RENEE MONTAGNE, host:
This is Morning Edition from NPR News. I'm Renee Montagne.
STEVE INSKEEP, host:
And I'm Steve Inskeep. Good morning. Let's dig a little more deeply into the presidential debate over the turmoil on Wall Street. Senator John McCain said yesterday the economy's fundamentals are strong. That drew criticism from Barack Obama, and McCain revised his remarks. That was the news yesterday. But McCain said a lot more. And we asked both campaigns to talk about the economy. This morning, we reached Senator McCain's economic adviser, Douglas Holtz-Eakin. McCain said yesterday that he favored regulatory reform and set everybody wondering what he means because he has said things like in March to The Wall Street Journal, I am fundamentally a deregulator. What is one specific additional control he wants to add now on Wall Street?
Mr. DOUGLAS HOLTZ-EAKIN (Chief Economic Adviser, McCain Campaign): Well, I think the goal would be to have a comprehensive regulatory reform so that every transaction, whether it's done in the commodity's future market, financial future's market, the stock market or bond market, if it has the same economic transaction, it should have the same regulation. We've got a patchwork of regulators right now, an alphabet soup, so to speak. And their transactions get treated differently. You know, obviously people will seek out the whole.
INSKEEP: Well, doesn't that mean that some people actually might end up being regulated less if you're going to make things uniform?
Mr. HOLTZ-EAKIN: We would expect that you'd have an efficient regulatory system. I think more and less is probably not the right way to think about this.
INSKEEP: Although it's the way that McCain has thought about it. He said, quote, "I am always for less regulation," although he is aware of the need for oversight he goes on to say in this interview in March in The Wall Street Journal.
Mr. HOLTZ-EAKIN: I would suggest that you look at his record in the Senate. He's been a balancing act. He's instinctively a person who finds concentrations of power threatening. If he identifies them, he will take those on whether they are in the government or in the private sector, so that it's not a matter of more or less regulations, it's making sure the playing field's level and everyone gets a fair chance.
INSKEEP: Concentrations of power, interesting concept, because you have fewer and fewer firms on Wall Street at this moment as firms collapse or get absorbed into other firms. Is Senator McCain concerned about that?
Mr. HOLTZ-EAKIN: What we're seeing on Wall Street is tough right now. But we're going to go through things as the market tries to identify those which have value, like Merrill Lynch which gets bought, those which frankly do not, Lehman Brothers which was unable to find a buyer. And until that happens, we're not going to see credit markets operate efficiently. You have to figure out who's solvent, who's not, and then get some capital into the system and begin to make loans again.
INSKEEP: But is the senator concerned about a few people ending up with a lot more power at the end of this?
Mr. HOLTZ-EAKIN: Obviously, you really - we've had a complete failure on a bipartisan basis, quite frankly - Democrats, Republicans alike - in allowing mass securitization and new exotic financial instruments really lead a lot of firms into bankruptcy, lead a lot of people into loans they couldn't handle.
INKEEP: Given that you say that it's a bipartisan failure, can you think of one occasion when Senator McCain has challenged the Bush administration's handling of this? One occasion.
Mr. HOLTZ-EAKIN: He has challenged the Bush administration in many ways. He asked for Fannie and Freddie reform in 2005. And it wasn't a priority of this administration. They quite frankly put it on the back burner. And now we see what we have. We have 5.6 trillion dollars worth of debt now explicitly backed by taxpayers when in the past it was only a vague promise. And that's unacceptable. And we can't do this. We're private individuals. Shareholders and management are making a pile of money at the taxpayer's expense. And he said very clearly that going forward, Fannie and Freddie are going to be smaller. In his view they should be downsized and then sold off. They belong in the private sector.
INSKEEP: Now let me ask also, because Senator McCain said he's going to stop big payouts to CEO's who've broken the public trust - that's a great line in a speech - but how on earth do you do that, especially as a Republican? You're going to tell CEO's they can earn less?
Mr. HOLTZ-EAKIN: There's a tremendous disinfecting impact of sunshine. And, you know, CEO pay ought to be very clearly displayed. You ought to know what all the cash and non-cash compensation is, what are all the perks, whether it's deferred or not. And then it should be put in front of the shareholders for a vote. He's always felt that if you really presented it to the shareholders, they'd start thinking, gee, that could be my money, or that could be money we plow into investment or research. And you'd see CEO's salaries get reined in quickly.
INSKEEP: Does Senator McCain believe that income inequality is a fundamental problem? Some people getting radically richer than others.
Mr. HOLTZ-EAKIN: We see a huge divide. It began in the 1980s in the United States, continued into the 1990s, and right now it's an issue as well. And the dividing line is education. Those with poor skills and low education do not succeed in this economy, and he's proposed to reform dramatically our K-12 education system so that we stop failing so many young Americans. It's...
INSKEEP: Got to stop you there, but thank you very much for taking the time this morning. I appreciate it.
Mr. HOLTZ-EAKIN: My pleasure.
INSKEEP: Douglas Holtz-Eakin is Senator John McCain's chief economic adviser, and we will be hearing from the Obama campaign in the coming days.