RENEE MONTAGNE, host:
It's not so surprising that a cover story on Forbes magazine is titled "How Capitalism Will Save Us." What's intriguing is that the author is Steve Forbes himself. He's the multimillionaire publisher who twice ran for the Republican presidential nomination as a champion of a flat tax. Now he's special economic adviser to John McCain. And in his article, Forbes slams the Federal Reserve and the Bush administration for weakening the dollar. He charges the Securities and Exchange Commission and Congress with misguided regulation. And the government-sponsored mortgage companies Fannie Mae and Freddie Mac, Forbes says they inflated the housing bubble. In fact, he puts nearly all of the blame for the financial crisis on the government. But when I spoke to Forbes yesterday, he did have some harsh words for the investors who peddled subprime mortgages.
Mr. STEVE FORBES (President & CEO, Forbes; Editor in Chief, Forbes Magazine): Wall Street went berserk. They became gluttonous, greedy, packaging all this stuff together because they could get big fees for it. The rating agencies put AAA on it because, after all, housing prices everyone knew always went up. It was written somewhere in the Constitution that they had to go up each year.
MONTAGNE: So much for the causes, Steve Forbes also offers a prescription for restoring the country to economic health.
In your article you continue to advocate a flat tax, which you have for a long time. We have not heard Senator McCain talk about this. Have you been trying to get him to promote a flat tax?
Mr. FORBES: He's got a variation of it. It's two rates instead of one. And I'm hoping that in the remaining week and a half of the campaign, he'll put it in the forefront. It's part of his package of proposals. And I think it would resonate very well with the voters, especially as they're looking for, OK, where do we go from here? We know we're in a recession. Fourth quarter's going to be tough. First part of next year's going to be tough. How do we get in a position to start growing next spring? Because growth is essential. If we don't get growth in the latter part of next year, then this is going to be a very, very difficult situation. If you start to get some growth, we can work our way out of these severe problems.
MONTAGNE: Now, you see a different role for the Federal Reserve. Why don't you lay out for us what you think it should do and why?
Mr. FORBES: I think when this crisis starts to ease, the Fed should have only two tasks. One is make the dollar strong and stable. And two, deal with financial panics. And if they get the dollar part right, financial panic should be rare indeed. Focus on the dollar. Leave everything else to other agencies.
MONTAGNE: So in effect you're talking about reversing what Fed Chair Alan Greenspan spent years creating.
Mr. FORBES: Well, I think that the idea that the Fed can play a positive role in guiding a $13 trillion economy is just on the face of it preposterous. They're always going to be reacting to data and trends that are already out there, and it's like turning a - not just a supertanker, but a double, triple supertanker. By the time the Fed gets around to it, the ship has already changed course. And every time they try to manipulate the value of money or interest rates for trying to guide the economy, they always end up being disruptive.
MONTAGNE: Although you also say that you feel pretty comfortable with the current direction of this bailout. And I'm just curious since the theory here is capitalism will save us, how does buying AIG or shares in U.S. big banks, how can it be defined as capitalism?
Mr. FORBES: Well, I think the Fed and the Treasury, the government, finally got it right. AIG, the way they did it was wrong. What they're doing now is just buying five percent preferred stock, repair the balance sheets. And by the way, give credit where credit is due. It wasn't the U.S. that came up with this idea. It was the British who said this is the way to deal with the crisis. And now the rest of the world is following suit, including the U.S. In an emergency, you take emergency steps.
MONTAGNE: And emergency steps could include, in this case, could you not call it partial nationalization?
Mr. FORBES: You would certainly - whatever you want to call it, the government has a temporary big role. The government helped create the crisis. The government can step in and help solve the crisis.
Mr. FORBES: It's not a choice between total control and anarchy. You do need rules of the road. But you have to have sensible rules of the road so that people - the traffic can move ahead instead of always crashing into each other.
MONTAGNE: Steve Forbes, thank you very much.
Mr. FORBES: Renee, thank you.
MONTAGNE: Steve Forbes is president and CEO of Forbes, also an economic adviser to John McCain. His cover story in Forbes comes out tomorrow. It's called, "How Capitalism Will Save Us."