut back on government spending -- it's an easy question that any knowledgeable economist, left, right or center, would agree with the former.

MR. DEUTSCH: Senator Schumer, I have a question. I know Dennis Kneale wants to ask you a question after that. What about the folks who say, well, of course, we've got to do something and, of course, we've got to get business going again, I'm all for helping out but maybe our president is trying to do too much at once, maybe we don't have the luxury right now of spending that 600 billion (dollars) reforming health care and energy? Those are great, lofty goals, but let's fix the economy first, people like Warren Buffett and some pretty smart people say that.

SEN. SCHUMER: Well, that's a different argument. I don't think that's the tea party people. They're just saying the government should not spend, period, and I think they're missing the boat. That probably worked at other times. And by the way, if you're worried about deficit reduction, about the best way to decrease the deficit is to get the economy moving. If it grows at 2.5 percent rather than 2 percent, that does far more to reduce the deficit than any tax increases or government spending cuts.

As for your argument about doing other things, look, the mandate of the election was very simple. People wanted significant change. Obama didn't squeak through. He won states, you know, like Indiana, like Virginia which had never gone Democratic before. And the mandate that the middle class said to him was, not just get us out of the recession but fix health care, fix energy, fix education, and that's what he's doing. And I think he's doing the right thing.

MR. KNEALE: Senator, you know, President Obama said this week that he sees the glimmerings of an improvement in the economy. Ben Bernanke of the Fed said the same thing. Beige Book came out and said, hey, you know what? In some pockets of the country, it's looking less bad, inflation lowest in 40 or 50 years. Deflation, Beige Book says and Rebecca just point out, not a problem. What I'm asking you now is, that $787 billion stimulus package, it hasn't kicked in yet, did we spend too much too soon?

SEN. SCHUMER: No. I think, you know, there's a lot serious problems in the economy. The financial system is still too tight. You're finding lots of businesses -- I talk to them everywhere in New York, small towns upstate, New York City, suburbs, everywhere -- they can't get loans. This is a serious problem, and we are not out of the woods yet. I think some of the spending has started kicking in already. There are road projects working. The money to education, to governments to prevent the layoffs there are starting. And so I think you're seeing it have an effect. But as economists, again, left, right and center, have said, better to do a little too much than a little too little if faced with the choice because of the danger of the deflationary spiral and because this is a very severe economic crisis. This isn't a mild recession, not even close.

MS. JARVIS: Senator Schumer, one of the issues facing the state is obviously the depletion of Wall Street. There have been a number of jobs lost there, and we've seen the statistics that every one job on Wall Street creates four jobs elsewhere. In your opinion, what's the future of Wall Street? And where does it go from here in a new regulatory environment?

SEN. SCHUMER: Well, first, we're going to change our regulations and bring them up to date. The kind of regulation we had from the New Deal didn't regulate some things at all. The holding company of AIG was unregulated by anybody, so was the holding company of Bear Stearns, which each got the fundamental companies in trouble. AIG at the lower levels was a very sound insurance company taken astray. So you need a new system of regulation. I would argue that our new system of regulation is going to have a far more unitarian regulator. We have 15 different regulators. They're often shouting at the top of their lungs in different directions, and they leave holes in the system. We need a unitary regulator. We need a strong regulator.

MS. JARVIS: Do you see a smaller Wall Street going forward?

SEN. SCHUMER: I don't. I think that we will have a smaller Wall Street in the next several years, but here is my prediction, and this is a little bit contrarian. In the last 10 years, money flowed worldwide to places that have less regulation. So London gained an advantage, didn't grow as large as New York but began to catch up because they had a more lenient system of regulation. Hong Kong, some of the -- Singapore, some of the same. Money is now going to flow if we have a smart, not overbearing, not snuffing out capitalist entrepreneurialism but a smart, strong system of regulation. Money is going to flow back. And I think in fact right now the advantage New York has over the others is greater than it was before. Admittedly, both are smaller. But as the world economy picks up, which it will over the next year or two, Wall Street is going to grow again. The kind of salaries we've seen will not be there. But the overall dynamism of Wall Street, I believe, will be back. Just as money is flowing to raise the dollar, you know, to buy the dollar because we're the strongest safe haven, it's going to flow back into America through financial institutions.

MR. SORKIN: Senator, you mentioned salaries. I was going to say, Goldman Sachs is preparing to give this TARP money back, in part, so they can raise their salaries, get out from under all this regulation. A number of other banks have also talked about the same thing. Are you in support of that? Would you like to see them give this money back? But at the same time, when you're talking about regulation, a lot of these guys are going to be able to go back and get paid the same type of salaries and big paydays they were getting before that you talked about have led to some of these problems.

SEN. SCHUMER: Well, I don't think we'll ever go back to the days of the kinds of salaries we've seen. I think that some of them were clearly, clearly excessive.

And worse than even excessive which was bad enough is they were too short term. In other words, if you were a trader of some sort, you could make $10 million one year and 20 million (dollars) the next year. Even if you knew in year three things would fall off the cliff, you said, that's not my problem, I'll never be punished.

MR. SORKIN: Yeah, but we may see that again at Goldman Sachs, Senator.

SEN. SCHUMER: Well, Goldman Sachs actually did a lot better job than most of the others. And I think if companies want to get out, they should, we should not force companies to take government money. Government control of these companies should not be the norm. But when they do take government money, they're going to have to play by different rules, whether they like it or not.

MR. DEUTSCH: But Senator, one thing that I think Andrew is worried about and I'm worried about also is they will give the government money back, not only because some of the favorable things, they're borrowing money for free basically, but once they give the money back they will go back to --

MR. KNEALE: They paid 5 percent interest. That ain't free.

MR. DEUTSCH: They will. The Fed is flooded with it. They will go back. History has shown that. So unless we somehow --

SEN. SCHUMER: Our job is to put in a new system of regulation that won't allow it. You know, very quietly, leverage ratios were raised from 10 to 30. I don't think we're ever going to be at a 30 or 40-to-1 leverage situation anymore. Other things, the regulatory system was just not, in many ways, not enforced in any way.

MR. KNEALE: You're absolutely right, Senator. But we focus so much on the compensation of executives. But if you look at the $2 trillion we've lost, wasn't the compensation of executives like one- one thousandth of the problem? It seems like Washington wants to punish them and, therefore, let's cut their pay? No?

SEN. SCHUMER: The way to deal with salaries for non-government entities, and there are lots of them that never even took government money, is to give much greater access to shareholders to limit the pay. Say to pay, very important, we should do it, more access for shareholders that are challenging in proxy statements and other things so that they can have some real say here and it's not just a small group of five people.

MS. JARVIS: So more capitalism.

SEN. SCHUMER: That's not, please -- to have shareholders have a say is capitalism, in all due respect.

MS. JARVIS: Exactly, that's what I'm saying.

MR. DEUTSCH: No, she was agreeing with you, Senator.

MS. JARVIS: I'm saying that shareholders would have a say, absolutely.

SEN. SCHUMER: Yes.

MR. DEUTSCH: Senator, we've got to wrap. Senator, you are a busy man. You're my favorite.

SEN. SCHUMER: So just to sum it up, when you take government money, the government is going to have some say on pay. When you don't, the shareholders should have more say on pay, and that's the way it ought to be.

MR. DEUTSCH: I think we can all agree on that, can't we? All right, Senator Schumer, appreciate it.

END.

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