Meet the Press, NBC, March 29, 2009 (Video Link and Transcript)

8/14/2019 Meet the Press, NBC, March 29, 2009 (Video Link and Transcript)

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Meet the Press, March 29, 2009

The economic crisis and the President's plan to shore up thebanking system: In his first live Sunday morning interview, we

speak with the man charged with heading up the effort, TreasurySecretary Tim Geithner. Plus, an exclusive interview on theeconomy and foreign policy with President Obama's former rivalfor the White House, Sen. John McCain (R-AZ).

MR. DAVID GREGORY: Our issues this Sunday: Crisis management at theWhite House.

(Videotape)

PRES. BARACK OBAMA: It took many years and many failures to lead us here,and it will take many months and many different solutions to lead us out.

(End videotape)

MR. GREGORY: At the height of a global recession, the administration unveils adetailed plan to shore up the country's financial system and get the banks lendingagain.

(Videotape)

SEC'Y TIMOTHY GEITHNER: To address this will require comprehensivereform. Not modest repairs at the margin, but new rules of the game.

(End videotape)

MR. GREGORY: With us this morning, in his first live Sunday morning interview,the man at the helm of the administration's efforts to combat the recession and savethe banking system, the secretary of the Treasury, Timothy Geithner.

Then, a leading Republican voice in the Senate, the GOP's presidential candidate in2008 and their ranking member of the Senate Armed Services Committee, Senator John McCain of Arizona. What does President Obama's former opponent think of the bank rescue plan and the president's new strategy in Afghanistan? We'll ask him in an exclusive interview. Geithner and McCain, only on MEET THE PRESS.



But first, here live is Treasury Secretary Timothy Geithner.

Welcome to MEET THE PRESS.

SEC'Y GEITHNER: Thank you, David. Good to be here.

MR. GREGORY: Thank you. I want to start with some basic terms here. Can youexplain as simply as you can why increasing bank lending is so important to theeconomy?

SEC'Y GEITHNER: Absolutely, David. Economies require banks because theyrequire credit. Credit is like the blood, it's like the oxygen of any economy. Andfor us to get the economy growing again, we need to make sure there's going to becredit available to businesses and families across the country so that businesses canmeet payroll, so that they can expand, so that families can put their kids throughcollege, can borrow to finance purchase of a car or a new house. That's, that's whyfinancial systems matter, and there is now way to get this economy back on track unless we have a financial system that's working with the recovery rather thanagainst recovery.

MR. GREGORY: My mother out in California, I presume, is watching thismorning. She's like a lot of Americans, worried about her job and wondering whynot just bank lending, but something called nonbank lending, securitization--whatis that, and why does that matter to her?

SEC'Y GEITHNER: We, we came through a period where people borrowed toomuch and we let our financial system take on much too much risk. And theconsequences of those choices, made over years, were--was a huge boom. Andthat boom--the air is now coming out of that, and that's causing enormous damage.And financial crises are, are brutally indiscriminate in the pain they--and sufferingthey cause. The burden falls not just on people who took too much risk, but on

people who were careful and responsible in their business. That's why it's sounfair. That's why Americans are so frustrated and angry And that's why it's soimportant that your government act very aggressively to help contain the damage.

MR. GREGORY: But I want to go back to what--I want to understand the termshere. What is securitization, and why does that matter?

SEC'Y GEITHNER: In our system we have banks--community banks, large banks,small banks--that provide credit to businesses and families. But in our markets wealso have these securitization markets where--which, which match investors



directly with borrowers through the capital markets. We need both those to work.Both are not doing enough now. They're not working, doing the kind of job theyneed to do to get credit going again. And so to fix this mess we're in, the mess weinherited, need to make sure banks are strong enough...

MR. GREGORY: Right.

SEC'Y GEITHNER: ...but we also need to make sure these credit markets areworking again.

MR. GREGORY: And let me--on that point, on the nonbank lending, thesecuritization market is where actually most of the lending goes on right now. Isthat right?

SEC'Y GEITHNER: Well, well, typically in, in our financial system, somewhatless than half of lending for businesses and consumers comes from those markets.So we need to get those markets going again just as we need to fix our bankingsystem. And the programs we put in place are already having some effect inhelping unfreeze those markets. So just as an example, last week the Fedannounced--the Fed put in place a program with the Treasury, very powerful

program that led to about $9 billion in new issuance of automobile loans and creditcard loans. That was more than you saw in the past four months combined.

MR. GREGORY: Mm-hmm.

SEC'Y GEITHNER: That will help bring down interest rates and, again, make iteasier for people to get access to the credit they need to get through this.

MR. GREGORY: All right, we've defined our terms a little bit, now let's talk aboutthe big news this week, your plan to help save the banks. The bank stabilization

plan. We've come up with an example here and we'll role-play a little bit, because Ithink this is the easiest way to explain this. So here's how a transaction wouldwork. Bank USA, we're calling it, has a loan, a toxic asset, and it's valued on their

books for $100 million. And it's for sale, right? So there's going to be an auctionhere and investors like me could come in, and I'm going to come in and I've got--my highest bid is for $70 million, OK? That's the price for the $100 million loanthat I'm actually going to pay. Now, here's how the transaction actually works,right? I'm the investor, I put in $5 million. You, the Treasury Department--you'rereally the taxpayer--put in $5 million, and then the government in the form of theFDIC is going to provide 60 million at very good terms, going to guarantee that



loan. So the government's on a hook for a lot of this. That's called leverage,right? How does it work and what's the upside?

SEC'Y GEITHNER: David, let me just step back for one second. Part of what's,what's causing this problem in our financial system is banks made a bunch of badloans, many of them backed by real estate; residential, commercial real estate.Those loans are now sitting on the books of the financial system and they're takingup room, preventing banks from extending new credit on the scale they need. Andwe have two choices in this context. We can leave it as it is, hope banks will earntheir way out of this process over time, and I am certain that will create the risk of a deeper, longer recession. Again, the classic lesson in financial crises, if governments wait to act, they wait too late and that means more damage to theeconomy, higher deficit in the future, greater cost to the taxpayer. We're not

prepared to take that approach.

Another approach many people advocate is that the government itself come in...

MR. GREGORY: Right.

SEC'Y GEITHNER: ...and buy these assets, take on all the risk itself. Thegovernment would set a price for the assets and bear all the losses and all the costsin that context. Our judgment is that would be much more expensive for thetaxpayer, create much greater risk for the taxpayer, and we're not prepared to takethat approach.

MR. GREGORY: And the point in our model, if we can just put that slide upagain, where you see investor puts in five million, Treasury puts in five million, theFDIC guarantees it at $60 million in terms of providing the loan. There's upsidethere. In other words, if the value of that loan goes up, the taxpayer wins, theinvestor wins.

SEC'Y GEITHNER: Right. The investors are taking risk. Their money is at risk and at stake. They're the ones that set the price for which this transactions will take

place. So using their self-interest to get the price better, better than what thegovernment would do in that context.

MR. GREGORY: Right.

SEC'Y GEITHNER: We're using their expertise to help manage these assets. Andthe--and as you said, the taxpayer will share in the upside. This is a relativelyconservative structure. It's not very different from when your family buys a



house. It's a more conservative structure than a bank typically operates. But thekey thing is it allows the government to work with the private investor to help getthrough this crisis.

MR. GREGORY: Hm.

SEC'Y GEITHNER: That we don't want the government taking on all the risk andall the losses.

MR. GREGORY: Right.

SEC'Y GEITHNER: We need to work with the private sector to help get this, getthis recovery going again.

MR. GREGORY: All right, but here's the key point. The investor presumably ison board because, you know, they stand to gain a lot. The government wants to getall of these toxic assets off the banks' balance sheets. It's been estimated between$1.5 and $3 trillion of bad stuff out there. But will the banks participate? Andhere's my question based on our example. Hundred million dollar loan, but theauction price is $70 million. Well, if you're the bank and you say, "Hey, wait aminute. This is really worth $90 million or $80 million. I'm not going to sell thatfor $70 million and take that loss on my books." Are you going make them sell?

SEC'Y GEITHNER: Banks already hold reserves against that $100 million. So

the gap is not between 100 and 70, for example, it's a narrower gap. Now, banksare going to have an incentive because they want to raise, go raise private capitalfrom the markets. And it's going to be easier for them to do that if they can showtheir investors a cleaner balance sheet. And that'll help improve the incentive for

banks to participate.

MR. GREGORY: But you can't make them sell, can you?

SEC'Y GEITHNER: Well, you can make it compelling and economic for them tosell. And again, if you think about the markets today, if you had to sell your house

tomorrow, in a market where no one can get a mortgage, then the price you wouldget if you sold in that market would be a tiny fraction of its basic value in a morenormal. And our markets are not working today. People, in effect, in thesesecurities markets, can't raise financing. And there is a very good case in thatcontext for the government to provide financing on appropriate terms to help

provide a market for these assets. And by doing that, we're going to make it more



likely that interest rates come down and, and the financial system has the capacityto provide the credit, the oxygen.


SEC'Y GEITHNER: That economies need to grow.

MR. GREGORY: Isn't the government on the hook here for a lot of risk? Isn'tthere a lot more risk here for the government than there is for that investor?

SEC'Y GEITHNER: David, the choice we face is whether to have the governmenttake on all the risk in solving this, which we don't want to do. So if you comparethis to the classic alternative, which is again, the government sits back, hopes themarket solves this, which would be much more damaging to the economy, or thegovernment takes on all the risk, buys all the assets itself, makes up a price, wouldrisk overpaying, provide a much greater subsidy, this proposal is a much better approach to solving this problem.

MR. GREGORY: Paul Krugman, Nobel laureate, New York Times columnist, been very critical of this plan. He and others have said this is effectively a transfer of wealth from the banks' balance sheets to the government's balance sheets. A

bailout for the banks, trash for cash. You've heard all of these terms. And in fact,Krugman writes in a column last Sunday that your approach is very similar to your

predecessor's in the Bush administration, Hank Paulson. This is what he writes. I

want to have you respond to it: "The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks' books are really worth much,much more than anyone is currently willing to pay for them. In fact, their truevalue is so high that if they were properly priced, banks wouldn't be in trouble.And so the plan is to use taxpayer funds to drive the prices of bad assets up to `fair'levels. Mr. Paulson proposed having the government buy the assets directly. Mr.Geithner instead proposes a complicated scheme in which the government lendsmoney to private investors, who then use the money to buy the stuff. ... TheGeithner scheme would offer a one-way bet: if asset values go up, the investors

profit, but if they go down," and again, these are all mortgage backed, "theinvestors can walk away from their debt. So this isn't really about letting marketswork. It's just an indirect, disguised way to subsidize purchases of bad assets."Respond, please.

SEC'Y GEITHNER: David, the investor's money is at risk. They can lose all their money. Now, again, you have to compare these to the alternatives. In thealternative scheme the government, in our view, would be taking on much more



risk. The taxpayer will be much more exposed to losses. Life's about choices.Life's about alternatives. This is a better way to help get these markets workingagain.

But let me just step back for one sec. What we're trying to do is to get the entirefinancial system, our complicated finances working again so that we get creditwhere it needs to go in the economy. And that requires strengthening our bankingsystem. It requires making sure there is enough capital in the financial system towithstand a deeper recession. And we're going to make sure that that capital comeswith conditions to make sure that banks restructure, that there's accountability for

board and management, that the firms emerge stronger, not weaker, and that thereare tough conditions to protect the taxpayer. That is a critical part of what we'regoing to do.

But our, our system is much more--depends on more than just banks, and so wehave to do things to get these markets working again by providing financingdirectly to those markets that small business, consumers depend on. And, and, butit's going to require a comprehensive approach. This particular proposal is notgoing to solve all our problems, but it is a critical part of the solution and we think it's the best approach to protect the taxpayer and make sure that the market isworking with us.

Now, just, just one more thing. We're not going to get through this unless we geta--willing to take risk again. You know, the financials took too much risk. Thegreat danger for us now is they're going to take too little risk, they're not going totake a chance on a viable business or a family that wants to put their kids throughcollege. So we need to get them working with us in this context. And of course,for them to take risk they're going to need to have more confidence about what therules of the game are going forward, that there's clarity about conditions and theydon't face the risk of great uncertainty about those conditions going forward.

MR. GREGORY: And to that point, are you this morning providing a guarantee tothose investors that the rules of the games will not change? If they make money inthese transactions, that Congress won't try to go get their gains and change therules?

SEC'Y GEITHNER: We have to do that or they won't come. And it's a simple proposition. Again, for these, all these programs to work, all these programs towork...

MR. GREGORY: So the rules of this, of this program won't change?



SEC'Y GEITHNER: No, they cannot change.

MR. GREGORY: Will the banks need more money?

SEC'Y GEITHNER: We have a substantial amount of resources that Congress hasauthorized. We're moving forward to use those resources as quickly as we can toget them where they need in the economy. Just to give you an example, the

president's housing program, which was the first major initiative we launched after I laid out that broad framework for financial recovery, has had a big effect workingwith the Fed and bringing interest rates down to historic lows, making--allowingmillions of Americans who were not able to refinance to refinance. Just to giveyou a simple example, typical American lives in a house that's worth roughly$180,000. Refinance in this environment could save up to $2,000 a year. That's asubstantial amount of resource that they can use to spend on things that will help

get this economy going again. Where we are acting, you're seeing progress andimpact.

MR. GREGORY: I want to turn to the issue of anger on Wall Street and those AIG bonuses. The president said a couple of weeks ago this:

(Videotape, March 18, 2009)

PRES. OBAMA: I don't want to quell anger. I think people are right to be angry.I'm angry.

(End videotape)

MR. GREGORY: You shared--you said in a letter, you shared the president'soutrage, and yet the reality is that these bonuses first came to light back in October of 2008. You were still at the New York Fed. They were also the subject of hundreds of e-mails between Treasury and the Fed and AIG during the transitionand when you came into office. In fact, the Treasury Department even negotiatedwith Senator Dodd with regard to executive compensation when the TreasuryDepartment said, "No, no, don't have this deal with retroactive bonuses. We can'tabrogate those contracts." So if you were so outraged about all of this, why didn'tyou deal with this back when these first came up?

SEC'Y GEITHNER: David, how could people not be angry with this? With thechallenges we're facing now as a country in part because of risks our financialsector took on, how could people not be angry? But our obligation and our deepobligation responsibility is, again, to try to fix this problem so that the trauma in



the financial system is not causing more damage to the lives and fortunes of Americans and businesses across the country. That's the most important thing wedo. Everything we do has to be judged by the test of whether we're getting theeconomy going again and recover...

MR. GREGORY: Well, and that's all fair. But if you were so outraged, why didn'tyou say that then? Instead, you said, "I was outraged and we should try to get thismoney back." The government knew about these bonuses several months ago.

SEC'Y GEITHNER: Look, we had no good choices in that context, David. Thesewere contracts written before the government got involved, before Ed Liddy

became CEO of AIG.


SEC'Y GEITHNER: We're a nation of laws. We cannot get the economy goingagain if there's an expectation the government's going to come in and break contracts. Just not a tenable thing to do. But what we did is--and we had no goodchoices, David--was when, when I was informed about the details of those

provisions, we moved very quickly to ask that they--those that could berenegotiated get renegotiated, the government get those--or reduce those paymentsgoing forward. And we're going to use the authority we have to go recoup those

payments where we have a good legal basis for doing that. And you've already--we're seeing a lot of those payments returned. But the important thing is going

forward that we establish clear conditions, clear rules of the game, prevent thiskind of compensation practice in the future from coming back and putting our system at risk. And we want to make sure that where the government is putting upassistance for these, for these banks, that that assistance is going to get lendinggoing again...

MR. GREGORY: Right.

SEC'Y GEITHNER: ...not to enrich the people that helped get us in this mess.

MR. GREGORY: But, but my question is, is this: If you thought this was sooutrageous at the time, why didn't you put this on the agenda then? And if you feltthat you didn't have any good choices, that you really couldn't dissolve thosecontracts, then when it came to light, why didn't you and the president stand up andsay, "This populist anger is understandable, but you have to understand it has to be

put in context and it has to stop"?



SEC'Y GEITHNER: Well, that--but that's what the president did say. And again,we're trying to make sure that people understand...

MR. GREGORY: The president said, "We shouldn't govern in anger," and then hesaid, "Yes, I'm angry, too. I don't want to quell the anger." You said this wasoutrageous.

SEC'Y GEITHNER: But...

MR. GREGORY: Did anybody stand up and say, "Let's put this in context. Wedidn't have good choices. This is not worth getting so upset about"?

SEC'Y GEITHNER: But, but, as you've seen the president say over the course of the week, the most important thing is we recognize that of course we don't want toreward failure and we don't want the government assistance going to rewardfailure, but we need to make sure we get this economy on--back on track. That'sgoing to require the financial system getting fixed and repaired. Of course we'regoing to put strong conditions on the compensation...(unintelligible). Remember,the first--the second week in office, the president put out very, very broad,ambitious standards on compensation practice. That was before the Congressacted. He was a--took early initiative in this area because we knew this was goingto be a significant problem.

MR. GREGORY: Let me turn to the issue of staffing at the Treasury Department.

The president nominated you back on November 24th. He understood the priorityof having a Treasury secretary in place to deal with this recession. And yet here weare at this date in March, and if you go to your own Web site on treasury.gov, theonly confirmed Treasury official is you, the secretary of the Treasury. TheEconomist writes this in its issue this week: "Filling senior department jobs isalways a torturous business in America, but Mr. Obama has made it harder byinsisting on a level of scrutiny far beyond anything previously attempted. Gettingthe Treasury team in place ought to have been his first priority." I know there weresome new nominations just this weekend. Has it been a priority?

SEC'Y GEITHNER: Absolutely, David. And, and we've had some terrificallytalented, dedicated public servants working at the Treasury from day one. Andlook at what we've done in this period of time. I mean, you have seen thisgovernment do more in eight weeks most governments do in years. We're movingmuch more aggressively, much more pre-emptively. Look at the scale of programswe enacted and look at the impact they're having. You have not seen this scale of action before in this country or many countries. And even this week we laid out a



set of broad, comprehensive reforms to help make sure that our financial systemnever goes through this kind of crisis again. We're moving very quickly. We'vegot some very strong, talented people.

MR. GREGORY: Right.

SEC'Y GEITHNER: We announced some new appointees this week.

MR. GREGORY: But in terms of confirmed people in the Treasury Department,what's gone wrong? Is it the vetting standards? Is it that you don't want to work with people from Wall Street?

SEC'Y GEITHNER: Confirmation process always takes time. It always takestime. People, people forget when you look back at transitions how long it takes toget people in office. But we've got no choice but to act. And again, we've beendoing a huge amount of important, productive, consequential programs in a short

period of time because we've got terrific people there working with me for the president to help get this economy back on track.

MR. GREGORY: Do you want people with expertise on Wall Street to come work for you?

SEC'Y GEITHNER: We need people who have experience in policy, in markets,in banking, in supervision, and we're going to get terrifically talented people to

come work for the country. Because again, I think Americans know we're at amoment of crisis and opportunity, and, and if you...

MR. GREGORY: So Wall Street people don't have a taint in your book?

SEC'Y GEITHNER: No. We're, we're going to make sure we take people--we get people with experience, as I said, in markets and in banking.


SEC'Y GEITHNER: Not just in policy. Because that's what's going, that's whatit's going to take. You know, we're trying to protect the interest of the taxpayer.That requires people that have knowledge and expertise.

MR. GREGORY: A couple of more moments here. I want you to take a momentto explain the government regulation that you are proposing, which is veryaggressive going forward. How would this work?



SEC'Y GEITHNER: Core thing is to make sure that the institutions at the center of our financial system are subject to much more conservative, much tougher requirements on capital and leverage that are applied more evenly and moreeffectively, frankly. We need to make sure that hedge funds and derivatives comewithin a framework of oversight so we protect the system from the risks they may

present. And we need to make sure the government has the authority it needs tocome in more quickly, to help contain the damage, restructure the system, so wecan have a stronger system going forward.

MR. GREGORY: But is the government really capable of moving in on companiesthat may need it? Does the government have the level of expertise to unwindsomething like AIG's financial products division? You're having your own

problems even staffing up the Treasury Department. Isn't that a lot to, to ask theAmerican people to support?

SEC'Y GEITHNER: But, but there's no choice. I mean, how--what would you,what would you prefer, that we live with the kind of choices we saw in Lehman,AIG? Catastrophic damage, or the government putting huge amounts of taxpayer dollars at risk to help and contain that damage? We need a better model. Whatwe're proposing to do is use a model that exists for small banks that was designed

by the Congress in the wake of the S&L crisis, build on that model and give thegovernment a capacity to act more quickly, more effectively to contain the damageat least risk to the taxpayer and the economy as a whole.

MR. GREGORY: Time magazine this week has its cover, and it's very interesting.I want to put it up on the screen for our viewers to see. "The End of Excess: Whythe crisis is good for America." And there's a big red "reset" button. And everybodytalks about reset. Obviously this is not a good crisis for America right now. Buttake a longer view. In the long run, is this crisis necessary for this economy?

SEC'Y GEITHNER: I think the adjustment to a period of excess is necessary. Younever, you never want to have a crisis to remind people of the importance of livingwithin your means, not borrowing too much or why regulation of the...(unintelligible)...is important. You never want to have a crisis that's damagingto make that point. But we're going to emerge stronger than this. When we getthrough this people are going to care less about what they make, more about whatthey do, what they achieve with what they make, and that will help make thiscountry stronger.



MR. GREGORY: Will the economy be fundamentally different? Will people ownfewer homes? I mean, home ownership, will that go down? Will consumptionchange? Will our lives change in a meaningful way?

SEC'Y GEITHNER: I think people will be living within their means more, whichis helpful. We want to have, you know, a stronger, more sustainable recovery. Nota recovery based on a artificial boom that's not going to be sustained. We need toend this, this, this pattern of having booms and busts at the kind of frequency we'veseen. That has to change. And that'll make the, that'll make this a better place tolive and a more productive economy going forward.

MR. GREGORY: Before you go, it's been a fairly bumpy ride for you so far.You've had Republicans calling for you to resign. Some on Wall Street havequestioned your effectiveness. Do you think at this stage you've been able to shore

up your credibility as not only a steward for economic policy, but as a spokesmanfor the president's policies?

SEC'Y GEITHNER: David, when I came into this job I knew two things. One is Iknew we were starting with a set of enormously complicated challenges and a deepsense of anger and frustration about the burden Americans were bearing because of a long period of excessive risk taking. And I knew we were going to face reallytough choices. We were going to have to do things that are going to be deeplyunpopular, hard to understand. We're not going to get it perfect everywhere. Butthis is a great privilege for me, a great honor to help this president do what it takesto help get this economy back on track. This job, it comes with a lot of heat bydefinition and there's nothing surprising in that. But we have a great moment of opportunity for this country and it is, again, a great privilege for me to be part of aneffort to try to make sure we put in place a stronger economy, stronger financialsystem for the future.

MR. GREGORY: Secretary Geithner, good luck with your very important work.

SEC'Y GEITHNER: Thank you. Nice to see you.

MR. GREGORY: Appreciate you being here.

Coming next...

(Videotape)



PRES. OBAMA: I want the American people to understand that we have a clear and focused goal: to disrupt, dismantle and defeat al-Qaeda in Pakistan andAfghanistan.

(End videotape)

MR. GREGORY: ...President Obama lays out his strategy in Afghanistan. We'llget reaction from his 2008 opponent on the way forward in that country; plus, histake on the economic crisis. An exclusive interview with Senator John McCaincoming up next here on MEET THE PRESS.

(Announcements)

MR. GREGORY: An exclusive interview with Senator John McCain after this brief station break.

(Announcements)

MR. GREGORY: Senator McCain, welcome back to MEET THE PRESS.

SEN. JOHN McCAIN (R-AZ): Thanks, David.

MR. GREGORY: Very, very nice to have you here.

SEN. McCAIN: Nice to be back.

MR. GREGORY: You just heard Secretary Geithner. What's your level of confidence in him?

SEN. McCAIN: Well, I have some confidence in him. I think he's very smart. AndI hope that this new plan--which, by the way, I thought was well-described...

MR. GREGORY: Good.

SEN. McCAIN: ...earlier--will work. My preference would have been to go inand, you know, with stress testing these banks and go ahead and sell off the--takethe toxic assets and sell them off, and then let the good asset banks continue. Butthis proposal, I hope it works. We all want it to work. But what I'm most worriedabout is laying a debt on future generations of Americans. The, the multitrillion-dollar debts, unprecedented debts that we are--we are committing generationaltheft. I'm confident that the economy will recover. The question is after it



recovers, what kind of a debt are we going to carry which will cause us to printmoney, inflation, and go through a worse wringing out than we went in the late1970s and early '80s?

MR. GREGORY: And I want to ask you specifically about the debt in just amoment.

SEN. McCAIN: Mm-hmm.

MR. GREGORY: But more generally, in terms of fixing of the economy, fixing thefinancial industry, if you look at all of the programs that the government has now

put in place, do you think they got the prescription right?

SEN. McCAIN: Well, I hope they do with this plan. I think the markets reactedwell. And I'm not an expert, but it seems to me that it gave us a little optimism thatthere was a plan that people could understand, that was coherent, that might lead usout of this mess that we are in. So there was a great deal of incoherency for a longtime, beginning with Secretary Paulson saying the TARP money would be usedto...


SEN. McCAIN: ...on the home loan mortgage crisis, and then switch to financialinstitutions. And it seemed that every few days there was a target du jour, and that

obviously eroded dramatically any confidence that Americans might have.MR. GREGORY: Do you think that the banks will need more government money,and would you be willing to support that?

SEN. McCAIN: I would not unless I certainly saw a way that it would not be usedthe--as the first TARP money was. I think that's the general opinion throughout theCongress on both sides of the aisle. There's got to be more transparency. Youdidn't ask him, but the secretary of Treasury I understand will not reveal is howmuch money is left in TARP 1. Don't you think the American people should know

that? There--we still don't have the transparency and oversight.

One other thing we need, we do need a select committee in Congress to look atwhat happened so people can--this train hit them without any knowledge. Theystill don't know what happened. Why did it happen? So then they would havesome more confidence on, in what actions we might take in the future to prevent itfrom happening again.



MR. GREGORY: And what is your take on the anger, the populist anger in thecountry? Do you think it's justified, or do you think it's been overblown? Has the

president showed leadership in standing up to it?

SEN. McCAIN: I think the president was trying to walk a careful line betweenreflecting public anger--which is all justified. It's all justified, ranging from theextreme of Madoff to just outright greed and people who knew better. So I think hewas trying to walk a fine line between rechanneling and reflecting anger, at thesame time not bashing people that are innocent. I think that, that what we need todo here is understand, too, that sometimes Congress overreacts. I share all thatanger. My constituents share that anger. It's, it's real, it's palpable and it's

justified. But bills of attainder, basically going back and taxing people for whatthey've already by contract earned or are going to earn, I think is a dangerouscourse of action as well.

MR. GREGORY: Let me ask you for your assessment of your former opponent inthe presidential race and now president, Obama. This is what you said on electionnight. Let's watch.

(Videotape, November 4, 2008)

SEN. McCAIN: I urge all Americans who supported me to join me in not justcongratulating him, but offering our next president our good will and earnest effortto find ways to come together, to find the necessary compromises to bridge our

differences.

(End videotape)

MR. GREGORY: Have Republicans heeded that call, and do you think PresidentObama has heeded that call?

SEN. McCAIN: I think neither side, perhaps, has done it as much as maybe weshould. But you establish an environment. Really, bipartisanship is sitting downacross a table from each other and negotiating, recognizing there's got to becompromise. And in all due respect to the incoming administration, the speaker said, "We won. We wrote the bill." There was never any serious negotiations over the stimulus package, over the omnibus spending bill. Now there doesn't seem to

be any on the budget. Those are all party line votes. There's not the negotiations.And I--look, I'll take blame on our side for maybe not being more forthcoming, butreally the president does beat the drum and sets the pace. And so far there has not

been not an instance where they sat down across the table and said, "OK, what do




SEN. McCAIN: I just went through a campaign, Mr. President, where bothcandidates promised change in Washington; promised change from the wasteful,disgraceful, corrupting practice of earmark, pork-barrel spending.

So what are we doing here? Not only business as usual, but an outrageous insult tothe American people.

(End videotape)

MR. GREGORY: You made it very clear, in that instance the president had not been true to his word.

SEN. McCAIN: The president said he'd go line by line over any appropriations bill and get rid of those that are unnecessary. All he had to do was veto that bill,send it back and say, "No more earmarks. None of this stuff now while theAmerican people can't keep their jobs, can't--don't have health care, all, all thechallenges we're facing." One point seven million dollars for pig odor research, onand on and on. But the practice--the reason why I sounded as upset and I am asupset, because it's not just wasteful spending, it's not everything I just said, it's alsocorruption. A senior staff member of the Appropriations Committee just pledguilty in federal court. A lobbying outfit was shut down and the FBI investigatedit. I mean, there's former members of Congress in federal prison. And we need it

now, we need the confidence and trust of the American people as never before.Instead, on this earmarking, pork-barrel spending, it's business as usual. Andsomeone will come on here and say, "It's only a small amount of money, only a few

billion dollars." I just don't buy that and I don't think Americans do, either.

MR. GREGORY: On the economy, I don't have to remind you, during thecampaign you said, as this financial crisis was really unraveling, as the economywas taking a dive, that the fundamentals of the economy were strong. You werecriticized as being out of it, not getting it, not understanding the economy. And yet

just a couple of weeks ago this was the president in the Oval Office. Watch.


PRES. OBAMA: If we are keeping focused on all the fundamentally soundaspects of our economy, then we're going to get through this. And I'm veryconfident about that.



(End videotape)

MR. GREGORY: What did you think when you saw that?

SEN. McCAIN: I think we're in agreement. I think what the president is sayingnow, and it's needed to be said to the American people, that we have the bestworkers, we're the most innovative, we're the most productive. We still have thefundamentals of a very strong economy. And we need some confidence to get, toget through this. We need--that's part of, of the recovery. So I'm glad we're inagreement.

MR. GREGORY: In the, the campaign, you think that criticism was unfair?

SEN. McCAIN: Life isn't fair. We all know that.

MR. GREGORY: Let's move on to the budget and the deficit picture that youreferenced just a moment ago. The Washington Examiner reported this this week:"Last week in a little-noticed conference call featuring Budget Director Peter Orszag...[Orszag was asked:] Are those deficits sustainable? Relenting, Orszag saidsuch deficits, in the range of 5 percent of the Gross Domestic Product, `would leadto rising debt-to-GDP ratios in a manner that would ultimately not be sustainable.'The simple version of that is: If the Congressional Budget Office projections arecorrect, we're headed for hell in a handbasket." How concerned are you that, withthe goals the administration has for spending on major programs, they're going to

have to raise taxes?

SEN. McCAIN: Well, that's always the inevitable result of increasing spendingand increasing the size of government. They've earmarked $634 billion for capand trade; by the way, a betrayal of everything I've ever believed in about cap andtrade, which I'm a supporter of. They, they have earmarked or budgeted for hundreds of billions of dollars in increases in spending in health care to bring downthe cost of health care. So my great worry, my great worry is the trillions. The $10trillion we already owe, the $1 trillion or $2 trillion that the Chinese now own. TheChinese comments about a world currency and their complaints about our fiscal

policies concern me. The--you know, there's only one thing worse than, than theChinese owning a lot of American debt, and that is Chinese stop buying Americandebt.

MR. GREGORY: Is that a real fear in your mind?



SEN. McCAIN: Oh, I think it's of a concern. I don't think in the short term. Butwe've got to get our fiscal house in order. We were talking about the party of saying no. Our proposal on the stimulus package was once this country reaches a 2

percent increase in GDP, inflation adjusted, then we'd be on an automatic spendingreduction path. We've got to get the spending under control. And the old lineabout deficits as far as the eye can see is, is now so large that it staggers theimagination. And it can't continue. No country can continue to do this.

MR. GREGORY: During his press conference on Tuesday, the president pushed back a bit.


MR. GREGORY: This is what he said.

(Videotape, Tuesday)

PRES. OBAMA: I suspect that some of those Republican critics have a shortmemory. Because as I recall, I'm inheriting a $1.3 trillion deficit, annual deficitfrom them. That would be point number one.

Now, none of us know exactly what's going to happen six or eight or 10 years fromnow. Here's what I do know. If we don't tackle energy, if we don't improve our education system, if we don't drive down the costs of health care, if we're not

making serious investments in science and technology and our infrastructure, thenwe won't grow 2.6 percent, we won't grow 2.2 percent. We won't grow.

(End videotape)

MR. GREGORY: The response?

SEN. McCAIN: Well, first of all, let me say he was inheriting about half of whathe described until we added the spending. Second of all, no...

MR. GREGORY: This new round of spending from, from last year.SEN. McCAIN: Yeah. No, no nation can spend this way and get out of it withoutdebasing the currency and us returning to a period that we had in the late '70s andthe early '80s where we had inflation, a high unemployment and higher taxes,

because it, it--you can't do it. And so I hope that the president's next objective will be to work on this deficit.



MR. GREGORY: Do you think that Republicans should provide a detailed budgetalternative?

SEN. McCAIN: Yes.

MR. GREGORY: With numbers?

SEN. McCAIN: Yes.

MR. GREGORY: Will that happen in the Senate?

SEN. McCAIN: We're working on it, working very hard on it.

MR. GREGORY: And the, the key elements of it would be what?

SEN. McCAIN: Well, obviously less spending, obviously more restraints,obviously not having $630 billion for "revenues from cap and trade." By the way,that's cap and tax, that's not cap and trade. The other spending restraint measuresthat would--that have to be taken. We'll, we'll--we're working on it very hard.

MR. GREGORY: Let me turn to the issue of Afghanistan. The president hasordered 17,000 additional forces to go to Afghanistan and announced on Friday4,000 additional, so a total of 21,000. Those 4,000 additional would specificallyhelp police and Afghan forces. This is the threat that the president described onFriday.

(Videotape, Friday)

PRES. OBAMA: The situation is increasingly perilous. Multiple intelligenceestimates have warned that al-Qaeda is actively planning attacks on the UnitedStates homeland from its safe haven in Pakistan. And if the Afghan governmentfalls to the Taliban or allows al-Qaeda to go unchallenged, that country will again

be a base for terrorists who want to kill as many of our people as they possibly can.

(End videotape)MR. GREGORY: Does this strategy have it right when it comes to preventing thatsort of outcome?

SEN. McCAIN: I believe so. As you know, and is well-known inside the Beltwayin this town, there was a big debate in the White House over--and the



administration--over a minimalist approach, send a few more troops, kill some badguys and then get out as quick as you can. I think this--the outlines of this

proposal are good. The best way to get out of Afghanistan fast is people to think we're staying. We have to more than double the size of the Afghan army. We haveto--I, I would have announced that 10,000 additional that have been requestedwould have been sent. There's several other changes.

MR. GREGORY: You think more troops are necessary, as you did in Iraq.

SEN. McCAIN: I know they are. I know they are. And the main thing I wouldhave done in that speech, I'm sorry to say, tell the American people it's going to belong and hard and tough. And as these additional troops come in and we move intothe south, which we do not have control of, the southern part of Afghanistan,there's going to be an increase in casualties. You've got to prepare the American

people for a significant expenditure of American blood and treasure. I think the president laid out the threat very well.

MR. GREGORY: How do you define victory in Afghanistan?

SEN. McCAIN: The same way as in Iraq. You have a governing place where al-Qaeda and other terrorist organizations cannot base attacks on the United Statesand other--and our allies. You have a government that functions ineffectively, but--I mean, with some effect. You have an economy that's growing. You have normaltrappings of emerging democracies as they move forward the difficult path towards

a free and prosperous nation. And this is complicated by Pakistan.


SEN. McCAIN: On the issue of Pakistan, we have to have a policy that's orientedto Pakistan, not Afghanistan. Pakistan's a nuclear-armed country. It's a hugecountry. It's an important country no matter what. And we can--we need to work with Pakistan as much as possible, cooperate in those border areas in the problemsand issues we all know about. But the fact that we may not get as much help fromPakistan as we want because of their internal dynamics does not mean, necessarily,we don't achieve success in Afghanistan. It does not mean that. It mean--we canstill succeed in Afghanistan and still have some of the difficulties that have inPakistan.

MR. GREGORY: It's been suggested that the Taliban, which is now reconstitutingitself primarily in Pakistan...



SEN. McCAIN: Yes.

MR. GREGORY: ...to launch attacks into Afghanistan, that one of the ways to dealwith them is to start negotiating with them...


MR. GREGORY: ...with those elements who are not as hard-core as, as other elements. The vice president suggested this, the president alluded to this andHamid Karzai is saying that that should be done.


MR. GREGORY: Is that the smart thing to do?

SEN. McCAIN: Well, it's a smart thing to do as long as you--as these people believe that you're not leaving and that you are not abandoning your goals asarticulated by the president. And by the way, we have problems with--in, in Iraq,and still do from Iran, from Syria. And we didn't invade those countries. We were,we were able to achieve a strategy of success with those problems remaining. Andthere's no direct analogies. There's always difference in circumstances. But I

believe that we can succeed. And the issue of Pakistan is vital not only because of Afghanistan, but because Pakistan is a nuclear-armed nation we--with tensionswith India, with all of the, the, the problems with democracy and corruption that

they have there as well. I think that Karzai's comments about the president's policycan be helpful.

MR. GREGORY: I want to move on to a couple of other topics, including one thathits very close to home for you as an Arizona senator, and that's this drug violenceon the border with Mexico. What is your assessment of the threat, and what shouldthe United States be doing about it?

SEN. McCAIN: I think it's an existential threat to the government of Mexico. Iapplaud President Calderon. He is the first president of Mexico to really take on

the drug cartels. The corruption level is very high there. The violence will spillover into the United States of America. It already has to some small degree. TheMerida Initiative of working and helping the Mexican government and lawenforcement has been succeeding, but it's a huge problem. It is--my hometown of Phoenix, Arizona, is now the kidnapping capital. That's got all to do with the drugcartels. These coyotes, these smugglers of illegal immigrants. And it, it argues for



us to work as closely as we can with the Mexicans, and that job is to secure our borders.

MR. GREGORY: Does that mean U.S. troops if necessary, National Guardtroops? What?

SEN. McCAIN: Both the, both the governor of Texas and the governor of Arizonahave asked for National Guard troops on the border. I think we need them.

MR. GREGORY: And what would they do?

SEN. McCAIN: I think they would help with enforcement. We simply don't haveenough now of boots on the ground. I think they would help with theenforcement. And obviously that would require additional training, but we couldgive it to them.

MR. GREGORY: I want to, in our couple minutes left, ask you about, as you look back on your 2008 campaign and think about the Republican Party, the future of the party. Mike Murphy, who of course worked for you in 2000 as a Republicanstrategist...


MR. GREGORY: ...was on the program on March 1st, and he talked about what

has to happen for the party. Listen to this.(Videotape, March 1, 2009)

MR. MIKE MURPHY: At the end of the day, here's the one statistic we all got toremember: The country's changing. Ronald Reagan won in 1980 with 51 percentof the vote. We all worship Ronald Reagan. But if that election had been heldwith the current demographics of America today, Ronald Reagan would havegotten 47 percent of the vote. The math is changing. Anglo vote's 74 percent now,not 89. And if we don't modernize conservatism, we're going to have a party of 25

percent of the vote going to Limbaugh rallies, enjoying every, every applause line,ripping the furniture up. We're going to be in permanent minority status.

(End videotape)

MR. GREGORY: Given that, assuming you agree, how does conservatismmodernize itself? How does the party get back to power?



SEN. McCAIN: The party of ideas, party of inclusiveness, outreach to other ethnicaspects of the American electorate; in my part of the country especially, Hispanicvoters. We have to recruit and elect Hispanics to office. We have to welcome newideas. And there are--you know, a lot of people complain about divisions withinthe Republican Party. That's good right now. Let's let a thousand flowers bloom.Let's have different clashes of ideas, sharing the same principles and goals. Look,if we were having this show in 1982, Republican Party was dead. 1994, theDemocratic Party was dead. Right now--there's, there's a great resilience inAmerican politics, and I have--I'm very optimistic about the future of theRepublican Party if we do the right things.

MR. GREGORY: Speaking about the Hispanic vote, would you like to work onimmigration policy with this president?

SEN. McCAIN: At any time I stand ready, but the president has to lead. The, theadministration has to lead with a proposal.

MR. GREGORY: Do you think they have that proposal, want to do that?

SEN. McCAIN: They have not come forward with one yet. They said that theyare going to--I understand the president met with the Hispanic Caucus and he saidhe would have some forums and, and other things.

MR. GREGORY: Right.

SEN. McCAIN: But they have not come forward with a proposal.

MR. GREGORY: In terms of future leaders of the Republican Party, would youlike to see Sarah Palin become president?

SEN. McCAIN: I'd like to see her compete. I think we've got some very goodcandidates: Jon Huntsman and--the problem when I run down these names, Ialways leave, leave out a, a name--Bobby Jindal, Tim Pawlenty. There's, there's somany. There's a lot of good, fresh talent out there.

MR. GREGORY: But would you support Palin?

SEN. McCAIN: Oh, I'd have to see who the candidates are and, and what thesituation is at the time. But have no doubt of my respect, admiration and love for Sarah and her family.



MR. GREGORY: This is your 54th appearance on MEET THE PRESS. Now, Iknow you're a competitive guy. Bob Dole still holds the record at 63. And sowe've been doing the calculations here. We think we can make this up, maybewithin a year's time.

SEN. McCAIN: I'd love...

MR. GREGORY: If you're game for that.

SEN. McCAIN: I'd love to try. Thank you, David.

MR. GREGORY: Senator McCain, thank you very much for being here.

We're going to continue our discussion online and ask Senator McCain somequestions that our viewers submitted via e-mail and Twitter, where he's very

popular. Watch our MEET THE PRESS Take Two Web extra. It's up thisafternoon on our Web site. Plus, look for updates from me throughout the week,all at mtp.msnbc.com.

And we'll be right back.

(Announcements)

MR. GREGORY: As we leave this morning, we remember Irving R. Levine, the bow-tied pioneer in network news coverage of economic issues; the first person toever cover that beat full-time for television. During his more than 40 years with

NBC News he appeared on this program 106 times. Here's one of his firstappearances on MEET THE PRESS in 1971, interviewing a very familiar face.

(Videotape, December 19, 1971)

MR. IRVING R. LEVINE: Mr. Rumsfeld, the dollar has just been devalued byabout 8 percent. As director of the Cost of Living Council, which has aresponsibility for keeping the cost of living down, what effect do you think the

devaluation will have on the cost of living of the average American?MR. DONALD RUMSFELD: I think the major effect that we'll see over a periodof time from the decisions that have been made recently are jobs in this country. Itseems clear to me that the fact that goods coming into this country will cost moreand goods leaving this country will be more competitive with foreign-made

products, that we will see, oh, it's estimated any, anywhere from a half a million



jobs to close to two-thirds of a million jobs result from the decisions have, thathave been made recently.

(End videotape)

MR. GREGORY: Irving R. Levine died Friday at the age of 86. His family is inour thoughts and our prayers.

That is all for today. We'll be back next Sunday. If it's Sunday, it's MEET THEPRESS.

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Meet the Press, NBC, March 29, 2009 (Video Link and Transcript)

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