MR. DAVID GREGORY: Our issues this Sunday: The president issues a dire warning to Congress, don't delay on the economic stimulus.
PRES. BARACK OBAMA: Failure to act and act now will turn crisis into a catastrophe.
MR. GREGORY: In the Senate there is now a deal ensuring enough votes to pass the president's massive recovery plan. But it is far from bipartisan, with only a handful of moderate Republicans on board.
SEN. JOHN McCAIN (R-AZ): We'll hear all the other side about how worthwhile this long, long list of pork barrel projects are. But the fact is they don't create jobs.
MR. GREGORY: The debate now intensifies as a final bill is negotiated between the House and the Senate. Will the plan prevent a deeper recession and provide relief to the 11.6 million Americans out of work? Our panel of key lawmakers weighs in: chair of the Senate Republican Policy Committee and member of the Finance and Budget Committees, Republican Senator John Ensign of Nevada; chairman of the House Financial Services Committee, Democratic Congressman Barney Frank of Massachusetts; Democratic Senator Claire McCaskill of Missouri; and chairman of the House Republican Conference, Congressman Mike Pence of Indiana.
Then we continue our in-depth look at leadership tests for this new president. This morning, confronting the ongoing and new challenges in Iraq and Afghanistan. How long will American troops likely remain on the front lines? How do we now define victory? Insights and analysis from our guest Tom Ricks, senior Pentagon correspondent for The Washington Post and author of the new book "The Gamble: General David Petraeus and the American Military Adventure in Iraq, 2006-2008."
But first, the economy with our panel of lawmakers. Here with us: U.S. Republican Senator John Ensign, Democratic Senator Claire Caskill--McCaskill, rather, Democratic Congressman Barney Frank and Republican Congressman Mike Pence. Welcome to all of you.
So there is a deal in the Senate. We may get a vote early this week. Let's put the packages up, House and Senate, side by side, for comparison. The overall cost on the Senate side, $827 billion; $820 billion in the House. Massive packages. In the Senate you've got more tax cuts, in the House you have more overall spending. This is not a bipartisan measure in the Senate. There are three Republican moderates who are now prepared to support it. One of them, Republican Susan Collins, on the floor. This is what she said Friday.
SEN. SUSAN COLLINS (R-ME): Is it perfect? No. But this bill is an enormous improvement. The American people don't want to see partisan gridlock. They don't want to see us divided and fighting. They want to see us working together to solve the most important crisis facing our country.
MR. GREGORY: Senator Ensign, if there is consensus among economists, it's not about the particulars of the bill but the need to act fast and not delay. Is this bill better than no bill at all?
SEN. JOHN ENSIGN (R-NV): I don't believe that it is. Remember, Japan, during the 1990s, they acted. They continued to act and they had six different stimulus bills, none of which brought their economy out of the severe recession that it was in. As a matter of fact, it's called the lost decade because they just never grew out of it. And the problem is they didn't get it right. They built all kinds of bridges to nowhere, roads to nowhere. You need to get it right. You don't want to spend these precious taxpayer dollars in the wrong way. So yes, speed is important, but the speed is relative. You know, taking a couple of weeks, sitting down with both parties, because Republicans don't have all the right ideas, Democrats don't have all the right ideas. We should've done this from the beginning, sat down in a bipartisan fashion and bring the best ideas to the table. Because there are people out there that are really hurting--losing their jobs, losing their homes--and we should put the best ideas on the table. This was one party rule.
MR. GREGORY: But you cite Japan. Critics of what Japan did during that decade was that they often, with these stimulus plans, raised taxes at the same times, which sort of leveled out the impact of stimulus. So they're not directly comparable.
SEN. ENSIGN: Well, well, David, David, taxes are going up in two years. Unless the Bush tax cuts are, are kept where they are today, taxes are going up. So you're going to see the same kind of effect in the United States.
MR. GREGORY: This issue of spending, Congressman Pence, is something that the president took on head on with regard to how much spending there is in the bill. And this is what he said.
PRES. OBAMA: So--well, then I--then you get the argument, "Well, this is not a stimulus bill, this is a spending bill." What do you think a stimulus is? That's the whole point. No, seriously, that's the point. Don't come to the table with the same tired arguments and worn ideas that helped to create this crisis.
MR. GREGORY: Still on the issue of spending. Conservative economic professor, economist from Harvard Martin Feldstein, who supported the stimulus originally, this is what he said back in October: "The only way to prevent a deepening recession will be a temporary program of increased government spending." So what's wrong with this approach?
REP. MIKE PENCE (R-IN): Well, Martin Feldstein now says it's an $800 billion mistake. With, with all due respect to the president of the United States, the ideas, the worn-out ideas that the American people are tired of is runaway federal spending. I believe the American people rejected that under Republican control, and I believe that's the reason why support for this stimulus bill is collapsing by the hour. The American people know we can't borrow and spend and bail our way back to a growing economy. This bill--the only thing this bill's going to stimulate is more government and more debt. There is a time-honored way to stimulate the economy. John F. Kennedy knew it, Ronald Reagan knew it. When the towers fell in 2001, President George W. Bush knew it. And that is you give the American people more of their hard-earned tax dollars, work--tax relief for working families and small businesses, and you marry that with--as I'm sure Barney will argue, you marry that with some appropriate investments in infrastructure, certainly make sure unemployment insurance is covered. But the centerpiece of any effective stimulus bill that's ever been passed by Congress in the recent past has been tax relief.
MR. GREGORY: But...
REP. PENCE: The center of this stimulus bill is massive, unaccountable government spending, and the American people are tired of it.
MR. GREGORY: All right. But basic economic theory is if you want to create demand for goods and services in an economy, somebody's got to do it. Businesses aren't spending, consumers aren't spending, so doesn't government have to be the spender of last resort just as it has been engaged in deficit spending with regard to wars in Iraq and Afghanistan?
REP. PENCE: Yeah. Well, you're, you're exactly right, there needs to be a release of resources into the economy. But the question here is, is how do you most effectively release those dollars into the American economy? Do you do it by giving working families and small businesses the opportunity to invest in ways that will create jobs, or do you pull out--which is what the Democrats have done here, and the American people know it--pull out a tired old wish list of liberal spending priorities and, and, and pass a bill that in one fell swoop is the size of the entire discretionary budget of the United States of America?
MR. GREGORY: Let, let's hear from the Democrats on the panel as well. Senator:
SEN. CLAIRE McCASKILL (D-MO): Well, first of all, we were compromised--we did compromise in the Senate. We had a group of Republican senators in a room and we worked hour after hour--and by the way, that door was open to every Republican in the Senate to come into that room and go through this bill line by line by line. And we reached a compromise, which is what the American people want. You know, the building is on fire, and what we typically do in Washington is argue what color of fire truck do we send to the scene. They do not want us arguing about the color of the fire truck. They want something bold, they want something swift. They don't want a series of procedural votes, even though you guys know we have the votes, on Monday and Tuesday. We could pass this thing on Monday if we would quit playing the political inside the Beltway games of figure out a way to get a political advantage.
MR. GREGORY: Well, to that point, Senator, will, will Republicans in the Senate try to delay passage?
SEN. ENSIGN: Sure. First of all, we only got the bill at 11:00 last night, OK? The--it was so complex. This is--this is almost $1 trillion. You don't get do-overs with $1 trillion. If you get this thing wrong, $1 trillion isn't like, "Well, we did it wrong, we'll try it again." A trillion dollars...
MR. GREGORY: Will it pass--do you think it'll pass this week?
SEN. ENSIGN: It'll pass this week.
MR. GREGORY: Mm-hmm.
SEN. ENSIGN: But we want some time to go through it. We want some time for the American people to be able to look at it. Getting it at 11:00 on a Saturday night and, and just having, you know, a day and a half to look at $1 trillion in spending I don't think is adequate.
MR. GREGORY: Congressman:
REP. BARNEY FRANK (D-MA): Well, two things. First, watch this face, David, because some of the arguments you've been hearing now about how government spending never helps the economy, you're going to hear the absolute reverse when military spending comes up. We have an airplane, the F-22, that is designed to defeat the Soviet Union in a war, and I think we can save billions. The defense budget has gone way up under George Bush. But somehow to my Republican friends enormous amounts for the war in Iraq--which I thought was a mistake--hundreds and hundreds and hundreds of billions of dollars for weapons to fight the Cold War, they don't count those. But you're going to hear an argument about how important military spending is for the economy. So...(unintelligible). Secondly, they talk about this wasteful spending. Let me talk about it. I'll be flying out of here this afternoon to go to New Bedford, Massachusetts, where they're about to lay off cops and firefighters. That's the wasteful spending that my colleagues are talking about, money to go to the states to stop from laying off cops and firefighters. Money to help keep teachers going. Those are jobs. There seems to be this notion that if you hire someone to do something useful, that somehow becomes social spending that doesn't count. In fact, these have dual purposes. If you keep cops and firefighters and teachers from being laid off, you're improving the quality of life, I think, or preventing a deterioration.
Secondly, as to the bipartisanship--again, I want to congratulate my Republican colleagues that they're not too old to learn. Because I was in Congress in 2001, two, three, four, five, six, when the Republicans controlled the House, the Senate, the White House and they pushed things through. There was none of this concern that one-party rule was a bad thing. Now that they're not the party, they've decided that that's a bad idea, and it's always nice when people know new things. But we had an election last year which had pretty decisive results in the White House, the Senate and the House, and it did say that public spending for improved infrastructure to keep bridges from crumbling, to keep cops and firefighters working, that that's a good thing.
MR. GREGORY: Congressman:
REP. PENCE: Well, less than 5 percent of this bill is for roads and bridges and infrastructure. And let me, let me be clear with Barney. I, I don't, I don't have any problem with some spending on infrastructure and making sure that people's unemployment benefits aren't lapsed. But the point is, is what, what should most of this bill be about?
MR. GREGORY: Right.
REP. PENCE: No one is saying that spending by the federal government isn't going to have some benign positive effect on the economy.
REP. FRANK: David, we--excuse me, but...
MR. GREGORY: Well, let, let's just...
REP. PENCE: It's what, what will be the most effective to turn this recession around?
REP. FRANK: Mike, you just ignored what I said. You just ignored what I said. As I understand, one of the big cuts that had to be done--and I think Senator McCaskill and others were trying. But to get any Republicans at all, you had to adopt a cut that's going to mean policemen and firemen are going to be laid off.
SEN. ENSIGN: That's not true, Barney.
REP. PENCE: That's not true.
REP. FRANK: It's not just infrastructure.
SEN. ENSIGN: That's not true.
REP. FRANK: You're cutting off aid to the states. Aid to the states is to prevent...
SEN. ENSIGN: Hold on. All right, David...
REP. FRANK: ...this budget crunch from laying off public employees.
SEN. ENSIGN: Yeah.
MR. GREGORY: Let, let's get--I want to get to the--we're going to get to some of the cuts and whether they're wise in just a moment. But Larry Summers, top economic adviser to the president, said this bill should be timely, targeted and temporary. This is opposition to that, in this bill, as voiced by Senator Roberts on the floor of the Senate. Let's listen.
SEN. PAT ROBERTS (R-KS): This bill's not timely. CBO estimates that only 15 percent of this stimulus package will be spent in 2009; 37 percent, 2010; remaining part spent in 2011 and beyond. Half the money--less than half the money will be spent by the end of next year. This is not immediate relief that families and businesses desperately need now to help get the economy back on track.
MR. GREGORY: Now, Senator, let's be clear. The administration says 75 percent of the spending will be paid out in the first 18 months. That does not change the fact that there is significant--there's a significant amount of money that is paid in the out years of this, beyond 2010. That is long-term spending that doesn't necessarily stimulate jobs up front, true?
SEN. McCASKILL: Well, but what it does is it stimulates investment in certain sectors. For example, some of the money that's going to spend out in a little more time than the first two years is some of the investment in new jobs and green technology; you know, retrofitting all our buildings. But more importantly, finding a way to get out from underneath the thumb of foreign oil long term. That is an incredibly important investment for our country. And if you look at this whole bill, it is--that is not correct. A lot of it--the vast majority of this bill will spend out quickly. It's not going to be enough, David, to keep us from losing jobs in this country. But to do nothing? Do we really think we can sit around here in Washington watching this job loss and just try another tax cut for really wealthy people like George Bush did? I don't think so.
REP. PENCE: Yeah, David...(unintelligible). That's absolutely false.
MR. GREGORY: But why not separate some of the long-term spending, Senator?
SEN. ENSIGN: Absolutely.
MR. GREGORY: Separate it for a separate appropriations process.
SEN. ENSIGN: This is what I've been saying all along. There are some things that we need to go quickly on, but there are--the long-term spending, we should do it carefully and we should take our time on it. There's not a hurry on that. If it's not going to be spent for two years, let's take that out and let's do it right.
But the other thing, to get back to what Congressman Frank said, is that, you know, we're going to be laying off teachers and firefighters. You know, that's just fearmongering. We're not going to be doing that in any of the states. The states have grown, in their budgets, faster than population growth, faster than inflation for the last several year--actually, probably about the last 15 years. Their budgets are bloated, the federal government's budget is bloated. What we should be doing is cutting back. Instead of just spending money, we should eliminate wasteful Washington spending and also require the states to have some fiscal discipline. Here's what this bill does. It sends the money to the states, and not only do we have them not have to make the tough cuts that they should be making, we actually encourage them to spend more because to be able to get the money, they have to spend more. And, and this just encourages more wasteful spending.
MR. GREGORY: Congressman Frank:
REP. FRANK: Well, first of all, on the bloated spending, this comes from a man whose party controlled the federal government--House, Senate and White House--for six years. We've had it for two. And in fact, we didn't have the presidency. So the bloated spending, once again, you're getting...
SEN. ENSIGN: I agree to that, Barney. I agree.
REP. FRANK: But--may I finish now? Well, if you agree, we--I guess I would've been more impressed if you'd done something about it, not just agree. You were in power for six years. The spending that we have now was set by six years of Republican spending; excesses in a number of areas, I agree. Secondly, the notion that we're not laying off policemen, firemen and teachers is simply, factually untrue. And this argument that the states are bloated. I look at my state of Massachusetts, there are terrible problems in other states as well because of the collapse of the housing market, because of the lack of tax revenues, and I'm very prepared. Let's have that argument.
MR. GREGORY: All right.
REP. FRANK: Do the state--does sending money to the states mean that when they don't lay off people, that that's a bad thing?
MR. GREGORY: But, Senator, you said about the House bill that in fact they did bloat it up with some spending, and they provided ammunition to Republicans to shoot this thing down and take over some of the political argument. Is that still what you believe?
SEN. McCASKILL: I, I, I do think that there was some spending in the bill that was makeup for a starvation diet under the Bush administration, some important priorities of our party; frankly, of the American people. And the question is does it belong in the stimulus bill or does it belong in the appropriations bill? I think some of the money that we cut in the compromise to get the votes that we, that we have was, in fact, spending that more appropriately should go in a, an appropriations bill.
MR. GREGORY: Should more be cut?
REP. PENCE: (Unintelligible)
MR. GREGORY: Should more be cut in the conference, do you believe? More spending be cut?
SEN. McCASKILL: I think we've got a good mix right now. It's 60-40; 40 percent tax cuts, 60 percent spending, give or take 1 or 2 percentage points. And by the way, our bill is 90 percent the same as the House. The 10 percent difference was some of the cuts that we made in some of the things that could be put in an omnibus appropriations bill or an appropriations bill.
REP. FRANK: (Unintelligible)
REP. PENCE: Look, look, I, I got, I got to jump in here. You know, what you're hearing these two very distinguished colleagues say, what Nancy Pelosi said on the House floor, what President Obama said Thursday night in that harsh partisan speech, I, I give them all credit--excuse me--I give them all credit for candor. Speaker Pelosi goes to the floor and says this is about changing the direction of the federal government. Well, I thought we were trying to create jobs. We, we've got all year long to have these debates...
MR. GREGORY: Right. But, Congressman, where do you...
REP. PENCE: ...about investments.
MR. GREGORY: Hold it. But, Congressman, where do you...
REP. PENCE: This, this--what we ought to be doing...
MR. GREGORY: But, sir...
REP. PENCE: Forgive me. What we ought to be doing is fighting to create jobs.
MR. GREGORY: But, Congressman, if you create--if you spend this amount of money, if you--where is it going to go? As, as a columnist put it this week, it's not going down a rabbit's hole. If you create demand for goods and services, doesn't that create jobs?
REP. PENCE: Look, there's an enormous amount of economists who think this is the wrong way to go. Some 300 published a full-page ad this week.
MR. GREGORY: But you're not saying that government spending doesn't create jobs.
REP. PENCE: There's not a consensus. Government spending can, on the margin, create jobs. But let's be clear. John F. Kennedy, Ronald Reagan and after the towers fell in 2001 proved that the way you, you jump-start the economy, the way you jolt a free market economy...
MR. GREGORY: Mm-hmm.
REP. PENCE: ...into action is by giving working families and small businesses more of their dollars. And let me say, what the Republicans came forward with, at the president's request--I know after Thursday night it doesn't seem like the president's very interested in other ideas anymore. But at the president's request, Republicans put together an alternative that was targeted to middle-class families, a tax cut this year of up to $3400, and targeted to small businesses.
REP. FRANK: Let me go back...
MR. GREGORY: All right.
REP. PENCE: This is--this whole rhetoric about tax cuts for the rich is a nonstarter.
MR. GREGORY: Final thought on this before we turn to banking, Congressman.
REP. FRANK: Yeah. George Bush's tax cuts were for working families who make $150,000 or more. In fact, Bill Clinton--the most successful economic period we've had recently in America was after Bill Clinton got many of us to vote to raise taxes on upper income people. And in fact we did that in '93, and no Republicans voted for it. We didn't get any bipartisan help then. We, in fact, had a very successful economy for, for the, for the rest of his term.
But the last point, though, is that this is spending, and there's a contradiction here. On the one hand, they say things are bloated and have to change; on the other hand, they say the trouble with this bill is it's trying to make change. Yeah, the bill isn't simply putting money into the same holes, it is trying to make some change while you are spending.
SEN. ENSIGN: That's right.
REP. FRANK: But I do believe that cops and firefighters getting paid and not getting laid off helps the economy.
SEN. ENSIGN: David, just--David, just one thing.
MR. GREGORY: I want to turn, because we're not going to have enough time. I want to turn to the very important issue of banking. Either tomorrow or perhaps Tuesday, the Treasury Secretary Timothy Geithner is going to lay out a plan to help the banks. And as far as we can tell, there'll be some broad outlines that include providing more capital to the banks, which are undercapitalized, trying to do something to help the banks get rid of these rotten assets that are on their books, and perhaps even insuring some of the losses on the banks.
Congressman Frank, how do they do this? What do you think the best approach is to this problem?
REP. FRANK: Well, there is no very good approach because, frankly, a philosophy of let the private market do whatever it wants, don't regulate capital, keep capital--keep the, the government out of it. Alan Greenspan acknowledged, the leader of that philosophy, it caused a lot of problems. And we now have to try and fix them. And we have this dilemma: you can't create a whole new credit system from scratch. You have to work with the existing one. That means some incidental help to some of the people who are guilty. But you have to do a couple of things. First of all, the most important thing to do--and there's an enormous contrast here between the Bush administration and the Obama administration--is reduce foreclosures. To our great disappointment and in defiance of congressional language, the Bush administration, in the first $350 billion, refused to do anything with that money to reduce foreclosures. A major part of what you're going to see from the Obama administration is an effort to put substantial money into reducing foreclosures both because they are damaging socially, but even more important because, macroeconomically, until you reduce foreclosures you don't begin to get out of the problem.
MR. GREGORY: Let me pick up on that point, and we're talking at least $50 billion that is apparently going to be appropriated for just this, some kind of loan modification to mitigate foreclosures. What is in the Senate bill is a tax credit for first-time home buyers. And here's my question.
SEN. ENSIGN: Republican idea, by the way.
MR. GREGORY: By--yes.
SEN. McCASKILL: And a great one.
MR. GREGORY: And has been accepted. But there's the problem with it, it seems, to a lot of people, is if I'm going to buy a house and I'm worried about the value of that house going down, I'm worried about my job, why is a tax credit necessarily going to incentivize me to jump into this very risky market?
SEN. McCASKILL: Well, I think it will help some. But I think broadly on this topic, David, we've got to quit talking about this that we're helping the banks.
MR. GREGORY: Right. But hold on...
SEN. McCASKILL: There is a populist...
MR. GREGORY: ...you say it's going to help--we're talking about $50 billion, at least, that they want to do for loan modification and a tax credit that is also very expensive. Is it only going to help some? Because that's a fundamental problem, that people don't want to get into the, the home market.
SEN. McCASKILL: We've got, we've got housing, we've got housing stock we've got to move.
MR. GREGORY: OK. Mm-hmm.
SEN. McCASKILL: That is essential. We've got to use every, every way we can to move this housing stock. Because if we don't move the housing stock, this whole thing is going to be slower and more painful than it needs to be.
MR. GREGORY: Right.
SEN. McCASKILL: But we can't--we've got to start explaining to the American people that this money that we have put in the banking system is not about helping bankers, it's not about helping big guys on Wall Street, it's about making credit flow in this country. We cannot have this economy recover if we can't figure out a way for these banks to start making more loans.
MR. GREGORY: Mm-hmm.
SEN. McCASKILL: They're beginning to make more loans because of what we did last year, but we've got to have more. And we've got to characterize this not as saving the banks, but saving the economy in terms of the credit that flows in this country.
MR. GREGORY: But you, but you acknowledge, Senator, that the banks need more capital. They need more money.
SEN. ENSIGN: Well, they...
MR. GREGORY: Capital is defined as, like, their net assets, like a, like a...
SEN. ENSIGN: Right, but here's the problem.
MR. GREGORY: ...household, your net, your net worth.
SEN. ENSIGN: Here's the problem, David, is the housing crisis is what has drug the rest of the economy down. That's why the stimulus bill should have been focused, to a great deal, on fixing the housing problem. Because if you don't fix that underlying cancer, if you don't treat that...
MR. GREGORY: Right.
SEN. ENSIGN: ...the rest of the economy can't recover. And that's why I had an alternative bill that actually did foreclosure mitigation, that had the $15,000 tax credit in to buy a new home, but also would lower any American's home.
MR. GREGORY: Right.
SEN. ENSIGN: Forty million American homes would be able to lower their interest rate to about 4.25 percent.
MR. GREGORY: Right, but that...
SEN. ENSIGN: That would have helped the whole housing sector.
MR. GREGORY: But that was defeated. That was defeated.
SEN. ENSIGN: But--it was. But it was an idea out there...
MR. GREGORY: Right.
SEN. ENSIGN: ...that was targeted at the problem.
MR. GREGORY: All right. I want to stay broad on this topic, though.
Congressman Frank, this is what you said on Tuesday with regard to U.S. banks. Listen.
REP. FRANK: People really hate you, and they're starting to hate us because we're hanging out with you. And you have to help us deal with that.
MR. GREGORY: And you're going to try to deal with it. You've got the top CEOs coming down from the U.S. banks. They're going to be in front of your committee on Wednesday. What do you want to ask them?
REP. FRANK: Well, the first thing I'm going to ask them is this. These are these eight very highly paid people. There were nine, they merged. You get large salaries, you have these great jobs and you also get a bonus. What is it that you do, because you get a bonus, that you wouldn't otherwise do? I want to know, like, if they didn't get a bonus, would they knock off early on Wednesday? Would they take...
MR. GREGORY: Some--not all of them got bonuses, for, for example.
REP. FRANK: No, these top eight guys have historically. Not in this last round.
MR. GREGORY: Yeah, right.
REP. FRANK: But 2006, the Democrats in the House Financial Services Committee began to look at this question of executive compensation. The problem with compensation is not just that it's large, but it gives a perverse incentive. They pay themselves in ways that say this, this: "If I take a risk and it pays off, I get extra money. But if I take a risk and it loses money, I break even. Heads I win, tails I break even." It's going to--encouragement of people to flip too many coins, and that's--we--one of the things we have to do is, is that.
Secondly, as Senator McCaskill said, we have to push them to lend more, not irresponsibly. Look, I--the Bush administration and the Obama administration will each have spent $350 billion under this. You going to see enormous contrasts. John Ensign is right, the housing crisis is critical. That's why it was a shame that the Bush administration refused to do anything substantive to deal with it.
MR. GREGORY: But, but a lot of this discussion seems to get caught up in some of the partisan divide about what you do punitively against the banks. And my question is a little bit different. We know that this economy was bloated, we know that there was a bubble. We know there was much too much lending, much too much credit that was extended.
So, Congressman, what is a healthy level of lending in the credit market?
REP. PENCE: Well, and we know that there was a lot of excessive lending because Congress, that now wants to tell the banks how to be run, forced banks farther and farther, in the 1990s, into making more and more bad loans. I mean, this is really astonishing, I think, to most Americans, that Congress, that has--what have we got now, like a $10 trillion national debt?--doubled the national debt in the last eight years is going to start telling these failing banks how to run their books? I strongly opposed the banking bailout last fall. I opposed the president of my own party and the leaders of my own party, because I don't believe we can nationalize every bad mortgage in America. I don't believe we can nationalize every failing bank in America. We--what, what troubles me about the, the, the impending announcement by the Obama administration is it just seems to be more of the same, more taxpayer dollars being shoveled from Main Street to Wall Street.
MR. GREGORY: But, but, Congressman...
REP. PENCE: And more micromanagement from Capitol Hill of our financial sector.
MR. GREGORY: ...do you agree that the banks--do you agree--because that argument is made a lot. Do you agree that the banks need more capital if they're going to lend?
REP. PENCE: Absolutely. And there's an enormous...
MR. GREGORY: So how can you say you're just throwing money out there...
REP. PENCE: There's an enormous...
MR. GREGORY: ...if they have an actually need?
REP. PENCE: ...amount of capital in the marketplace. You know, one of the ironic things right now about, about the proposal is that we're hearing rumors that there's going to be an insurance element of this where you ask the banks to actually pay an insurance premium. That's what the Republicans proposed instead of a massive bailout put on the banks of taxpayers. We proposed that last October and were told absolutely not, it can't happen, it'd never work. Now apparently it's going to be a centerpiece of the plan.
MR. GREGORY: OK.
REP. PENCE: In terms of capital, though, to your point, and it's the right one, how about we suspect the, the high taxation on repatriating corporate profits? We can bring a half a trillion dollars back into this economy without burdening taxpayers.
SEN. ENSIGN: The Democrats defeated that in the Senate.
MR. GREGORY: Well, I want, I want to ask...(unintelligible)...to really try to educate people here, Congressman, because I think this is so important. One of the, one of the issues here is how do you get lending to increase? How do you get the assets off the books? One idea, and we don't know if it's final, will be for--essentially, you try to get private equity into the secondary market, which is where a lot of these assets are traded, bought and sold, and that Uncle Sam, the Fed basically says to private investment, "We're going to have your back on this," so we can try to get things moving again. Is that a, is that a feasible plan?
REP. FRANK: Well, I've got...(unintelligible)...one point.
REP. PENCE: Yes.
REP. FRANK: Repatriation. What they...
REP. PENCE: Which is what we proposed.
REP. FRANK: May I make my own case?
REP. PENCE: Certainly.
REP. FRANK: Thank you. Yes, they proposed repatriation. Let's explain what that is. It's letting American companies go overseas with their business, earn profits on the theory that under the law that says when you bring them back they'll be taxed, and saying, "Uh-oh, we changed our mind. You can go overseas, earn your profits, bring them back and pay virtually no tax." Now, we've done that once. They wanted to do it again. What that would be, would be an invitation to American companies to go overseas...
MR. GREGORY: OK.
REP. FRANK: ...earn profits, bring them back and pay virtually no taxes.
REP. PENCE: We did it once and it brought hundreds of billions into the economy.
MR. GREGORY: All right.
REP. FRANK: Excuse me, Mike...
MR. GREGORY: But we're not--OK, but we're not going to...
REP. FRANK: I'm sorry, what are the ground rules, Mike? I mean, you--yes, you did it once and it brought back--and very little spending benefited us.
MR. GREGORY: OK.
REP. FRANK: You want to do it again, you're going to institutionalize it where...
REP. PENCE: Hundreds of billions came back into the economy.
MR. GREGORY: OK, we're not--hold on, we're not going to, we're not going to resolve this piece . What I'd like to do is provide some daylight here about this plan with regard to getting lending.
REP. FRANK: I don't know exactly what it is. I will say this, there's a real difference here--there's a split within the Republican Party here...(unintelligible)...Representative Pence. They believe that nothing should be done, let the market basically do--except...
SEN. ENSIGN: That's not true.
REP. PENCE: That's not true.
SEN. ENSIGN: That's, that's not true.
REP. FRANK: I--what's the interruption? Because as you guys say things I disagree with...
REP. PENCE: Well, when you misrepresent me, I'll interrupt you.
SEN. ENSIGN: Barney, you're talking more than anybody on this show.
REP. FRANK: Excuse me.
MR. GREGORY: All right, make--finish your point, and then I want to move on to something else.
REP. FRANK: I'd like to be able to.
SEN. McCASKILL: Easy, guys, easy.
REP. FRANK: Well, no, Claire, you know, I understand why you don't want to defend any foreign--you don't want me to talk about foreign companies going overseas, making their profits and bringing it back for no taxes for the second time.
But the point is this. The Bush administration said, "Here's the money," to the banks, "We will put no constraints on you, we'll let you compensate the way you want, we won't tell you to lend, we won't do anything about foreclosure." What we are talking about is some way of saying to the banks, "Unfortunately, you made mistakes, we have to help you some. We will help you get rid of some of the bad assets. We, the federal government, will take some paper back so that if this works and you become more profitable, we will get compensated. But we will have to share some of the risk if we're going to get private capital back in."
MR. GREGORY: All right, I want to finish here in our--just a couple minutes left with what the administration admits were some self-inflicted wounds this week. I'm talking about the failed nomination of Tom Daschle to run health care policy and run Health and Human Services, that department. He sat down with Brian Williams this week and said this, taking the blame. Listen.
PRES. OBAMA: I'm here on television saying I screwed up. And that's--part of the era of responsibility is not never making mistakes, it's owning up to them and trying to make sure you don't repeat them. And that's what we intend to do.
MR. GREGORY: Here's what Steve Pearlstein wrote in The Washington Post, business columnist, about all of this: "Tom Daschle's problem wasn't that he didn't pay his taxes. It was that he--along with those who vetted his nomination as health and human services secretary and many of his colleagues in the Senate--found it perfectly ordinary and acceptable that he would be able to cash in on his time in the Senate by earning more than $5 million over two years as a law-firm rainmaker, equity fundraiser, corporate director and luncheon speaker, all the while being driven around town in a chauffeured town car."
Senator McCaskill, has this been a wake-up call for Washington?
SEN. McCASKILL: Well, I think it's been a wake-up call in many ways. And I think one of the things that's refreshing, and one of the reasons President Obama is, is going to win the hearts of the American people continually is that he looked in the camera and said he screwed up. That doesn't happen very often. And by the way, this is in the same week that he appointed a very fiscal conservative Republican as secretary of Commerce. I don't know when the last time was that happened around Washington. This is a guy who's going to be very disciplined, as president of the United States, about reaching out to all points of view and admitting mistakes when he makes them. And frankly, that's just what the doctor ordered in Washington.
MR. GREGORY: But he, but he, but he wanted to--him to fight for his nomination before it got too hot politically.
SEN. McCASKILL: Well, I think, I think he knew what Tom Daschle was capable of bringing to the table in terms of this area of public policy. And you always weigh the good and the bad. And I think he saw so much of the good that he made a mistake and didn't realize how much the bad was going to drag the administration when they got to get this economy going again.
MR. GREGORY: Senator, larger point here for Washington on what's acceptable?
SEN. ENSIGN: Well, it's not just--I mean, first of all, we're leaders. We're supposed to pay our taxes, we're supposed to obey the laws. But also, I think through your larger point about this almost incestuous nature of Washington, D.C. When people leave the Senate, leave the House, leave the administration and then make all this money basically--I mean, he's being paid $2 million by a lobbying firm, and that's not a lobbyist? I mean, there's just something wrong. I mean, there--you can't believe how many relatives of senators and, and congressmen are lobbyists. And, and, and that whole...
SEN. McCASKILL: On both sides.
SEN. ENSIGN: On both sides, absolutely. No, there's, there's a lot wrong. The American people need to have more trust in what we do in Washington, D.C. And, and today there's no wonder that they don't trust us, because they see so much of this kind of thing that was brought out with Tom Daschle going on. And it is, it is both sides, and it needs to be cleaned up.
MR. GREGORY: Congressman Frank, how do you fix it?
REP. FRANK: Well, the last chauffeured town car I drove in, David, was this morning when you sent one to pick me up. I don't usually do it. But--and the week before was with Stephanopoulos sent one.
MR. GREGORY: Right. Yeah.
REP. FRANK: But I do...
MR. GREGORY: We want to make sure you got here and--yeah.
REP. FRANK: I, I appreciate it. I just wanted to know...
SEN. McCASKILL: Mine was a hybrid.
REP. FRANK: In case I'm accused of being a--well, I don't know what kind of car it was, to be honest with you. I got in the backseat with the paper.
SEN. ENSIGN: I drove my own car.
MR. GREGORY: But seriously, how do you change this? Because a lot of people--you know, you've got the president who's out there castigating Wall Street, you brought up the issue of compensation, you've brought up the issue of compensation very strongly, and yet this kind of thing happens in Washington.
REP. FRANK: Well, you change it by the voters being tougher. Frankly, I think that part of the problem is the voters. You know, nobody in the Senate--well, a couple in the Senate, but nobody in the House parachuted in. And the voters have to be tougher. I don't think they hold us to a high enough standard.
MR. GREGORY: Before I let you go, do you think the government will ask for more money for additional money for the banks? Will they actually ask Congress for more beyond the $350 billion that's in the bailout fund?
REP. FRANK: They probably will. But if they haven't been able to get the banks to lend more, restrict excessive compensation and help deal with foreclosure in a reasonable way, they're not going to get it.
MR. GREGORY: OK.
REP. FRANK: And I've made that very clear to the, to the Obama administration.
MR. GREGORY: We are going to leave it there. Thank you very much for a spirited debate this morning, to all of you.
Coming next, our presidential leadership series continues. We'll look at the challenges the new president will face in both Afghanistan and Iraq. Washington Post senior Pentagon correspondent and author of the new book "The Gamble" will share his reporting and analysis.
MR. GREGORY: The rough road ahead in Iraq and Afghanistan, after this brief station break.
MR. GREGORY: And we're back and joined by Tom Ricks for his first interview on his new book "The Gamble: General David Petraeus and the American Military Adventure in Iraq, 2006 through 2008."
Welcome back to MEET THE PRESS.
MR. TOM RICKS: Thank you.
MR. GREGORY: This was the first book, "Fiasco," about Iraq. It speaks for itself. And just to hold it up, this is the new book. It is "The Gamble." And here was something striking that you wrote from this book, looking forward now to President Obama and his leadership test: "2009 could prove to be a particularly difficult year in the war. `In many ways, the entire war was a huge gamble, risking America's future power and prestige on a war that, at best, is likely to be inconclusive,' commented Shawn Brimley, a former Canadian infantry officer who became a defense analyst at the Center for a New American Security. He predicted that Bush's gamble will force Obama into a series of his own gambles and trade-offs--between the war and domestic needs, between Iraq and Afghanistan, between his political base and his military. In sum, the first year of Obama's war promises to be tougher for America's leaders and military than was the last year of Bush's war." How so?
MR. RICKS: I think a lot of people back here incorrectly think the war is over. What I say in this book is that we may be only halfway through this thing. In fact, my favorite line in the book is the last line. Ambassador Crocker, a very thoughtful diplomat, says that the events for which the Iraq war will be remembered have not yet happened.
MR. GREGORY: That is an amazing statement. And a lot of people have to be listening to that, thinking, "Well, what's the other shoe to drop, then?"
MR. RICKS: There's a whole lot of shoes out there. A whole lot of shoes to be thrown, actually. This, this year we're in now, '09, is going to be, I think, a, a surprisingly tough year. You've got a series of elections in Iraq. Meanwhile, you've got American troops declining. General Odierno says in the book that the really dangerous withdrawals come at the end of this year. We're doing the easy troop withdrawals now, but down the road you start taking them out of areas that aren't so secure, that aren't so safe, that you're, that you're worried about. So they're going to be holding national elections in Iraq just when we have fewer troops there.
MR. GREGORY: Mm-hmm.
MR. RICKS: And finally, none of the basic problems that the surge was meant to solve have been solved. All of the basic issues facing Iraq are still there.
MR. GREGORY: You suggested--while the administration has said the surge was successful, undeniably violence has gone down, you suggested kick the can down the road. What do you mean?
MR. RICKS: Well, basically the surge succeeded military, failed politically. And that was its purpose; not just to improve security, but to create a political breathing space in which national reconciliation, in which major change could occur in Iraq that hasn't changed. What General Odierno says in the book--he's the U.S. commander there now. What Odierno says is that Iraqis, many of them use the breathing space we created to step backwards, to become more sectarian. They've become more divided.
MR. GREGORY: The issue of troops is what everybody's focused on, certainly politically, when troops come home. This is what President Obama said before he was president, on the campaign trail. This is October 2007.
(Videotape, October 27, 2007)
PRES. OBAMA: I will promise you this, that if we have not gotten our troops out by the time I am president, it is the first thing I will do. I will get our troops home, we will bring an end to this war. You can take that to the bank.
MR. GREGORY: And yet by July of 2008 on the campaign trail, he spoke about it somewhat differently.
(Videotape, July 3, 2008)
PRES. OBAMA: My 16-month timeline, if you examine everything that I've said, was always premised on making sure that our troops were safe. And my guiding approach continues to be that we've got to make sure that our troops are safe and that Iraq is stable.
MR. GREGORY: You write in the book that Obama will be torn between what his supporters expect and what his generals advise.
MR. RICKS: I think that's right, and I think we may see a confrontation between Obama and the generals by the end of this year. American voters, many of them, think we're going to be out of Iraq in 16 months; when he talks about having combat troops out of Iraq, that somehow no more Americans troops will die. Well, the news flash for Obama here is there are not such thing as noncombat troops. We don't have a pacifist wing of the U.S. military. All our troops are ready for combat. We're going to have American troops fighting and dying there for many years to come. What General Odierno says in the book is he would like to see 35,000 American troops there in 2015.
MR. GREGORY: In 2015.
MR. RICKS: Yeah. So, which means that Obama's war in Iraq may be longer than Bush's war in Iraq. So bottom line here, I think Iraq is going to change Obama more than Obama changes Iraq.
MR. GREGORY: Where are troop levels now?
MR. RICKS: We're about 155,000.
MR. GREGORY: And when do we get to that bottom-out level of 30, 35,000 that Odierno's talking about?
MR. RICKS: Well, that's going to be the fight all year long. When do you come down? How fast do you come down? Do you come down a brigade a month, as Obama indicated on the campaign trail? Or do you plateau it out this year and then bring it down early 2010? No matter when you do it, though, you're going to come to a point where the generals are going to say, "You know, this is not something I really want to do here. This is dangerous. We're taking troops out of a place where things are going to start breaking loose."
MR. GREGORY: But that's the question, which is how much danger do Americans face? Because what you write in the book about the surge is that it was the first time that Iraqis took the lead in this war effort. If U.S. troops are there, but they are not in harm's way in the same manner than they've been before, perhaps Americans can live with that long-term commitment. Do you expect that'll be the case?
MR. RICKS: If you're in Iraq, you're in harm's way, first of all. The second thing is I think people here--and this is a major theme of the book--people here don't understand quite how tough the surge was. Those first six months of 2007 were the hardest six months of the war, and it was a near-rung thing. The generals who were there were not confident it was going to succeed. There were several months there--April, May, June 2007--where U.S. casualties are increasing, no signs of success. So one of the last things they want to do is roll the dice again and say, "Sure, you know, it might not--it might blow up in our faces, but let's try it." No, they feel they have made huge sacrifices, that they have had friends die and sons bleed, and that they don't want to throw that all away on the--you know, because some guy said on the campaign trail, "We're going to get all these guys out."
MR. GREGORY: Let's talk about the legacy of this war as best we can determine it now. This is what you write about the outcome: "Nor, at the end of many more years of struggle, is the outcome likely to be something Americans recognize as victory. Instead these additional years of sacrifice promise to be made for markedly limited objectives. A senior intelligence officer in Iraq describes the long-term American goal as, `A stable Iraq that is unified, at peace with its neighbors, and is able to police its internal affairs, so it isn't a sanctuary for al-Qaeda. Preferably a friend to us, but it doesn't have to be.' He paused, then pointedly noted that this list doesn't include democracy or the observation of human rights."
MR. RICKS: This is an opinion you'll find the closer you get to Baghdad. Nobody there really--nobody Americans, that I see, really expect this place to be a stable democracy anytime soon.
MR. GREGORY: And yet this was the major rationale for this war. After weapons of mass destruction, which were not found.
MR. RICKS: But don't forget that what happened when Petraeus and the people around him were put in, essentially the dissidents were put in charge of the war. Ambassador Crocker reveals in this book that he was essentially opposed to the American invasion of Iraq. A lot of the people who have been running the war for the last two years really thought this was a bad idea or had been badly executed.
MR. GREGORY: And yet President Bush, during exit interviews, stood by the war, stood by the surge. But he also said this about the rationale for removing Saddam Hussein: "You put in the middle of the Middle East a man rich with oil who sponsored terror, who had the capacity to make a nuclear weapon, combined with Iran--it's conceivable you'd have a nuclear arms race in the Middle East now. ... I argue vociferously that the Middle East is better off without Saddam Hussein."
MR. RICKS: Let me tell my worry about that. We have a bunch of Iraqi generals out there who are not in any way people who subscribe to our values. The fewer American troops we have there, the more they can behave the way they want to. And what you're going to see is a lot of little new little Saddams. The difference is there are Saddams. You're going to see situations, probably, where Iraqi forces don't like a village, and so they just shoot artillery into it. These are not things the American military does. But if you don't have American military around to stop it, that's going to happen. You're going to have Iraqi generals try to use American airpower to call in airstrikes on people they don't like. You're going to see politics waged violently, but we're going to have less control of the situation. So my worry is that the end of all this you have a bunch of new little strong men. The difference is, we trained and armed them.
MR. GREGORY: You talk about that relationship with the military, and this is going to be important. When--it was back in July of '08 when Senator Obama went with a couple of other senators for his first meeting with General Petraeus in Iraq. And here he is, he's getting off the helicopter and first seeing him. This was a rather contentious exchange, wasn't it?
MR. RICKS: It is. And it is one of my favorite moments in the book. Here you have Petraeus and Obama, who are in many ways similar guys; lean, smart, tough, ambitious, more reserved than a lot of their peers. And they actually agree on a lot of where Iraq should be, of lowering our, our sights there and, and our goals. But the meeting in Baghdad was surprisingly contentious. It goes on for about 90 minutes, and essentially the general lectures Obama. And this feeling was, "I've been to your hearings. You guys have beat up on me. You kept on asking me questions and didn't give me time to answer. Now you're on my turf." And what should have been really a general with a candidate conversation became a 90 minute lecture by Petraeus: "Let me tell you about Iraq, fellow."
MR. GREGORY: Interesting. Who in the region won the war in Iraq, do you think?
MR. RICKS: If you had to call the ball right now, Iran, I think, is probably the biggest winner.
MR. GREGORY: Yeah.
MR. RICKS: You're seeing an extension of Iranian influence into Iraq that you haven't had in the past. Iran has become a much greater power since the American invasion of Iraq. Iran has--is--has its fingers throughout the Iraqi government. This is something that General Odierno mentioned several months ago and got in some trouble for, for talking about so publicly. Iran really does worry me in, in this situation.
MR. GREGORY: Let me talk about Afghanistan. This is the other big leadership test for this new president and his national security team. He's talked about surge in Afghanistan, going from 30,000 to 60,000 troops. Vice President Biden was at a security conference in Munich over the weekend, talked about a new plan for Afghanistan. Here's a portion of what he said.
VICE PRES. JOE BIDEN: The result must be a comprehensive strategy for which we all take responsibility; that brings together our civilian and military resources that prevents terrorists a safe haven, that helps the Afghan people develop the capacity to secure their own future.
MR. GREGORY: So what are the biggest challenges he faces now in Afghanistan?
MR. RICKS: Well, I think the first thing is to recognize that it's not really a war in Afghanistan, it's a war in Afghanistan and Pakistan. As a friend of mine said, it's hard to win a war in Afghanistan when the enemy wants to fight it in the next country over, Pakistan.
MR. GREGORY: Right. And that's the Taliban fighting and winning battles in Pakistan. This is where we went to war to take them out of power.
MR. RICKS: And that's very scary. And our supply lines through Pakistan are being challenged. Bridges are being blown up, American convoys are being attacked. So I think the first thing that Obama will do is begin to look at it as an Afghan-Pakistan war, in which Pakistan is really the more important factor. We could lose in Afghanistan. It would be unhappy, but not, you know, terrible for us. If you lose Pakistan, you end up having the mujahideen, Islamic extremists, with nuclear weapons. And that was a major al-Qaeda goal that we really do not want to see happen. I don't think that Newsweek got it quite right the other day when they referred to Afghanistan as potentially Obama's Vietnam. I think potentially Obama's Vietnam is Pakistan.
MR. GREGORY: And what should he consider doing about that?
MR. RICKS: I think it's the problem from hell. It is a nightmare, and I have no idea how you actually solve it. I think what you might try to do for several years is contain it, manage it to the--in the sense...
MR. GREGORY: With U.S. troops in the border areas going into Pakistan at times, if necessary?
MR. RICKS: U.S. troops on Pakistani ground is a really difficult problem. We've had some people go in and out quietly. But large, no, you don't want to, you don't want to do that. You've got to wind up using the Pakistani military in some way to solve this problem. But the Pakistani military, in many cases, is the problem. You have a lot of al-Qaeda and Taliban sympathizers wearing Pakistani military uniforms.
MR. GREGORY: One of the things that was done reasonably successfully in Iraq under General Petraeus was actually negotiating with some insurgents in western Iraq. Should the U.S. consider talking, having some contact with the Taliban?
MR. RICKS: It's funny you should mention that, because I think what people in this country don't recognize is Petraeus basically put the Sunni insurgency on the American payroll. And I think it's a great idea. If you can pay somebody not to kill you, fine. Baghdad government didn't much like it, because they felt we were basically arriving at a separate peace with their enemies. So yeah, I think you'll see Petraeus trying to talk to the Taliban to find more reconcilable, more moderate elements, and also to empower tribes against the extremists; to go to sheiks and say, "Look, you know, these extremists are going after you, too. Isn't there some way we could find of living together?" The other think I think you'll see is less emphasis on Karzai...
MR. GREGORY: Mm-hmm.
MR. RICKS: ...and the Kabul government, and more emphasis on the promises--tribes and so on.
MR. GREGORY: All right, Tom Ricks. The book is "The Gamble." Good luck with it, and thank you for being here and sharing your views.
MR. RICKS: You're welcome.
MR. GREGORY: We will leave it there, but we're going to continue our discussion and ask some of your questions that you submitted online in our MEET THE PRESS Take Two Web extra. It's going to be posted on our Web site this afternoon. You can also read excerpts of "The Gamble," all online at mtp.msnbc.com. We'll be right back.
MR. GREGORY: That's all for today. Watch NBC and MSNBC tomorrow for full coverage of President Obama's first prime-time news conference. It's at 8 PM Eastern time. We'll be back next week. If it's Sunday, it's MEET THE PRESS.