CNBC "CNBC Reports" Interview - Transcript
Interview
CNBC "CNBC REPORTS" INTERVIEW WITH REP. SCOTT GARRETT (R-NJ) AND REP. BRAD SHERMAN (D-CA) INTERVIEWERS: JEFF MACKE, MELISSA LEE, DON PEEBLES
SUBJECT: CONTINUED DEBATE OVER AIG BONUSES AND WASHINGTON'S ROLE ON WALL STREET
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MR. MACKE: More reaction now from the mood of the banking CEOs with two members of the House Financial Services Committee, who are neck-deep in this mess, Representative Brad Sherman is the Democrat from California, Representative Scott Garrett, Republican from New Jersey.
Gentlemen, thank you for being here with us tonight.
REP. SHERMAN: Good to be with you.
MR. MACKE: And I'll start with you because frankly we're on the same page kind of a little bit here. Talk to me about how you can most efficiently cut through this mess, get away from this fake outrage over the bonuses, get away from all the hullabaloo that is tying this up and preventing us from really solving the real problems here.
REP. GARRETT: Let me give you a positive thing that's actually happening in Washington. I'm a Republican, as you know, I'm the ranking member on the Capital Markets Committee. Paul Kanjorski is the Democrat, the chairman of that committee. And here are two people from both sides of the aisle who are actually working together on this. And we're having hearings on this. As a matter of fact, just this past week we had an off-the-Hill little gathering where we were able to get together some experts, if you will, to say, how do we actually get something done without all those things that you're talking about, as far as the politics and all the outrage and the feigned outrage which goes, quite literally, from both sides of the aisle? So I think that was a positive thing that people should be feeling good about.
MR. MACKE: I couldn't agree more.
MS. LEE: Yeah. Congressman Sherman, I want to bring you in because, you know, Jeff had characterized it as a distraction to focus on these bonuses, but you actually wanted to introduce legislation that will look at overall compensation. Why shouldn't we just let the free market and companies and shareholders determine how much a CEO or an executive be paid? Why should we tax them to the point where perhaps the salaries would be lower?
REP. SHERMAN: If this is a free market, I'm Goldilocks. This is socialism for the rich -- capitalism when we set the salaries and socialism when we pay the bills. I think Washington is in a three- part kabuki play with the American people. In the first act, we tell the American people, we share your anger. But then in the second act, Washington nit picks to death any practical proposal that would actually be adverse to Wall Street's interests. And then in the third act, we transfer $1 trillion to Wall Street on highly favorable terms to Wall Street.
MR. MACKE: But Congressman, the curtain hasn't even dropped on the first act which is the fake outrage over the bonuses, which is frankly just a spit in the Hudson.
REP. SHERMAN: I don't know why you're calling it fake outrage, sir. I didn't come onto this show to be called a fake. And I don't know if you know me well enough to make that kind of charge.
MR. MACKE: Well, I'm calling it fake because it's a tiny fraction, I believe .2 percent, of the entire bailout. We haven't even gotten to the toxic assets yet, and we're still talking about these kids who worked at AIG, and they're working their way out of business. I'm not meaning to impune you, I'm talking about the --
REP. SHERMAN: Sir, I'm outraged by the bonuses, I'm outraged by the bailout, I'm outraged by the terms in which we injected capital into these companies and we got screwed to the tune of over $78 billion, and I'm outraged by this new partnership under which the taxpayer takes 94 percent of the risk, puts up 94 percent of the money, gets zero control and only half the profits. I'm outraged by the whole thing.
MR. PEEBLES: Well, Congressman, you know -- Don Peebles here. I'm a lifelong Democrat. I'm an American first, but I'm an entrepreneur as well. And I've been a big supporter of the president and a big supporter of the last Democratic president. And I can tell you, one of the things that's troubling me as a businessperson who takes a financial risk is the environment that's being created and perpetuated by some of your colleagues of this class warfare. The president has made it clear that we reward entrepreneurship. This country was built on entrepreneurship and taking a risk and getting rewarded for it. What's happening now is getting out of hand.
REP. SHERMAN: Well, sir, I respect entrepreneurship.
MR. PEEBLES: Let me finish, Congressman. Congressman, let me finish. What is happening here is you're creating an environment, not you per se but the Congress and this dialogue that's going on now is creating a an environment of class warfare. And the jobs that are going to be created that all of you all want created are going to be done by the private sector. So what can we do to work together -- business, Congress, Democrats, Republicans, average citizens and entrepreneurs? How can we get through this together?
REP. SHERMAN: Well, first, I'm the only one on the show that seems to disagree with policy, so I hope I can make my points. We've got to save capitalism from Wall Street rather than saving Wall Street from capitalism. I support the entrepreneurs. I haven't criticized any bonus to any truly private sector company. But when a company is insolvent, then the way it works is you go into bankruptcy or receivership and your contracts are recast. The only exception to that is Wall Street. And with Wall Street, every penny is paid. And that's why we've had to spend $170 billion bailing out AIG so that every penny to a Wall Street creditor is paid. That's not what happens with General Motors where the bondholders are having to settle for maybe one-third. That's not what happens with local companies.
MR. MACKE: Well, Congressman, with all due respect, and I'm not meaning to attack you, but I'm pointing out that, listen, we haven't even gotten to the banks being paid back 100 cents on the dollar yet because we're still talking and only one law has been passed so far and that related specifically to the bonuses. That's why I keep coming back to those because simply that is not the real problem here. You're touching on the problem. We're addressing the problem. We're getting to it. But so far, we've spent a lot of sound and fury signifying absolutely nothing in terms of solving this problem going forward.
REP. SHERMAN: The American people are angry at the bonuses because they understand them. They would be 1,000 times more angry at the AIG bailout if they understood that the counterparties were getting 100 cents on the dollar and a lot of money was going to the biggest banks overseas even when that's not the way capitalism is supposed to work. When you have an insolvent local bank, the federal government doesn't write a check. When you have an insolvent local company, when bartenders and waitresses don't get paid when a restaurant closes, the federal government doesn't write a check. We only write checks to bail out Wall Street, and that's wrong.
MR. MACKE: But frankly, Congressman, and this isn't even on the table yet. It's not a matter of whether or not the American people are too daft to understand how much the banks are getting paid. It's not even being discussed. They don't have the option to understand it or not understand it because they're busy hearing about all these bonuses that went out to these guys who are working their way out of a job.
REP. SHERMAN: Well, I don't control the microphone, CNBC does. And I've been talking about the AIG bailout being a mistake and why that company should be in receivership. I've been talking about the $78 billion that we got screwed when we got far fewer preferred shares than we were supposed to get. And yes, I've also been talking far less actually about the compensation, and that's the only thing that CNBC or the other networks are willing to cover.
MS. LEE: Congressman, I want to bring the congressman here on set into this conversation. You know, Congressman Sherman brings up a lot of good points as to why the American taxpayer should feel a little bit cheated, perhaps a little bit outraged. What do you say to them at this point?
REP. GARRETT: Well, there should be outrage out here, but the outrage should really go back to say to the outrage of, why wasn't this looked at beforehand? And Brad makes the comment -- I agree with a lot of what Brad says, and we actually vote the same way on a number of these issues here, quite honestly. But when he says we need to save capitalism from Wall Street, I think there's another act in his play that he's forgetting about. We need to save capitalism from Washington because we didn't get into this situation with his one, two and three acts that he has in his play. There was a pre-act there, and that was when Washington set up the formula for the failure that came on Wall Street. That all goes back to a whole bunch of things that you've talked about before, the GSEs and the guarantees that -- (inaudible) -- the other regulations on Wall Street, so on and so forth. That set the stage, if you will, for what Brad talks about here. And so that's problem one.
And to your comment about the administration on this issue as with the bonuses and what have you, I voted against the bonus tax of 90 percent on Thursday. I'm not sure where Brad was on that.
REP. SHERMAN: I voted for it.
REP. GARRETT: You voted for it.
REP. SHERMAN: But I've got my own bill that I think is much better.
REP. GARRETT: Yeah. Well, I voted against it because I think that lays a real problem for Wall Street to buy into anything going forward. But I honestly believe the administration has been weak as far as being against this. I mean, the clip before us asked some of the folks who were at the White House, where did the president come down on that vote? And nobody knows where the president comes down. Until the president comes and says, that vote was a bad vote, he will not get support, he will not get any buy-in to Geithner's plan. I was talking to people on Wall Street this past week, they say, why would we want to get involved with anything coming out of this administration, from this Treasury Department, when we think that if we can do all the right things for patriotic reasons after being to the White House? And then they say, six months or a year from now, some member of Congress is going to say, you know, you bought into this, and you're making $1 million on it now, and this administration is going to come back and say, we're going to try and claw it back. This administration has to be stronger in this area.
MR. PEEBLES: Well, I can tell you one thing. And the president and the administration can speak for themselves. But Barack Obama will keep his word. I think that he has clearly indicated that he wants to reward entrepreneurship. And I do agree that at some point the White House needs to take a position on the legislation going through Congress right now in terms of how we treat these bonuses and so forth.
MR. MACKE: And sooner rather than later, Don. And to say you're angry on the Jay Leno show is not leadership, my friends, it's a chance of century this man has to lead and he's got to come out of the gate stronger than this.
MS. LEE: All right. Thanks to you all. We appreciate it.
REP. SHERMAN: Good to be with you.
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