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February 15, 2009

David Axelrod and Google CEO Eric Schmidt on "Fox News Sunday"

Fox News Sunday

WALLACE: I'm Chris Wallace, and this is "Fox News Sunday."

President Obama gets a big win on Capitol Hill but takes one on the chin when another cabinet nominee pulls out. Where does the administration go from here? We'll find out when we sit down with David Axelrod, senior adviser to the president.

Then, now that Mr. Obama has his economic stimulus plan, will it work? We'll get answers from two leading voices in the business world -- Eric Schmidt, chairman and CEO of Google, and Mark Zandi, one of the nation's leading economists.

Plus, our Sunday group analyzes the politics of the financial crisis. Does either party have the upper hand? All right now on "Fox News Sunday."

And hello again from Fox News in Washington. President Obama scored a historic victory this week with passage of a stimulus plan that places the government at the center of the nation's economy, but it was also a week that saw a faltering rollout of the financial rescue package and another embarrassing stumble on the cabinet.

Here to discuss the good, the bad and the ugly is one of the president's closest confidants, senior adviser David Axelrod.

And, Mr. Axelrod, welcome back to "Fox News Sunday."

AXELROD: Great to be here, Chris.

WALLACE: Before we get to the stimulus package, General Motors and Chrysler must submit recovery plans to the government by Tuesday.

G.M. says it needs billions more in federal money or it's going to go into bankruptcy, and yesterday concession talks with the auto workers collapsed. Is the president committed to keeping the Big Three in business and not going into bankruptcy?

AXELROD: Well, we need a thriving auto industry in this country. There are millions of jobs that rely on it, not just in the auto industry itself, not just at the Big Three, but in all kinds of related spinoff businesses. So we have a vested interest in seeing the auto industry continue.

But as the president has said many times, that's going to involve significant restructuring of the industry so that they're looking forward and not back in producing the kind of cars that people are going to buy in the future. And that's going to involve concessions on the part of everyone, not just the auto workers, but shareholders, creditors and, of course, the executives who run the company. And that's what we're going to have to see.

WALLACE: So how do you view the fact that the UAW talks collapsed?

AXELROD: Well, you know, obviously, this is a difficult situation, and we're -- everyone's going to have to continue to work toward a solution. We're going to wait and see what the automakers have to say on Tuesday and we'll go from there.

We have a working group within the Treasury on this issue. And we're prepared to hear what they have to say and work with them toward a solution.

WALLACE: But when you say a solution, it sounds like you are not going to let them go into bankruptcy, at least at this point.

AXELROD: I'm not going to prejudge anything. I think that there is going to have to be a restructuring of those companies. I'm not going to get into the mode of how that happens. We'll wait and see what they have to say on Tuesday.

WALLACE: Let's turn to the stimulus plan. One of the president's economic advisers, Austan Goolsbee, says there should be signs the package is working within six months and that one of the signs will be whether unemployment at the end of the year is 8 percent or 11 percent.

How quickly do you think we'll know whether the package is working and how should we measure it?

AXELROD: Well, I think that there'll be signs of activity very quickly. As you know, the package will help fund infrastructure programs and other programs that are ready to go around the country.

But it's going to take time for that to show up in the statistics. The president has said it's likely to get worse before it gets better. It is true that without this program, it could be -- it could be much, much worse.

And so I don't expect the arrow to bend down by the end of the year, but I do expect the rise in unemployment to be retarded by the things that were done this week.

WALLACE: So does six months sound like a fair marker to begin to see progress?

AXELROD: Well, I -- it depends how you measure progress. As you say, I think where we see activity as a result of this, absolutely, all over the country you're going to see shovels in the ground. You're going to see construction projects under way.

The other thing you're going to see are people not being laid off, police and firefighters and teachers, because states are now going to have funding to forestall those kinds of things.

So I think you'll see an effect of it, but in terms of the overall economy, we're in the worst recession since World War II, and it's going to take -- it took us a long time to get into this mess. It's going to take us a while to get out of it.

WALLACE: A few weeks ago, you -- your team talked about getting 80 votes out of the Senate, and you ended with just three Republican senators and no Republican members of the House.

What did you learn about the resistance to bipartisanship here in Washington? And going forward, is the president going to make it less about actually getting GOP votes and more about being seen as at least reaching out?

AXELROD: Well, first of all, Chris, what we learned was old habits die hard. There's been a hard-bitten partisanship in this town for a long time. I don't think the president feels like he wasted his time. He spent quite a bit of time with members of both parties on this package.

The package reflects the thinking of members of both parties. And I think that over time, there'll be -- there'll be a positive effect of just having dialogue, of just talking, which has not happened for a long time in this town.

So you know -- but ultimately, let's be clear. Our goal was not about a number of votes on the bill. Our goal was to move this package forward because we've lost -- we lost 600,000 jobs last month, over 1.5 million in the last three months. This recession is gaining momentum.

And if we didn't do something dramatic to break it, it could be catastrophic. And so you know, we're very, very happy that this has moved forward.

We think it's going to make a difference in the short term and the long term because we're investing in things like health care, and energy, and education, and rebuilding the roads and bridges and dams and levees of this country.

That's going to make a difference for us in the long run.

WALLACE: This week, I think it's Tuesday in Denver, the president will announce his new plan to try to stop, to prevent, more home foreclosures.

Is the focus on reducing monthly payments, or is it going to be on getting the institutions to actually lower the principal that's owed on those mortgages? And is $50 billion nearly enough to deal with this program?

AXELROD: Well, I'm not going to deal with the details of the program, which will be announced Wednesday, by the way, but -- in Phoenix.

WALLACE: Well, that's a switch right there.

AXELROD: No, that was always the plan.

WALLACE: Okay.

WALLACE: But I mean, obviously, our goal is, first of all, to deal with this rash of foreclosures that is being accelerated by the economy.

It's to help people who are right on the edge now making their payments but are on the edge of moving into that area, and ultimately reducing -- raising home values that have -- that have been plummeting as a result of this rash of foreclosures.

And I'll leave the details to the president. But you know, we feel we have a good, solid approach to this.

WALLACE: But is $50 billion -- I mean, that seems like a drop in the bucket when you're talking about...

AXELROD: Well, there'll be a lot of aspects to this -- to this program, so -- but the $50 billion obviously -- 50 to 100 billion that's been discussed to date is obviously a necessary part of it.

WALLACE: Meanwhile, the president promised at his news conference on Monday that the treasury secretary would explain your financial bailout plan on Tuesday. But Mr. Geithner left -- when he did speak, left more questions than answers. Let's watch.

(BEGIN VIDEO CLIP)

OBAMA: Tomorrow, my treasury secretary, Tim Geithner, will be announcing some very clear and specific plans for how we are going to start loosening up credit once again.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

GEITHNER: We're not going to put out details until we are confident that we've got the right structure that's going to achieve these objectives.

(END VIDEO CLIP)

WALLACE: After the markets dropped 382 points, the Wall Street Journal said, "Geithner's opening act as rescuer in chief yesterday was a bomb." And the New York Times said there was no bailout plan and no firm time line for a plan. There were only outlines.

Question: Tim Geithner was appointed almost three months ago. How could he not have answers this week to basic questions like what are you going to do with the toxic assets and how are you going to price them?

AXELROD: Chris, first of all, we should note that this weekend, the secretary's been in Rome talking to finance ministers from around the world, spent six hours with them.

And they all emerged saying they were impressed with the administration's approach. It will help shape their thinking. He did a spectacular job for us there. This is a complex problem the likes of which we've never dealt with before.

There are -- there are issues that are so abstruse, so hard to penetrate, that even the most brilliant of financial analysts are puzzling about how to unravel it.

I know that Wall Street would have liked him to walk into that room on Tuesday with a wheelbarrow full of money and say, "I'm going to solve all your problems today," but that's not realistic.

And the one thing we don't want to do is make the mistake that was made on the first half of the TARP by the last administration where there was a lot of starts and stops, changes of strategy, that left everyone unsatisfied.

We want to do this in a thoughtful way. He announced a strategy. He will unveil the tactics to support that strategy in the coming weeks. And we believe that he has the right approach.

WALLACE: But again, if I may, the president himself, as we -- just said in the news conference -- said that Geithner would have on Tuesday very clear and specific plans. Everybody agrees he didn't have specific plans.

And again, I ask, almost three months in office -- why didn't he have an answer to the question, "What are you going to do with the toxic assets --" it's been the central question all along, "and how do you set a price for them?"

AXELROD: He did announce a general framework for how to deal with the toxic assets. He talked about a public-private partnership to deal with those.

WALLACE: But everyone said that was more a goal than a plan.

AXELROD: Well, as I said, he announced a strategy. It was a -- it was an overarching strategy. He will announce the tactics to support that strategy in the next few weeks.

We're going to get this right, Chris. And I understand the impatience. Look, the stock market went up 1,000 points, I think, when the last TARP passed. And I don't think anybody's very satisfied with it now.

So we can't gauge our success on the basis of one day of fluctuations in the stock market. We're in this for the long term and we're going to try and solve this problem for the long term.

WALLACE: It now turns out that buried in the economic stimulus plan that was passed this week by Congress is a measure that would sharply restrict bonuses for top earners on Wall Street. The White House is reportedly worried that this could result in a brain drain from the firms, that some firms may now pay the money back more quickly than they responsibly should so they don't have those restrictions.

Is the White House going to try to soften that set of restrictions on pay?

AXELROD: Let me say the president's been very clear that he shares the outrage that most Americans feel about the spectacle of gaudy bonuses at -- for executives at firms that are getting extraordinary assistance from American taxpayers. It's not right. It shouldn't move forward.

He's announced his own guidelines for how we should restrict that. In some ways, they're tougher than the ones that the Senate passed. They have a hard cap, for example, on compensation. And in other ways they differ, but -- in other ways they differ.

So we're going to work with them to come up with a...

WALLACE: Work with whom?

AXELROD: ... good approach. With the -- with the Senate to come up -- and the House -- to come up with a -- an appropriate approach to this.

WALLACE: So you're saying this -- that what was passed by the Congress in the economic stimulus bill is not the last word.

AXELROD: I'm saying we all have the same goal. We all have the same sentiment. And we want to do something that's workable, and we'll work with them to get to that point.

WALLACE: And do you worry that what they've passed in the economic stimulus could be counterproductive?

AXELROD: Well, obviously, Secretary Geithner and Mr. Summers had concerns about that, and they expressed those concerns. But those concerns are at the margins, and the goal is one we share.

WALLACE: Meanwhile, I don't have to tell you that you had another top nominee drop out this week, and it's becoming quite a roll call. Let's put it up on the screen.

Judd Gregg and Bill Richardson at Commerce, Tom Daschle at Health and Human Services, Nancy Killefer as chief performance officer, General Anthony Zinni as ambassador to Iraq.

I know you've had big successes, but why, to use the president's language, does he keep screwing up?

AXELROD: Well, first of all, I understand that in the news business the idea is to report the cats that ran away. You don't report the cats that didn't run away that day. The fact is that we've had enormous successes, and we've had enormous successes with our cabinet when you look at our national security team, with Secretary Clinton and Secretary Gates. You look at the kind of people we've brought to Education with Arne Duncan , and to HUD with Shaun Donovan , and Dr. Chu to Energy.

WALLACE: I know the ones you got in, but we don't -- we don't report on the planes...

AXELROD: No, I understand, but...

WALLACE: ... that don't crash, either.

AXELROD: ... let's be -- let's be clear. I think that our process has worked rather well. We -- perfection is not the standard that we can -- that we can keep, but we have high standards for our appointees. We're holding them to it.

WALLACE: Aren't you disappointed to have -- I mean, how many cabinet secretaries are we talking about? Two at Commerce, one at Health and Human Services, the chief performance officer. That's not a -- that's far from perfection.

AXELROD: Chris, no, it is. But we feel like we've made good progress with our cabinet. We've just passed the most ambitious economic recovery plan in the history of this country, and we did it in record time. That, by the way, is going to have...

WALLACE: But why all -- why all the -- to use the phrase -- screw-ups?

AXELROD: Look, let's talk about Senator Gregg. Senator Gregg approached us. He said he was interested in serving in the cabinet at Commerce. We thought he'd be a good representative of American business around the world.

And then he decided, as he said, that being as -- the maverick that he is, that he -- that he didn't belong in anybody's cabinet. So he had a change of heart.

I don't think that that ultimately is a reflection on the administration. It's a reflection on Senator Gregg's change of heart.

But we're going to -- we're going to move forward. We've made great progress over the last four weeks, and we're going to continue to make progress.

WALLACE: We -- we've got a couple of minutes left, and I want to do a lightning round of quick questions, quick answers on some of the hot-button issues. When are you going to issue an executive order on stem cell research?

AXELROD: That -- we'll be doing something on that soon, I think.

WALLACE: An executive order lifting the ban on federal funding.

AXELROD: The president is considering that right now.

WALLACE: Are -- will you rule out reimposing the fairness doctrine?

AXELROD: I'm going to leave that issue to Julius Genachowski, our new head of the FCC, to -- and the president to discuss. So I don't have an answer for you now.

WALLACE: On the census, now that Judd Gregg , your Republican nominee, is out, are you going to, in the interest of reassuring everybody that it will be apolitical, going to give the commerce secretary total control over the census?

AXELROD: The census should be in charge of the professionals who conduct it, and we -- there are -- there are great professionals over there. We intend to bring in additional impeccable people.

WALLACE: But what about the question of...

AXELROD: We need -- we need...

WALLACE: ... White House involvement?

AXELROD: ... Chris, we need -- we need -- well, the White House needs to ensure that the -- that the census is fair and accurate, and that's what we're going to do.

But the way to do that is to put professionals in those slots to run the census in the most advanced way they can.

WALLACE: So you and Rahm Emanuel are going to continue to weigh in on the census.

AXELROD: I am not an expert on the census. I don't -- and neither is Rahm. We want the experts to run this program, and we want to make sure that every American is counted.

WALLACE: Finally, you said this week that the president is committed to going on the road at least once a week going forward.

Doesn't that take him away from his job? Or is it your feeling that it's important for him to be seen as being in touch with the nation and, in a sense, campaigning against Washington as an outsider?

AXELROD: It's not about campaigning against Washington. But part of his job is to stay in touch with the American people, and the White House can be a very suffocating place if you don't get out and talk to people.

It's the reason the president wanted to keep his BlackBerry. It's the reason the president reads every day a sampling of letters that he receives and responds to them.

He is -- he is determined to keep in touch with the American people who sent him here to do this job. And I think that you can't say that that is separate from doing the job. That is part of doing the job, going out and meeting with the American people.

WALLACE: Mr. Axelrod, thank you.

AXELROD: Great to be here.

WALLACE: Thanks for coming in.

AXELROD: Enjoyed it, Chris.

WALLACE: Please come back, sir.

AXELROD: Will do.

WALLACE: Up next, two top minds from the world of business answer the all-important question, will the stimulus plan work? Back in a moment.

(COMMERCIAL BREAK)

WALLACE: Now that the huge stimulus package is about to become law, how effective will it be? For answers, we turn to two leading voices in the world of business -- from Miami, Eric Schmidt, chairman and CEO of Google, and from Philadelphia, Mark Zandi, chief economist at Moody's Economy.com.

Mr. Zandi, you are already saying that the $787 billion economic stimulus package likely is not enough, not big enough, and that the president is going to have to come back to Congress and ask for even more money down the line. Explain.

ZANDI: Yeah, that's right. I think it will -- it will make a difference. It's a good plan, and I think it will help the economy.

By my estimate, it will add 2 to 2.5 million jobs, more than would be the case without stimulus, by the end of 2010. That translates into a lower unemployment rate of about a point to a point and a half.

So it is meaningful, but I don't think it's enough. I think the economy is in very difficult situation. The difficulties require a larger package. And I think a year from now we probably will be talking about stimulus again, yes.

WALLACE: Mr. Zandi, let me put up some figures, because you're talking about a big growth, but not as big as the White House. The White House projects 3.5 million jobs created by the end of next year. You say just 2.2 million.

Where, in your view, Mr. Zandi, is the White House overestimating? And in your forecast, where do you see the unemployment rate at the end of 2010?

ZANDI: Well, I think it's three things, three differences between my estimates and the White House. First, it's the spend out rate on the infrastructure spending. I think it's going to take a bit longer than they're assuming. Second, it's the -- it's related to the patch to the Alternative Minimum Tax. That $70 billion of that $800 billion package -- that was going to happen with or without stimulus. So I don't view that as being stimulatory.

And then third, with regard to how much of the tax cut's going to spent for individuals, the White House, I think, is assuming that people are going to behave as if that tax cut is permanent, and I doubt that will be the case.

So those three things, I think, explain the difference between their 3.5 million and my estimate of between 2 and 2.5 million.

Now, in terms of unemployment, I do think by the end of 2010 the unemployment rate should be somewhere around 9 percent. Right now it's 7.6 percent. It is going to rise to 9.5 to 10 percent by the peak. But by the end of 2010, with a little bit of luck and some more good policy making beyond stimulus, we'll get down to 9 percent.

WALLACE: Mr. Schmidt, are you -- do you have the same view as Mr. Zandi, that this is a good package but not big enough to actually do the job?

SCHMIDT: I do. And I think it's much better if we simply get this thing done, get it passed, get it flowing, and check and see if it actually works or not.

The business community wants action now. Customers don't feel comfortable. People are worried about their jobs. Somehow the government has to fix the foreclosure problem. They have to fix the credit problem.

And then they have to be the sort of thunder of last resort to get this thing going again. And then the private sector can take over.

WALLACE: Let's turn -- and Mr. Schmidt brought up the point that I wanted to get to -- to the financial bailout and the effort to get the credit flowing again.

Mr. Schmidt, are you surprised that almost three months after he was appointed, that secretary -- Treasury Secretary Geithner still doesn't have much of a plan for actually bailing out Wall Street?

SCHMIDT: It's about where I expected it to be. They've done three or four -- the previous administration did three or four attempts trying to deal with this toxic asset problem. No one knows how to value them, for example.

So they need to get regulations that will actually work. The numbers are so large, I'd rather have them get it right. From my perspective, people cannot get their jobs, they cannot buy things and so forth, without credit.

So this needs to be their highest priority for the next few weeks, and let's hope it is. WALLACE: Mr. Zandi, how disheartening to the markets was it this week when Geithner unveiled his plan and didn't answer some of these essential questions that Eric Schmidt is just talking about, like what are they going to do with the toxic assets and how do they value them?

ZANDI: Yeah, it was disheartening and it was because of the lack of detail, because people are concerned that there really isn't a plan, that it's going to take a while for the White House to get it together and to roll it out.

Now, the White House can get beyond this quickly if, in fact, they do start giving us some more information, some more details about how this is going to work, because conceptually, what the secretary of treasury rolled out was quite good.

I mean, the problem we have in the banking system is we don't have enough capital. Capital is the cushion that financial institutions need to remain going concerns.

The way to fix that problem is to give them more capital or take the bad assets, the troubled assets, the assets that aren't performing well, off their balance sheet. He said that that's what they're going to do.

We just need to know a little bit more about how he's going to do that, and we need to know that relatively soon. If, in fact, they come out over the next couple -- four weeks and give us more information, I think the markets will be fine.

If they don't, then the markets are going to be more upset, and the job of the treasury secretary is going to become more difficult.

WALLACE: Mr. Zandi, one of the other...

SCHMIDT: Well, I do point out that...

WALLACE: ... points that Eric -- go ahead, Mr. Schmidt.

SCHMIDT: What I was going to say is that it doesn't actually matter what everybody thinks in the short term. What matters is whether credit actually gets started or not. We can measure that. We can actually see when the banks start lending again.

So far, all of these previous attempts have not given them enough capital, as Mark points out, to really get going again. They need to rebuild trust, they need to get credit flowing again, and it has to occur quickly over the next few months. We can't wait six months.

WALLACE: Let's pick up on another part of this equation, and some would say it's the root of the problem, which is the housing market.

As I discussed with David Axelrod a moment ago, the president is going to announce his -- at least the beginnings of his home foreclosure plan in Phoenix the middle of this week.

Starting with you, Mr. Schmidt, but then you, Mr. Zandi, what do you want to see him announce in that regard?

SCHMIDT: I don't know the details, obviously. It seems to me that you've got a problem where the homeowner has lost a lot of capital, the bank has lost a lot of capital, and people are having trouble holding their homes.

There needs to be some form of temporary delay in how people -- getting foreclosed and so forth. The president has asked for that so far. That's a good first start. It needs to be longer so that people can work it out.

The worst possible scenario is somebody loses their home and, as a result, the whole neighborhood gets blighted and everything collapses.

Ultimately, this problem is going to be solved by people's job -- job creation and confidence in sort of the ability that they're not going to lose their jobs, that they can continue to qualify for mortgages and getting capital flowing again. You've got to get them all done at the same time.

WALLACE: Well, Mr. Zandi, I think Mr. Schmidt set out what everybody would agree are the goals. How do you get that done?

ZANDI: Right. Well, you know, I think the administration's probably going to come forward with a plan that will involve reducing the mortgage payment that distressed homeowners have to pay.

That can either be done by lowering the interest rate on their loan or extending the term of their loan, and that will make the monthly payment more affordable. That's a reasonable thing to do. But it's, in my view, not enough.

I think if we're really going to keep these folks from losing their homes, we're going to need a plan that also involves principal write-down.

That means reducing the amount of debt they owe, because they are so far underwater, meaning that the value of their home is so far below the mortgage debt that they owe, if anything goes wrong in their financial life or if -- you know, even if they spring a leak in their roof and have to put five to $10,000 more into the home, they're just not going to do it.

So we need a plan, I think, that also involves principal write- down. I'm afraid we're not going to get that. And if we don't, then this isn't going to work as fast as it -- as it needs to be. So we have to watch that, and hopefully that will be what we hear on Wednesday.

WALLACE: Mr. Zandi, some -- and let's take a bigger look at this whole problem. Some critics say that the Obama administration is repeating some of the mistakes that Japan made during the so-called lost decade of the '90s when they had their own severe economic downturn. They say the stimulus should be much bigger, much faster and that the government should nationalize the banks and sort out winners from losers, because that's in the end what you're going to have to do. Do they have a point there?

ZANDI: Well, I think that's an overstatement. I mean, I think the Japanese took a decade to clean up their banking system, and now we're a year and a half into this crisis and I think we are making progress, and we will make very significant progress over the next six, 12, 18 months. I think we are going to respond much more quickly.

With respect to stimulus, for example, the Japanese focused solely on infrastructure, traditional infrastructure -- bridges and roads and water systems. And they spent that money out over an entire decade.

We're going to do this very quickly over the next couple, two and a half years. So I think -- I think that it's reasonable to take lessons from what the Japanese did and not do them, but I think we have taken those lessons. We are acting quickly.

Hopefully, we act even more aggressively, and I think we won't get trapped in a lost decade like the Japanese did.

WALLACE: If I can just pick up on that, Mr. Zandi, what about the second half of my question, the idea that the government should get much more involved in the banks and decide who survives and who doesn't?

ZANDI: Well, and that's what they're going to do. Now, they're going to -- the treasury secretary is going to go into each bank. They're going to conduct what they call a stress test, meaning they're going to figure out how much capital they have and whether it's adequate. If it's not adequate, you can do several things.

You can put them into receivership. That means you wipe out all the creditors, the shareholders, the debt holders. You can put them into conservatorship, where you just wipe out the shareholders and not the debt holders.

Or you can give them, if they're not too bad -- in bad shape, you can give them more equity and take some of the bad assets off their books.

So they're going to do all three of those things. It just really depends on the situation that they find the banks in. And that's bank by bank. And that's what I think they're going to do over the course of the next 12, 18, 24 months.

WALLACE: Mr. Schmidt, what about the criticism one hears from conservatives that fiscal stimulus often doesn't work; in fact, has a poor record of turning economies around, and that what you're basically doing is taking the money out of the private sector?

SCHMIDT: At the moment, we need this stimulus -- and it's not perfect, by the way. There's a bunch of stuff in there that probably shouldn't be in there. They took some of the really bad stuff out.

About a third of the package is taxes, tax credits, and another third is roughly aid to states for Medicare and Medicaid and various infrastructure, and the states really, really need this -- need this money now, because they're all basically in big, big trouble.

So the combination of those two, I think, reflect, I think, a lot of the sort of conservative criticism.

Longer term, who would do this if it were not the federal government? How would we jump-start this? The markets would resolve. I mean, eventually, it would work itself out. The credit market would work out. We would deal with the debt. But it would take a decade or two.

And all of the lessons of global finance say that the government acts quickly, from our perspective, the quicker the better, and we'll see. Let's iterate. Let's get into this. Let's get a couple months into it and measure it and see how -- one of the things that this bill has is a strong commitment about transparency so that you can track it.

You can figure out did they really spend the money where they said they were going -- or did it go to the other program. And people will watch that and they will learn from that.

WALLACE: We have a little bit over a minute left, and I'd like you to split it evenly.

And I'll start with you, Mr. Schmidt. How bad is the economy now? How long and deep, given what you see the response from the Obama administration is -- how long and deep will this recession be, and when will we begin to see things turning around?

Mr. Schmidt, you start.

SCHMIDT: It's clear that the next couple quarters are going to be tough for American business -- the March quarter, the June quarter. You're going to see increases in unemployment. You're going to see all the issues of housing and credit because it's going to take at least some months.

The earliest that you're going to see an improvement will be the summer. Many people believe it's a second half recovery, and the jobless issue does not really recover until some time in 2010. That's a way of thinking about it. Things get better toward the end of the year and, really, the jobless situation -- it's a year.

WALLACE: Mr. Zandi?

ZANDI: It's bad. It's about as bad as I've ever seen it. I mean, I've been a professional economist for 25 years, and the economy has unraveled in an incredible way, something I could not have even imagined six to 12 months ago.

But I think it's important to realize that every crisis that we faced as a nation, you know, whether it's a terrorist attack, whether it's a natural disaster, whether it's a financial calamity -- and we've been through a few in our history -- it's when government responds aggressively and in a consistent way, that marks the end of the crisis.

And I think if we can take any optimism from what's been happening over the course of the last four weeks, it's that government is now acting aggressively.

WALLACE: Mr. Zandi, Mr. Schmidt, we want to thank you both for sharing your insights with us. I thought this was fascinating. We'd like to have you both back.

ZANDI: Thank you.

SCHMIDT: Thank you.

WALLACE: Coming up, our Sunday group analyzes President Obama's legislative victory and bipartisan setback. Stay tuned.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

JOHN BOEHNER: I don't know how you could read 1,100 pages between midnight and now. Not one member has read this. What happened to the promise that we're going to let the American people see what's in this bill for 48 hours? But no, we don't have time to do that.

(END VIDEO CLIP)

WALLACE: Well, so much for bipartisanship. That was House Republican leader John Boehner showing his displeasure with the Democratic stimulus package and the way it was rammed through the House.

And it's time now for our Sunday panel -- Bill Sammon, deputy Washington managing editor of Fox News, and Fox contributors Mara Liasson of National Public Radio, Bill Kristol of The Weekly Standard, and Juan Williams, also from National Public Radio.

And I should note right here at the start that Bill Kristol has pulled a John Boehner and has brought a prop. He has brought the bill, all -- what is it? How many pages?

KRISTOL: I think it's 1,073 pages.

WALLACE: And I know that you've read every one.

Before we get to that, though, let's talk some politics. There were -- there are 219 Republicans in Congress, 219. And a grand total of three -- three in the Senate, zero in the House -- three voted for the plan.

What did we learn this week about Obama, about Republicans, and about the limits of bipartisanship?

KRISTOL: I think we learned the Republicans don't think it's a good idea to throw $1 trillion at a problem in a way that's unfocused and has lots of ridiculous spending in it. This bill is about 1,000 -- it's about $1 billion a page. A billion here, billion here. You know, it's unbelievable.

And really, I do think Republicans -- they think it's bad policy. I think they think they will not pay a political cost for opposing it.

They think they -- they know they have to keep making the case as the stimulus now gets spent about how much of it is wasteful, how much of it is foolish, how much of it is not going to programs that are justified on the merits.

I think they have a pretty good chance to make that case. I think they should be careful. I mean, this -- throwing this much money into the economy will have some effect.

One economist I know thinks we'll have a plus second quarter. I think it will actually have a short-term positive effect, so Republicans need to be careful not to say, "This isn't going to make a difference."

What they need to do is track this money as it goes out so a year from now they can say, "Here's how, you know, $80 million was spent here in Athens, Georgia. Do you think this was really a sensible expenditure of taxpayer funds?"

WALLACE: Juan, what do you think we learned about the continuing ways of Washington in the age of Obama?

WILLIAMS: Well, you know, David Axelrod repeated the president's line that old habits die hard. But I think what we saw here was that the president lost control of the debate early on. That's why he had to get into the campaign mode at the end.

And essentially, it's less a Valentine's Day kiss than a Valentine's Day massacre, which someone said to me at the White House yesterday -- said, "You know, the Republicans played the partisan game and they won the partisan game."

But you know what? President Obama played bipartisanship, and the American people saw it, and they're going to reward him for it. In fact, if you look at the numbers in the polls, President Obama's favorability numbers are up 60 percent. Republicans in the Congress are down about 34 percent. So I think a judgment's been made here who's responding to the crisis in terms of leadership.

But if you look again at the size of this -- and this is what I think was a success, Bill, for the Republicans. They successfully made the argument that this thing is filled with pork and unnecessary spending.

And once you frame it that way, it's not good for President Obama going forward as he's got to deal with some other controversial items.

WALLACE: I mean, in the end, for all the debate, I mean, I think we would all agree that what's going to end up being -- marking the success or failure of Mr. Kristol's 1,000 pages is whether or not it works -- is it big enough, is it effective enough, is it stimulative enough?

What's your sense of that, Bill?

SAMMON: Well, if it works, certainly the Democrats will get credit. If it doesn't work, the Republicans will probably stand to gain.

I think the problem is that the public has come to view this thing as -- it wasn't just Republicans calling this pork. Chuck Schumer said this is full of porky amendments.

And I think this has turned into a public relations disaster for Obama. People look at this thing and see, you know, some mouses being protected in Pelosi's district, some rail lines being built in Harry Reid 's state. They look at the welfare reform that Bill Clinton had enacted as -- basically had been undone.

I think as we get deeper into the details of this bill, it's going to get uglier and uglier. So yes, Obama won, but he won ugly. He wanted bipartisan support. He got virtually none. He wanted 80 votes in the Senate. He got 60. And he had to send a plane to get that 60th vote and sort of limp across the finish line.

I'm not sure this is the big victory that he had hoped for.

LIASSON: I think it's a victory for him. He got it passed. There's no doubt that he's been on a kind of rocky and steep learning curve. His popularity is very, very high. It hasn't dropped during this process.

The stimulus bill's popularity is not nearly as high as his, but still polls -- some polls showed about 50, 51 percent wanted it.

I think the big question is he set up the story line about bipartisanship. He came to Washington like Diogenes, you know, searching with a lantern for some Republicans who would work with him, had cocktail parties, schmoozed them, tried to be nice.

I think in the end, the lesson that the White House has learned is the way you get bipartisan is not just by being nice to the other guys, but by scaring them into voting for you.

In other words, Ronald Reagan would stand up there and say to the public, "Please call your congressmen," and millions of calls would flow in.

Obama needs to stay outside, keep his brand high, get all those points from the public for bipartisanship, for trying, and then he can create pressure on Republicans to vote with him on other issues.

I think he's created a kind of image of bipartisanship for himself. He hasn't yet gotten the results in votes.

WILLIAMS: You know what he's got to do? He's got to make the Republicans the party of no. He's got to make people say, "Hey, wait a second, it's not about pork. It's about these guys are the obstructionists."

If you look at what Ronald Reagan spent in terms of tax -- sorry, George Bush spent in terms of tax cuts, it's trillions of dollars, much more than the size of this bill, for all your theatrics this morning.

KRISTOL: Here's the plan. Look, Obama's in pretty good shape. He's a popular president. He got his bill through. Most presidents get their first major initiative through.

But he missed an opportunity to do real political damage to the Republicans. You mentioned Bush's tax cuts. He got Democratic votes for those tax cuts in 2001. Reagan split the Democrats in the House, as we remember, and really caused disarray between...

WALLACE: Yeah, but wait a minute. I know where you're headed with this. Are you saying that he should start attacking Republicans?

KRISTOL: No, the opposite. I think a deft -- a slimmed-down stimulus bill with real stimulus -- with tax cuts, with health care extension, unemployment insurance, some infrastructure in it could have gotten -- it would put Republicans in a real bind.

It would have split the Republicans in the House and the Senate. I think among conservative commentators there would have been a split. A lot of conservatives think there has to be a stimulus.

SAMMON: But instead, he...

KRISTOL: I think -- I think he missed -- it's not so much that he's in terrible shape or it's a disaster. He missed an opportunity to really -- the Republicans who already were reeling, obviously, with Obama's victory and the Democratic gains in the House and the Senate could really have been pushed back on the defensive.

Instead, they feel somewhat reinvigorated and they feel like they had a pretty good couple of weeks in terms of the...

WALLACE: I want to begin to talk about a subject that we'll discuss in the next segment as well.

On Tuesday, Bill, Treasury Secretary Geithner made his highly anticipated speech on the financial rescue, and I think it's fair to say that he labored and brought forth a mouse.

How do you explain -- and this is the question I keep asking today -- his failure to come up with a plan that answered the most basic questions?

SAMMON: You're right. He bombed. The markets tanked in response. And it was the day after President Obama, as you pointed out earlier, promised the American people that he would have a very specific and clear rollout of this TARP explanation the next day. It was vague. It didn't have specifics. It didn't have a plan. It only had an outline. And you know, we were told when Geithner was nominated that he was the one indispensable man who could fix America's problems.

Forget about the fact that he didn't pay his taxes and he's going to be in charge of the IRS. He's the -- he's too big to fail.

WALLACE: Forget about that.

SAMMON: He's too big to fail. He's the only guy that can fix it. And then he gets up there and whiffs at his first major outing, and the markets tank. I think this was a very inauspicious start for Timothy Geithner's reign as treasury secretary.

WALLACE: You'd have to agree with that, Mara.

LIASSON: Yes, certainly. It was an inauspicious start, and one of the problems was that the White House did inexplicably raise expectations for it.

I mean, not only did President Obama say he's going to have specific plans, he even said he's going to be terrific, you know, and -- which is really odd, because Obama's been very careful at lowering expectations for everything else -- it's going to be tough, long recession, really hard, we can't solve this in a day.

But for Timothy Geithner, he boosted him so he could do nothing but disappoint.

Look, I think that the White House has a lot of work to do on this bailout plan. They're going to have to, in effect, do -- have a do-over. They're going to have to come back with specific plans.

They're going to have to finally bite the bullet and decide on -- one way or the other on pricing these assets. Either you're going to let some of these banks fail or you're going to do something like nationalizing. They'll use some other euphemism for it.

But eventually, they're going to have to make the tough choices.

WALLACE: All right. We have to step aside for a moment.

But when we come back, more on the financial rescue plan and new problems for the Obama cabinet. We'll sort it all out after the break.

(COMMERCIAL BREAK)

WALLACE: On this day in 1989, Soviet troops withdrew from Afghanistan, nine years after invading the country. During the Russian occupation, a million Afghans lost their lives as the Red Army tried to impose a puppet regime.

Stay tuned for more from our panel.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: Yesterday, Jim, the head of Caterpillar, said that if Congress passes our plan, this company will be able to re-hire some of the folks who were just laid off.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

JIM OWENS: The honest reality is we'll probably have to have more layoffs before we start hiring again.

(END VIDEO CLIP)

WALLACE: Barack Obama had a big victory in Congress this week, but it wasn't just the head of Caterpillar who stepped on his message.

And we're back now with Bill, Mara, Bill and Juan.

Well, as we said in the last segment, we didn't learn a lot of details from Tim Geithner.

But, Bill Kristol, we did get an outline of where he's headed -- more injection of capital, big injection of capital into the banks and the financial institutions, and some kind of public-private partnership, although they didn't explain the mechanism of this at all, to buy up toxic assets.

From what -- that little bit, is he headed in the right direction?

KRISTOL: Most people I've talked to think he's headed in the right direction, but they're worried he's not getting there fast enough. And the left really wants to just go to nationalizing the banks.

But I've got to say a fair number of conservatives I've talked to -- they're not -- they wouldn't say they're for nationalizing the banks, but they would actually not mind if Geithner were a little bolder in terms of government, perhaps, just taking over the failing banks and really getting -- fixing that situation more quickly.

There are three legs to this economic recovery stool, President Obama keeps saying -- the stimulus package, which is the least important, honestly; housing, which he unveils, I think, Wednesday; and the financial is the most important. And that's the one they're the least certain about.

It's a very difficult problem, as David Axelrod said. But that's really what I think -- that's what will -- that's what -- you know, his success or failure will depend much more on that than on the stimulus package or even on the housing.

WILLIAMS: Well, housing is critical, I think, but you've got to make sure that the credit market's working, if you can get the financial system stabilized.

What was interesting to me is what we did learn from Geithner -- and I agree, Chris. I'm puzzled by his performance. He's supposed to be a genius, and that's why we gave him a pass on the tax stuff. This is an insult to geniuses, his performance.

I mean -- but if you're supposed to get the financial system right, if we know anything from what he's proposed, it's the stress test that's interesting to me.

He says, "We're going to have a stress test for the banks. The ones that don't work we'll do away with. They'll become insolvent. The ones that do work, though -- we're willing to buy the bad assets." How much are you willing to pay for these bad assets? He doesn't say.

And then he wants to then use private money to get involved to stabilize the bank system. And I just don't see Wall Street responding with any degree of confidence.

In fact, if you look at Wall Street this week, they seemed to became more anxious after Geithner's announcement.

WALLACE: All right. Let's turn to the other big subject this week.

Bill Sammon, there were more problems for the Obama cabinet as Republican senator Judd Gregg of New Hampshire, who had signed on as commerce secretary, had a change of heart and dropped out. What do you think that was all about?

SAMMON: It was all about the census. Do not believe the spin that this is about the stimulus. After all, Judd Gregg knew weeks in advance that President Obama supported this gargantuan stimulus plan. And yet he still...

WALLACE: It had already been passed by the House.

SAMMON: It had already been passed. He totally had a chance to digest that concept. He still took the job. It obviously wasn't a deal breaker.

What he didn't know was what happened four or five days after he accepted the job, which was that the White House was evidently trying to make some sort of a power play to exercise greater authority over the census, which had typically been the purview of the Commerce Department.

So he worried about that, and that's why he left. The reason the White House is spinning it as a stimulus disagreement is because it's a lot more politically useful for them to say, "Look, we got some flip-flopping Republican. He flaked out. He couldn't get behind the president's virtuous stimulus plan."

That's a lot better than saying, "Actually, he left because of the stimulus. You know, we're putting Rahm Emanuel in charge of the stimulus."

WALLACE: Because of the census.

SAMMON: Because of the census. "We're putting Rahm Emanuel in charge of the census." That would have been a disaster for the White House to spin it that way.

WALLACE: But, Mara, in his news conference, Senator Gregg said the census was, quote, "only a slight issue."

LIASSON: A slight issue, not...

WALLACE: So what do you think?

LIASSON: I actually think -- look, every one of these dropouts is bad for Obama, but each one of them is very different.

Now, this one, of course, fits too perfectly into the story line that the guy can't find any bipartisanship. But I thought Judd Gregg 's press conference was incredible. It was really candid. He totally took the blame on himself. And I think that's correct.

He made a mistake to think that he, a conservative Republican, could actually fit into an Obama administration. I don't know what he was thinking when he agreed to do it. And I don't...

WALLACE: Do you think the census was the key issue?

LIASSON: I think the census was one among many things that Judd Gregg re-thought and had second thoughts about. I don't think the census was it.

I think they had discussions -- he said they had discussions about all of these things. But he took -- I think he did the right thing, and I think he was very candid about the -- about his change of heart. And I don't think that the Obama administration in this case made a mistake by choosing him, although they obviously get the black eye for his dropping out.

WALLACE: Bill, let's -- because a lot of people may not fully understand why this is such an explosive issue. What about the census?

What's the problem if the White House -- they're not saying they're taking it over. They're just saying that the census director, in addition to reporting to the commerce secretary, would also report to top people in the White House. Why is that such a big deal?

KRISTOL: The census is done once every 10 years. Reapportionment of Congress is based on the census. It's very politically delicate how one counts and whether one sort of -- you know, I mean, there are very complicated technical issues about how -- they don't actually...

WALLACE: But the question is whether it's a hard count...

KRISTOL: ... they don't physically count...

WALLACE: ... or whether there's going to be an estimate or a...

KRISTOL: Right. And when I was in the first Bush administration, the secretary of commerce, the general counsel of commerce, got hauled before the Democratic Congress time and time again because of charges of politicizing the census, which they didn't do, and we didn't do.

And we were very cautious in the White House to not have any -- anything to do with them because it was so politically toxic.

I think it was a mistake for the White House to publicly announce -- whatever private conversations they have with their cabinet members, no one will ever know.

For them to say that the census bureau director will sort of report to the senior levels of the White House at the same time as to the commerce secretary, which they announced to reassure Democrats after Judd Gregg was nominated for commerce secretary that this wouldn't be a Republican-run census -- that announcement was a big mistake.

I think Republicans can legitimately complain -- you know, say for the next year, "We want to make sure that census is independent." It's legislatively -- it's statutorily part of the Commerce Department.

WILLIAMS: Well, I think we have to understand that the black and Latino officials were extremely concerned about undercount, and this has been a historic problem.

And they were alarmed when Judd Gregg was given this nomination and, in fact, then made appeals, went directly to the White House... WALLACE: And let me just say, in fairness, didn't he at one point...

WILLIAMS: He wanted to do away with the Commerce Department as a whole. I mean, so he's -- and there have been lots -- and there is a strong feeling among Republicans, given the politics of the country, the changing demographics, that they have no interest in estimates in minority communities. That's just going to bump up Democratic votes, in their opinion. So that's a political point of opposition among Republicans...

SAMMON: Well, Juan, the Constitution says you have to...

WILLIAMS: ... to the -- to the census.

SAMMON: ... have a physical head count.

WILLIAMS: Well, all I'm saying is...

SAMMON: You can't do mathematical sampling. You have to physically count people.

WILLIAMS: When you...

LIASSON: The Supreme Court has actually ruled on this.

WILLIAMS: Right, but when you have a country where people are sometimes inaccessible because of poverty, they live in bad neighborhoods, people don't want to go in there, I think it's reasonable to look at various ways to try to achieve that count, Bill.

And that's all that the minority delegation on the Hill was saying.

SAMMON: You guys talked about how Judd Gregg referred to this as a minor issue. He also said it was a minor catalyzing issue, which is the classic oxymoron.

Try to imagine if eight years ago, the incoming George W. Bush president said, "You know, I'm going to put the census in charge of Karl -- Karl Rove in charge of the census."

WILLIAMS: Well, no question...

SAMMON: We would be hearing about this...

WILLIAMS: ... people would go ballistic.

SAMMON: But Rahm Emanuel is the equivalent...

WILLIAMS: OK.

SAMMON: ... of Karl Rove on the other side of this.

WILLIAMS: Well, nobody's arguing with you. It's an issue. I mean, everybody at this table agrees. My point to you is, though, the politics that are changing is the reason Judd Gregg pulled away.

Look, John Sununu lost in New Hampshire. New Hampshire is now a Democratic state. And Judd Gregg realized he was not going to have any future in politics in that state. He thought this was going to be the cherry on his whole career to be commerce secretary.

WALLACE: And in 15 seconds, Mara Liasson, now with a Democrat, we assume, in charge of commerce, are they going to take the White House out of the census?

LIASSON: Or a businessman. I think that they -- the White House will play a role, but it will be a quiet role.

WALLACE: All right. We won't know about it, which probably is the way it should have been from the start. Thank you, panel. See you next week.

Some choice comments from our viewers after this quick break.

(COMMERCIAL BREAK)

WALLACE: Finally, time for some mail about the president's plans to fix the economy. Kris Oberdick from Florida offered this about how to use the remaining financial rescue funds. "Stop giving the money away to corporations without guidelines. Put it back in our hands so we start spending it. The corporations don't recognize the value of a dollar. The consumer does."

And Robert Barker from Georgia has had enough of all the bickering in Washington. "I am tired of hearing that the Democrats inherited this problem when, in fact, they are the ones who caused it in the first place. Demanding banks to grant subprime loans to people who they knew couldn't afford them led to this problem. The Republicans are equally blame, for they knew what was going on and kept silent."

Be sure to let us know your thoughts by e-mailing us at fns@foxnews.com.

And take a look at our new page on Facebook, where you can watch earlier news-making interviews and find out more about our show.

And that's it for today. Have a great week, and we'll see you next "Fox News Sunday."

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