Debating the financial meltdown
On Tuesday night in the second presidential debate, John McCain announced for the first time that he supported the idea that the federal government should buy up all the bad mortgages at the root of the financial crisis. Senior Editor Paul Jay moderates a discussion between Conn Carroll and Danny Schechter on what exactly is meant by this proposal.
PAUL JAY, SENIOR EDITOR, TRNN: At a moment where we’re facing perhaps the worst financial crisis since the Great Depression, John McCain and Barack Obama held the second debate of their presidential campaign. To discuss the economic visions provided by the two candidates during the debate is Conn Carroll, assistant director for the Heritage Foundation’s Center for Media and Public Policy, and he serves as editor for the think tank’s policy blog, The Foundry. Conn joins us from Washington. And joining us from New York City is Danny Schechter, a producer/journalist for mediachannel.org and author of the recent book Plunder: Investigating Our Economic Calamity and the Subprime Scandal, which deals directly with tonight’s subject—and that book came out before the crash of Lehman brothers. Welcome, gentlemen. Conn, let’s jump right to the debate. Did John McCain provide answers that satisfied you about what he would do to deal with the current economic crisis?
CONN CARROLL, EDITOR, HERITAGE FOUNDATION POLICY BLOG: Well, I don’t think it satisfied me as a conservative, but I think they were more substantive than what Barack Obama had to say. The biggest news of the night—and it really is news—was John McCain coming out in favor of Henry Paulson buying up people’s mortgages so that the federal government could then rework them and keep people in their homes. This is very similar to an idea that Hillary Clinton recently pushed forward in a Wall Street Journal op-ed last week. So it’s something that he would not get past a Republican Congress, but if there were a president McCain, it’s something he definitely could sell to Democrats, and I was surprised Barack Obama didn’t respond to it.
JAY: And as a conservative, what do you make of it as a plan? And what do you make of his economic vision now that this looks like it’s going to be the centerpiece of his economics for the rest of the campaign?
CARROLL: Narrowly, on just that point, it’s something that conservatives are not very happy about. They do not want the federal government becoming a landlord for millions of Americans, you know, many of which don’t deserve the help to begin with, because they couldn’t afford the homes to begin with, or they’re buying condos as investment properties and other homes that they could flip. These are just not the type of people that the federal government should be helping out.
JAY: As a conservative, how would you think McCain will pay for this plan?
CARROLL: Oh, well, I would assume he’s going to pay for it with the $700 billion that Congress already authorized. I mean, that was pretty much a blank check to Henry Paulson, and if Henry wanted to, there’s not a lot stopping him from going ahead and going through with McCain’s plan.
JAY: Danny, what did you make? We’re starting with McCain’s policy, and then we’ll move to Obama. What did you make of McCain’s economic vision here?
DANNY SCHECHTER, AUTHOR AND EDITOR OF MEDIACHANNEL.ORG: First of all, I thought it was preposterous, first of all, the so-called bailout or rescue or stabilization plan envisioned buying up bad debt from banks to pump liquidity into the credit markets to get the credit markets going again. It wasn’t to buy up people’s home mortgages. In fact, there was very little in the plan to really help people. It’s interesting that here the Heritage Foundation is sort of endorsing this while there’s a private sector initiative underway by Countrywide Financial, by Citibank, Bank of America, and others who are proposing to modify loans. There’s a settlement in 11 states where these people have to now work with the mortgage owners, the borrowers, to try to restructure their loans to make them more affordable. That’s not going to cost the government anything, necessarily.
CARROLL: Can I just stop Danny right there? Heritage does not support McCain’s plan. I think Danny and I are on the same page here. He’s right: Heritage definitely supports the Countrywide working this [inaudible]. That’s the path conservatives should want. You know, Paul’s question was, "What do you think of McCain’s plan?" I said as a conservative we’re against it. So I don’t know where Danny’s disagreeing with me here.
SCHECHTER: Well, what I’m basically saying is this idea that was floated tonight, the headline of buying up all the mortgages is coming completely out of right field or left field—I don’t know what field. But I don’t think it’s going to go anywhere, personally.
CARROLL: But it’s out of left field—Hillary Clinton proposed the same plan last week.
JAY: But one thing, Conn, you said—.
SCHECHTER: [inaudible] Barack Obama saying that John McCain sounds like Jesse Jackson. I think what we have here is a need to, like, strip away some of the ideological labeling here and look concretely at the policy proposals. Are they workable? Can they work? It’s not just conservatives that want to do loan modifications. Organizations like NACA, the Neighborhood Assistance Corporation of America, and advocacy groups like ACORN, even, have been fighting for this for a long time to get the banks to recognize some responsibility for mortgages that they profited on, that they sold to people that they knew could not afford those loans.
CARROLL: Yeah, I’m going to have to agree with Danny again. You know, the Bush administration has had a program called [inaudible]
JAY: Danny—let Conn in, Danny. Go ahead, Conn. But, Conn, let me just ask one thing first.
CARROLL: Sure. Sure.
JAY: Danny’s response—like, I asked you how he’s going to pay for this, and you said from the $700 billion. But Danny’s response was that $700 billion was meant to buy up toxic debt from banks so you could reintroduce liquidity in banks and get the banking system going again. So if McCain’s saying, no, let’s not use the money for that, let’s go directly and put it into giving people money to pay for their mortgages and renegotiate their mortgages, then are you not left with a liquidity problem, which was what McCain supposedly voted for when he voted for the $700 billion?
CARROLL: Oh. No, you’re right: it doesn’t solve the immediate liquidity problem or the credit crunch. He’s definitely trying to go for more of a longer-term solution than, you know, just getting us out of the credit crunch for the next two months. You know, that’s undeniable.
JAY: So, for those of you who are watching the debate so far, you may not know, but we’ve actually just stopped the debate for about twenty minutes because we had a bit of a technical meltdown, and for reasons beyond our control we actually can’t continue the debate. So still with us is Conn Carroll in Washington, and I’m going to continue to interview Conn, and then you’ll see in another segment a continuation of an interview with Danny Schechter from New York. So, Conn, here’s where we were at in the debate before we had our own breakdown, not financial—technical crisis. I was asking you, I don’t understand how John McCain can vote for and rally his Republican troops in Congress to support a bill which is meant to give liquidity to the banking system. The purpose of the bill and everyone’s understanding of the bill is clearly to pick up this toxic debt and make sure the banking system / financial system doesn’t fall apart. And some of the people who voted against this bill actually were asking for a different bill that would use the money to actually allow people to keep their homes and have the money go directly to homeowners that are about to be foreclosed on. So I don’t see how John McCain can use the same money. If he’s talking about a plan to directly finance people about to lose houses, he’s got to be talking about a different, new packet of money.
CARROLL: No. I mean, you know, you talked about John McCain rallying the troops, his own party, to support the bill, and, you know, it just didn’t turn out that way. The majority of Republicans in the House voted against the package.
JAY: Oh, well, they didn’t listen to him, but McCain said on the debate tonight, "I suspended my campaign and I went back to Washington to rally support for this." I mean, the fact that most of his party didn’t listen to him is kind of another point.
CARROLL: Right. Right. No. But what my point was going to be is that a reason why, a big reason why a lot of the Republicans voted against that bill—and, you know, we talked about this last week. One of the big reasons that I had misgivings about it is the broad language within it, and that when you gave this power to secretary Paulson, it was a very broad power, and the same power that allows him to pick which assets he’s going to buy for liquidity, he’s going to be able to do the same ones, he’s going to be able to use that same pot of money to buy up mortgages.
JAY: Well, certainly McCain didn’t say that during the debate that that’s what he was intending.
CARROLL: I think that he said he would direct Paulson to spend that money in that way.
JAY: And so, in other words, not to save these financial institutions, not to buy docks of debt [sic], not to do everything they said they were going to do when they debated this in Congress.
CARROLL: I think McCain would argue that they’re going to try to do both, is that they’re going to try to speed money into the banks as quickly as possible, but then also buy up the troubled assets behind that are causing the problems to begin with.
JAY: Now, does this smell just a bit like a hail Mary pass, as they’ve been saying McCain is good at? He’s down in the polls—he had to come up with something. It doesn’t seem very thought out. If you’re suggesting he’s going to have a complete change of direction to Paulson, there’s no preparation for this in Congress in terms of opinion there?
CARROLL: No, no, there’s not. I mean, but, you know, the preparations as far as how Paulson’s going to buy up the bad assets is just beginning anyways. You know, he just set up a timeline to hire the money managers that are going to be doing the actual buying today. So no one was expecting to get this plan rolling for another, at minimum, two weeks anyways. I mean, but all this is kind of academic. I mean, you know, the election’s a month away. McCain wouldn’t even be inaugurated until January. And, hopefully, by that point much of the liquidity crunch would be solved. And then, I think, you know, the next president—. And, again, this is a big reason why a lot of conservatives in the House didn’t support this plan is that it did give a blank check to Paulson, once the liquidity crunch was solved, to then turn around and spend that same money, because after he buys the assets, he can then sell it, ’cause the $700 billion is only a limit.
JAY: Do you think the liquidity crunch is really going to be solved, given the way the markets and the economy is reacting?
CARROLL: Well, I mean, it’s going to be solved when confidence is restored. And once confidence is restored, yeah, it’s possible. But, you know, like I was saying, it’s kind of academic. I think your first point was right is that it is a hail Mary pass and that it’s not John McCain’s first. And, you know, for conservatives, we’re used to this. You know, like I said before, buying up these mortgages goes against many, many conservative principles. And it’s classic McCain. You know, he’s, you know, forcing tobacco companies to spend millions and millions of dollars on public health ads—isn’t a conservative principle that John McCain did that. Regulating political speech through campaign finance reform isn’t a conservative principle, but John McCain did that. This is just another in the long line of, you know, McCain being a maverick. When he says he’s a maverick, this is what he means.
JAY: Conservatives losing some of their newfound confidence in McCain? And I know a lot of conservatives were never all that enthused about him in the first place. But they seemed to jump on board, and now you start to see also, with the selection of Sarah Palin, you’re seeing some leading conservatives seem to jump off the McCain train.
CARROLL: No. You know, while we were having our technical difficulties, I hopped on my Blackberry and looked on The Corner, which is the blog for The National Review, just to see what the conservatives there were saying, and, yeah, a lot of them were hopping mad for the reasons I just laid out, that they do not think this is a good path for America, and they’re upset that there’s no real concern within the race to make the case for free market principles.
JAY: I was struck at the time, when that question came, "What would you ask Americans to sacrifice?" I didn’t think either candidate gave all that much a very inspiring an answer. But do you really believe, given the current situation, there’s any way that America—. I mean, if you really believe in a balanced budget, it also has to do with paying your own way; and doesn’t that mean in this kind of situation that in fact are going to have to be some higher taxes? You can’t just keep borrowing and printing money to solve the liquidity crisis.
CARROLL: Well, you know, I have to, you know, let the McCain campaign speak for themselves as far as [inaudible] how to balance their books. Barack Obama or John McCain don’t really have any answers as to how they’re actually going to balance the budget, and I agree with you that with this bailout that they’re not. Now, you know, conservatives will definitely want to see some pretty quick means-testing of Medicare and Social Security and a freezing on domestic spending, which John McCain did advocate. But, you know, those are paths which are not being chosen. There’s no real free-market advocate for conservatives to go for in this race.
JAY: And is there any feeling of distaste in the campaign that—not in the campaign but amongst conservatives that this McCain campaign seems to be willing to just say just about anything at this point? And it is smelling increasingly desperate.
CARROLL: Yeah. I mean, everyone was hoping—not everyone, but a lot of people were hoping that McCain would come out for a larger targeted tax cut maybe.
JAY: But hang on. Let me ask you about that. How can you have a larger tax cut in a situation of such incredible deficit? And, like, if you build liquidity and tax cut and you want to have the same level of military spending, I mean, how is this a conservative principle of balancing budgets?
CARROLL: Well, conservatives would also have a whole list of spending cuts they want. I mentioned before that, you know, means-testing Medicare and Social Security would already get you a long ways away there, not to mention cutting many unnecessary programs in the Department of Education, etcetera. There’s a spending side to it that definitely needs to be addressed.
JAY: But what’s more important? Balancing the budget or never paying taxes? I mean, why has this no-taxpaying become like a religious principle?
CARROLL: Well, I don’t know if you’d call it a religious principle, but it’s definitely a conservative principle to keep governments small.
JAY: No, but you don’t keep government small. None of the conservative—Reagan certainly didn’t keep government small; Bush certainly didn’t keep government small. It just moves spending from one area to another. But you know as well as I do, in the Reagan administration was left with a bigger deficit and a bigger government expenditure, and they just moved it from one areas into more in military and other areas. It’s never been about less spending.
CARROLL: Well, I’m going to partially disagree with you there. Yes, Reagan did raise defense spending, but he did a great job of cutting discretionary domestic spending.
JAY: No, he did, but in terms of overall spending, we didn’t end up with smaller government in an absolute way.
CARROLL: Not counting defense, we did.
JAY: No. But why do you not count defense?
CARROLL: If you don’t count defense. But you’re right: more recently, George W. Bush has done an absolutely terrible job on the domestic spending front, and he has far outspent his father, who also vastly increased spending. And actually, you know, when you look back, if people go to The Foundry and look up our charts and graphs, you’ll see that Reagan did a great job at decreasing domestic spending. Clinton actually did an okay job. But the two Bushes did a terrible job, and the government on the domestic side ballooned under both of them.
JAY: Yeah, I know. But you make this artificial division—not artificial, but you make a division: it’s okay to leave the military budget the way it is, and that’s another religious principle. So you can’t cut taxes, you can’t touch the military, but it’s okay to slash domestic spending. But if the real object is smaller government, then you’ve also got to take on the military side.
CARROLL: Well, it depends what you mean by, you know, smaller government. When classic libertarians, you know, Hayek, Friedman, they all recognize that defense, the common defense, which is, you know, in the first line of the Constitution, is a proper government role, whereas, you know, the government becoming a landlord for millions of Americans isn’t. So it’s those issues that conservatives [are] concerned more about, the size of government, because defense is something that we all benefit from is one of the government functions that they should be doing.
JAY: Well, we’ll get you in a conversation with Chalmers Johnson. And there’s a lot of conservatives that think that the military-industrial complex budget is just as bloated and corrupt as anything else one could talk about, and perhaps more.
CARROLL: Well, and John McCain agrees with you there. You know, he says there’s lots of contracting abuse that goes on in the defense budget.
JAY: Well, Conn, let’s pick this up again later, in a week or a week and a half, and we’ll see where the campaign’s at.
CARROLL: Okay. Hopefully we’ll be able to talk about something other than bailouts.
JAY: Yeah, I hope so, but I doubt it. Thanks a lot for joining us.
Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.