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NEAL CONAN, host:
This is Talk of the Nation. I'm Neal Conan in Washington. Before the House vote on the Bush-Paulson bailout bill, one of its leading supporters, Democrat Barney Frank, conceded many of us feel that the national interest requires us to do something which is in many ways unpopular, which is in many ways a wild understatement. Representatives and senators have been deluged with angry letters, calls and emails - corporate welfare, no banker left behind, un-American, unnecessary, profligate waste, a reward to the incompetent and culpable, and that's just a few. And right now, that's reflected in the high drama being played out on the floor of the House of Representatives. Leaders are holding the vote on the bill open to convince at least 11 voters, members of Congress, to change their vote. If they can't, the bill will be defeated.
When it appeared that the vote had - the bill had been defeated - this is one of those roller coaster drops on Wall Street - at one point it dropped about 500 points to 700 points down. Now that the realization is that the leaders of the floor of the House of Representatives are holding the vote open in an effort to twist some arms, it's back up to 400 points down. We're going to hear four opinions this hour, a holding is no supporter, critics from the right and left and a former Secretary of the Treasury - and we want to hear from you, briefly, please.
And we're talking about this bill that Congress is voting on, not alternatives. So, what's wrong with it, what's right with it - 800-989-8255 - email us, firstname.lastname@example.org. You can also join the conversation on our blog at npr.org/blogofthenation. Later in the program, conservative columnist Kathleen Parker joins us to argue that for the good of the party, the ticket and the country, Sarah Palin should resign as the Republican vice presidential nominee. But first, the bailout bill. And we begin with Robert Kuttner, founding co-editor of The American Prospect, who's in our bureau in New York. And Bob, thanks very much for coming in.
Mr. ROBERT KUTTNER (Founding Co-editor, The American Prospect, New York): Oh, thanks so much for having me.
CONAN: And I know that you've proposed a different approached yourself. But now, it's down to this bill. Is it worth voting for?
Mr. KUTTNER: Well, I think the Republicans are getting off the bus and they may be doing the Democrats a favor, because if this vote goes down, the Democrats may go back and do a more robust version of the bill that many of them really wanted to do, that is less tilted to Wall Street and more tilted to Main Street. The Republicans, for their part, are playing a much higher stakes game of poker here because even though the bill is extremely popular - unpopular, rather - with ordinary people, it's not clear what the Republicans have up their sleeves that would stabilize Wall Street.
So, I don't think - one other interesting piece of back story - according to my sources, the Republican leadership took the position that, OK, we've gotten the best compromise we can, but you rank and file Republican legislators are free to vote your conscience. And Nancy Pelosi took this as a double-cross, and then she said, well, we are not going to have this as Democrats entirely on our shoulders because we know it's unpopular, we know it's not guaranteed to work, and if this going to go through at all, it's going to have to be bipartisan. So, the Republicans had said that they would come up with 80 to 90 votes. They've only come up with 66. And the Democrats are now saying, this is going to have to be closer to 50-50 or we're going to let it go down and do it our way.
CONAN: And they've decided to hold this vote open, go on to other business in the meantime, while some arms are being turned in to pretzels - I suspect not just by the Democratic leadership, the Republican leadership, the White House is also making a lot of phone calls.
Mr. KUTTNER: Neal, let me also take just a moment and say what I think would be the right way to do this. I wrote this in my book "Obama's Challenge." And I think sooner or later, even if this bill goes through and ends up building half a bridge that the next Congress is going to have to come back and do it right. First of all, there needs to be direct government refinancing of home mortgages, which is what Roosevelt did during the New Deal with the Home Owners' Loan Corporation. That way you attack the problem at its root. You have trickle up rather than trickle down. If we can break the fall in housing prices and break the foreclosure epidemic, things will stabilize and the people who bought the bonds that are backed by mortgages will realize some number of cents on the dollar, but homeowners will benefit directly.
The other thing we need to do, also - taking a chapter from Roosevelt - in this case the Reconstruction Finance Corporation - is, instead of having government simply buy up toxic securities and get the toxic securities off the books of these banks, you need to get rid of the toxic executives. And some of these institutions need to be taken over, cleaned up, cleaned out. That's what the Swedes did when they faced a similar problem a decade and a half ago. It's what the Reconstruction Finance Corporation did. It's what the FDIC does. When the FDIC takes over a failed bank, they run it for a while, they clean up its balance sheet, they recapitalize it, and they change management and then they sell it off. And I think if the Republicans push this bill over a cliff, the Democrats may well go back and pass a more robust bill.
CONAN: But in the meantime, Bob, we're told, you know, we face the prospect of a financial Pearl Harbor.
Mr. KUTTNER: Well, we will have the stock market declining. And by the way, I'm not saying I hope this happens. I mean, I was prepared to say, look, this is the best we can get under the circumstances.
CONAN: Bob what I'm hearing from our editors here is that the vote is no longer being held up and the House has voted this bill down.
Mr. KUTTNER: Well, there you go. So now you're going to have a very interesting scenario. The Democrats are going to back and write their version of a bill. I'm also told that there are problems...
CONAN: Are they going to do it now? Aren't they going to go out and campaign for re-election?
Mr. KUTTNER: No, no, no. Because of what you just said a moment ago, that's true. This will be a financial Pearl Harbor unless Congress does something, so that you're now going to have a scramble to see which alternatives to this rescue would better serve Wall Street's interest and better serve the public's interest. And I am told by my sources that the White House is also preparing, as a fall back, its version of a Reconstruction Finance Corporation.
So, you've got this bizarre spectacle of seeing whether the Republicans can out-Roosevelt the Democrats. And - but you're quite right. One way or another there needs to be some kind of stopgap measure or you're going to see this downward spiral continue. And I think, frankly, the Republicans have been playing Russian roulette with the economy by not providing enough votes at a time when the Democrats were willing to take this risk and step up to the plate. You're going to see a lot of recriminations, a lot of finger pointing as to who did this. But you're also going to see a scramble to do something, because otherwise, you really are going to have financial Armageddon.
CONAN: Let's get some callers in on the conversation - 800-989-8255 - email us, email@example.com. And let's begin with Hugh, and Hugh's calling us from Oakland, California.
HUGH (Caller): Yes, hi. I'd just like to pass along that I agree and I was going to use the same expression. The Russian - I mean, the Republicans are playing Russian roulette with politics of the economy...
CONAN: Ninety-four Democrats voted against this, too.
HUGH: Well, now I totally agree. The Democrats should pass something that will be even better for main street. Remember that the whole reason we're here is that the Republicans failed to enforce existing regulations - which I'm amazed the executive branch can get away from their constitutional responsibility to do so. I've never hear a good explanation of that. But besides, the Republicans and Senator Phil Graham passed laws that failed to enforce many of these. But the bottom line is that, unless we see something that's good for Main Street, something needs to be passed. Otherwise, small businesses will fail to get loans and unemployment will be coming to your street and your block.
CONAN: Hugh, thanks very much for the call. Appreciate it. Let's go next to Cindy. And Cindy is with us from Grand Rapids, in Michigan.
CINDY (Caller): Hi. Thank you for taking my call.
CONAN: Go ahead, please.
CINDY (Caller): You know, I just got to say that there's two groups of people: the people who have these things and the people who don't have it. I'm one of those that don't have the ability to get loans. I don't have the ability to do anything more than going paycheck to paycheck. And I'm serious that my tax money is going to be going to help bailout these people that won't even give me the time a day. I just don't think it's fair.
CONAN: And what would be fair? I mean, a lot of people are going to have difficulties. We're told getting loans unless these - unless liquidity, that mysterious quality is injected back into the market to the tune of $700 billion.
CINDY: Well, that's the thing. We're going to have to do it. We're going to have to own up to all of this even if we're not ever going to be a part of the bigger system. And there's millions of Americans who are not going to be able to aspire higher than where they're at and yet we still have to help bail them out. I just - I don't think it's right and you know, obviously they should have done something different a long time ago but here we are.
CONAN: OK Cindy, Thanks very much.
CINDY: Thank you.
CONAN: And Bob Kuttner, we do seem to be at an extraordinary political moment. All of the leaders in the House and the Senate, the secretary of the Treasury, conservative Republican - a conservative-Republican president all said, look this has to be done and what we've seen is a prairie fire to borrow a phrase from 1970s, a prairie fire convinced a lot of members in the House of Representatives it would be political suicide to vote for this.
Mr. KUTTNER: I think that's right. And I think there are much better, much fairer ways of doing this. There are more pro-Main Street, not so pro Wall Street rescue homeowners and then have a trickle up rather than rescue Wall Street and have a trickle down. And the deal that the Democrats were willing to make with the Republicans, they knew that this was unpopular politics, they knew that it might not work and they knew that if this was mostly the Democrats bill and three weeks later, markets were still in turmoil, the Republican would be laughing all the way to Election Day. So they said, this has to be something close to a 50-50 deal.
And the Republicans could not produce more than about 66 Republicans to vote for it and it was something like almost three to one, Republicans voting against. It was a little closer to 50-50 on the Democratic side. And at that point, speaker Pelosi said I'm not going to whip my troops unless the Republican leadership whips their troops and that's how you got this stand-off.
CONAN: Nevertheless, it's a defeat for speaker of the House, Pelosi. It's a defeat for minority leader John Boehner who eventually came out in favor of it. And it's a defeat for the president of United States.
Mr. KUTTNER: Well, it also may be a defeat for a piece of legislation that was not the best way of doing this. And we may, even though Wall Street is going to shutter for a week, we may end up with better legislation, we may not. But if we don't get some legislation, then the crisis is going to be even more severe. But I mean, I don't think the blame here is symmetrical because I do think the Republican leadership, I know this for a fact said to their troops, you vote any way you want. And there was this prairie fire of opposition in the Republican rank and file that the leadership did not do very much about.
CONAN: Bob Kuttner, thanks very much for your time today.
Mr. KUTTNER: Thank you.
CONAN: Bob Kuttner, co-founder and co-editor of The American Prospect magazine. Author of the book "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency." There's a link to his op-ed on our blog at npr.org/blogofthenation. And he joined us from our bureau in New York. If you joined us late, the House has defeated the Paulson-Bush bailout bill. And we're going to be talking about that and getting reaction from others who oppose the bill and from a former treasury secretary too, the Dow Jones Industrial average on Wall Street down 492 points right now. You're listening to Talk of the Nation from NPR News.
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CONAN: This is Talk of the Nation, I'm Neal Conan in Washington. Just a few minutes ago, the House of Representatives defeated the Bush-Paulson bailout bill. Just 66 Republicans voted for the measure and 94 Democrats joined the majority of Republicans, the great majority to oppose it. Representative Barney Frank, the Democrat who's the chairman of the House Financial Services Committee, the banking committee said he will assess economic reaction before deciding the next legislative step on the bailout right now on Wall Street down 453 points. There was at one point a drop to 700 points down but that made some recovery. We're hearing different opinions on what happens now. What happens next is this a bill worth reviving. Joining us now is Nicole Gelinas, contributing editor for City Journal with us by phone from her office at the Manhattan Institute in New York. And nice to have you on the program today.
Ms. NICOLE GELINAS (Contributing Editor, City Journal): Good afternoon, Neal. It's nice to be on.
CONAN: And, I know you were opposed to this bill for many reasons, among them you thought it violated a lot basic American economic precept.
Ms. GELINAS: Sure. I think one principle that it violates is just that the government is now adding political risk and uncertainty to what's already going to be a long, painful process of recovery. And we can see that just over the markets being wedded to the outcome of this bill for going on two weeks now. There's no indication that anything in this bill adds more certainty to what needs to happen, and indeed, it just adds more uncertainty for example the first precept of the bill is to protect home values. Now, if you were a lender you might be thinking that home prices are still far too overvalued in most of the country including in the northeast. So anything that is trying to artificially push home values up might keep you from lending.
CONAN: Other people were afraid that basically it rewarded people who were incompetent and maybe even culpable to head to these big institutions in New York.
Ms. GELINAS: Sure. That's absolutely true. And that's another way that this could actually delay recovery rather than speed it up because this money that will go to order the purchase of these bad assets means that in many cases, institutions that should fail will be able to stay in business with their same old managements, kind of a hobbling along and institutions that didn't have these problems. And there are some would have to compete on unfair terms with these people who made such a disastrous private sector management mistake.
CONAN: When you've got a bill supported by - proposed by the secretary of the treasury, backed by the president of United States and Democratic and Republican leadership and such an important measure, they say we face an economic pearl harbor or something on this scale does not pass very, very soon. What does it say when it fails?
Ms. GELINAS: I think the bill may be irrelevant either way to whether or not it'll be safe in economic Pearl Harbor here. The fact of the matter is just as in the 1920s, you have a situation where banks and other financial institutions lend money based on over inflated asset values, back then they did it with stocks. Many people don't realize that it wasn't just that the stock market went up and crashed, it was that so many banks had lent money based on these values. And you have the same things today and there's no conceivable way that the government's can avoid the very real pain. We're most likely to have. The only way to avoid it would have been 10 years ago. It's already - it set in motion, we can do certain things to affect it but I don't think we can change the fundamentals of it very much.
CONAN: Nicole Gelinas, I hate to cut you off but we're going to have to go to Capitol Hill for some breaking news. But thanks very much for being with us.
Ms. GELINAS: Thank you.
CONAN: Nicole Gelinas, the contributing editor for City Journal with us by phone from her office at the Manhattan Institute in New York City. Let's go now to Capitol Hill, specifically to the Senate side, where NPR congressional corresponded David Welna joins us. David, hello.
DAVID WELNA: Hi, Neal.
CONAN: And well, quite a bit of drama there on the House floor.
WELNA: Quite a cataclysm. This is not the catastrophe that the people were predicting for the markets, but it is a catastrophe for the leadership in the house both Republican and Democratic. You had all of the leaders from both parties endorsing this bill and saying you know, vote against this bill and you're inviting disaster for the nation. Whatever price we pay for doing this bill would be far greater if we didn't do it and the response was twice as many Republicans voted against the bill as voted for it. And you had 94 Democrats voting against it as well and 141 voting for it. So, not even Democrats were buying the argument that this is something that has to be done for Main Street and is not being done for Wall Street. There were different reasonings given for voting against the bill depending on political orientations. But...
CONAN: Left and right. But let me ask you a question.
CONAN: If the president and the house minority leader John Boehner were urging Republicans to vote for the bill, does this not speak sadly of their political influence when twice as many Republicans decided to vote against it?
WELNA: Well, let's not forget that five weeks from tomorrow all the members of this chamber, of the House are facing reelection bids. And Republicans know that their association with Bush is pretty much a poison pill for getting reelected. And you heard many sort of declarations of independence from the White House from Republicans on the House floor today repudiating White House economic policy and by extension repudiating their own leadership. This really has given a lot of Republicans something to sort of run against saying I'm not that kind of a Republican. I'm a different Republican. And I think that was argument that really carried the day today.
CONAN: What happens next?
WELNA: Well, I think there is going to be an effort to get both some Republicans and some Democrats to change their positions. You only need 10 law makers to change their vote from no to yes to have the bill prevail but who's going to do that, who's going to be the sacrificial lamb? We don't know at this point and the other thing is that the House had planned to go out to day.
CONAN: Yeah. And if the finger pointing starts, it was their fault, their fault, their fault, that's going to be really hard to do.
WELNA: Yes. In fact, leaders today were trying to keep politics out of this thing, today we're not Democrats nor Republicans, we're just Americans and we're trying to do what's best for the nation. Already though, you're getting recriminations Barney Frank, the chairman of the House Financial Services Committee who really led the whole negotiation for this bill said afterwards that it was Republicans who were responsible for the feed of the bill so I think we're going to hear a lot of recriminations.
CONAN: Earlier, we had Bob Kuttner of The American prospect. He said what he was told was that Republicans were told they could vote any way they wanted.
WELNA: Well, the instructions last night from John Boehner, their leader was vote for this bill if your conscience allows you. That was really a green light for people to vote against it. And you know one of the things going on in the Republican caucus is that there's a struggle for leadership. And Boehner knew that he couldn't order people to vote for the bill or he would have let even worse as it was. So many of them didn't follow his lead but at least they weren't disobeying him by doing so.
CONAN: And Senate was supposed to vote on Wednesday. Who knows what's going to happen?
WELNA: Well, that's right. Tomorrow, everybody takes off because of the Jewish New Year holiday of Rosh HaShanah, but Wednesday the Senate had planned to be back. It wasn't clear whether they were going to vote on this bill had it passed the House. Right now, it's not clear what the House is going to do. There is a chance that they could be coming back on Wednesday or even after that to make another run at this. There's also a chance that they could take the bill and try to sweeten it and make it more attractive to people who voted against it. At least enough people to get it to pass next time.
CONAN: David Welna, thanks very much. I'm sure you got a lot of work to do. We appreciate your time.
WELNA: You're quite welcome.
CONAN: David Welna, NPR's congressional correspondent with us from the Senate side of the Capitol and who will be running back to the House side to do some more work. And of course, you'll get updates throughout the day on National Public Radio and tune in for the full story tonight on All Things Considered. Joining us now by phone is Lawrence Summers, professor at the Harvard's Kennedy School of Government, former secretary of the Treasury during the Clinton administration. And Lawrence Summers, nice of you to be with us today.
Professor LAWRENCE SUMMERS (Harvard's Kennedy School of Government; Former Secretary of Treasury): Glad to be with you.
CONAN: Is this - boy, what a stunner.
Prof. SUMMERS: It is a remarkable event that the president of the United States and his treasury secretary speaking of a national emergency cannot get even half of the members of their own party to support them on a matter than they've dealt, that they've labeled a matter of brave national importance. And it really shows what a difficult situation our politics is in at a moment when we're going to have to deal with a formidable economic crisis.
CONAN: Is it your opinion that something must be done?
Prof. SUMMERS: I don't think there's any question that one can't rely on the self correcting tendencies of this economic system. It's just span further and further out of control. There are various vicious cycles operating, institutions sell assets then the prices go down and they have less capital and they have to sell more assets and so forth. Finally there is a question that government has got to act. There are plenty questions one can ask about the design of the Paulson plan. I don't think any two people would've designed it in the same way but it was the plan that was out there that through its government we're going to seek to provide more confidence. And I don't think there's anything to be said in favor of its being voted down willy-nilly in the way that's taken place. We'll have to see how this all plays out now but I would be very surprised if there wasn't a need for further emergency measures. My hope would be that they have contingency plans, and that in the context of those contingency plans there'll be various ways for Federal Reserve to use a variety of authorities that it has to provide support to the market.
CONAN: Briefly, Secretary Summers, this was a - the stock market is down 531 points so overnight we saw some of the European - well, all the industries, I think lost nearly five percent that when you look at that number. This is a global situation.
Prof. SUMMERS: This is absolutely a global situation. Many of the mistakes that were made of allowing excessive leverage, of allowing housing bubbles to build up were global errors. There's also been transmission from the United States to the rest of the world. Look, we are at a point - you can discuss a lot of the technical details in this, the role of liquidity funds versus equity infusions and so forth. But here's the thing people have to understand. The time for teaching people lessons because they made mistakes in the past is past. The main lesson that's been taught by the way this has been approached in recent weeks has been that investors should become paranoid about what's going to happen next. The priority now has got to be creating a sense of confidence so that a sense of normalcy can return.
CONAN: And very briefly, is it a good thing that this happens five weeks before Election Day, it will focus Congress' mind, or is it a bad thing that it happened five weeks before election day?
Prof. SUMMERS: Oh, I think the political process is always political, and in many cases that's a great strength. But when you're dealing with a highly technical national emergency like this one, I'm not sure that politics are so helpful, and inevitably as election day looms the politics get larger.
CONAN: Lawrence Summers, thanks for your time. Appreciate it.
Prof. SUMMERS: Thank you.
CONAN: Lawrence Summers of the Harvard's Kennedy's School of Government, former secretary of the Treasury during the Clinton administration. You're listening to Talk of The Nation from NPR News. And again if you're just joining us the news is that the House of Representatives voted down the Bush-Paulson Wall Street bailout bill. Where it goes next? Unclear at this point. Let's see if we can get some callers on the line. This is Heidi. Heidi with us from Athens, Ohio.
HEIDI (Caller): Hi. My comment is that I don't like this bill, and I'm glad that it has been voted down. I haven't heard enough about the options. Meaning, what if we do nothing, is there another option? I'm not happy about my money going to these people who seem very greedy.
CONAN: Seem very greedy?
HEIDI: Yes. The CEOs of these and financial institutions seem very greedy. I'm very upset about CEO compensation packages.
CONAN: Heidi, thanks very much for the call.
CONAN: Lets see if we can go now to - this is Brian. Brian with us from South Bend, Indiana.
BRIAN (Caller): Yeah, thanks. Yeah, I'm one of those that don't like this bill either. But, you know, I understand the arguments about the liquidity and everything. And my question is, if the Democrats were just to let this go, say fine, you Republicans don't want to be part of this, you won't let it die, they just let it go. What - how much does the market have to go down and how high is unemployment have to get up, and how soon does that have to happen before the Democrats come back and say, hey, we told you, your own party told - you know, your own leadership told you.
You didn't do anything because the partisan in politics and that's, you know - now we're when in worse shape. And can they do that? And I'm just kind of curious whether anybody has any estimate just how bad does it have - I mean, we've already seen, you know four to 700 points down. You'd think that it would be kind of a clue for some of these guys to say, hey, if it's down just from us not saying we're going to do it. You know, what happens if it keeps going that way and we're the ones that stalled it? So that's my question. I'll take it off the air.
CONAN: OK. Brian. I'm not sure I've got any answers for you other than to say that the stock market is down 554 points as this moment. Let go to Shea, and Shea is with us from York Harbor in Maine.
SHEA (Caller): I agree with that caller, two callers ago, who said, you know what, I actually - as nervous as I am listening to everything that's going on, I'm actually glad they voted it down because it just doesn't seem right to have all this effort going forth with such huge amounts of money. I mean, we're talking about money that we're borrowing to save borrowers. It's not exactly like were pulling it out of a deep pocket here. And so I'm actually cautiously optimistic that something positive is going to come out of this. And I think they should be pushing back on the banks to work better with their borrowers to make this work on the local bank level rather than pushing it to the governmental level.
CONAN: Shea, thanks very much for the call. Let's see if we can get Richard on the line. Richard with us from Springfield in Pennsylvania.
RICHARD (Caller): Yes. I just called my Democratic congressman, and my U.S Senator Arlen Specter, a Republican, telling them they must vote for this. Because we're heading for a recession and not a depression, and people really don't want to know what a - what a depression is really like.
CONAN: And do you know whether your congressman voted for or against?
RICHARD: The office manager that I called didn't know which way he voted.
CONAN: And if the congressman happened to vote against it, would that - or for it - would that decide you're vote in five weeks time?
RICHARD: Yes it may. I'll vote for anybody who votes for it because they have to do something right now. It's like having a clogged sink, and if there's no water in the sink and you use a plunger, it's not going to work. If you put water in it and you start plunging the water down, it's going to get things moving. So...
CONAN: Well, Richard, a lot of people are using toilet analogies at this moment mostly about the economy though.
RICHARD: Well, it's the same thing. Toilet works the same way.
(Soundbite of laughter)
CONAN: Thanks very much for the call, Richard.
RICHARD: Right. Bye-bye.
CONAN: Coming up. A former fan of Sarah Palin decides that, for the good of the party, indeed the for the good of the country, it's time for Sarah Palin to step aside as the vice presidential nominee of the Republican Party. Syndicated columnist Kathleen Parker joins us next. Stay with us. I'm Neal Conan, it's the Talk of the Nation from NPR News.
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