KING: So who's telling the truth? Here to go "One-on-One" is Senator Judd Gregg of New Hampshire, a leading Republican voice on financial issues. Good to see you, Senator.

SEN. JUDD GREGG (R), NEW HAMPSHIRE: John, thanks for having me. I love the Red Sox shirt.

KING: Amen for that.

GREGG: Is that (INAUDIBLE)?

(CROSSTALK)

KING: That was sent to me as a gift. This was the subject of tense, but bipartisan negotiations for some time, this issue of financial reform. Everybody out there watching is affected by this.

GREGG: Absolutely.

KING: Now those talks have collapsed. You see the partisan mood at the moment. Some of your colleagues say this is all a hangover from health care, that health care got so partisan, forget it, we're not going to work with the Democrats now. Are we being that petty in Washington? GREGG: I hope not. We need to do this in a bipartisan way. This is extremely complex stuff. There really aren't a whole lot of partisan issues in this mix but there's a lot of big issues as you said, it affects everybody on Main Street. And we can do it in a bipartisan way. In fact we are very close to agreements on things like "too big to fail". We're very close on agreements on derivatives, very complex issue. Very close on agreements on systemic risk.

KING: So what's the barrier to agreement? And let me ask you as you do so. The House Republican leader put out a statement tonight saying the Democratic proposals guarantee, quote, "open-ended bailouts". Is that a fair statement? I know you disagree with some of the particulars, but is that a fair statement? Senator Dodd's bill in the Senate does have the shutdown plans, does create a mechanism to shut down firms if they get out of control, the so-called funeral plans. They would have to put up money. Is it fair to say the Democrats want open-ended bailouts or is that hyperbole?

GREGG: That's a touch over the top, but they do have the problem that they have created an atmosphere and the bill does not kill the atmosphere. We're too big to fail still exists because it gives the Treasury and the FDIC the ability to come in, in a bank that's over extended itself for financial institutions that's got systemic risk and allow that entity to be continued as it tries to work out the problems. The proposal which was bipartisan, which was led by Senator Corker and Senator Warner (ph) and which I strongly support didn't allow that to occur.

Unfortunately, that's been put on the shelf. That basically said to a financial institution that wasn't making it, you're done. Your stockholders are wiped out. Your unsecured bond holders are wiped out. You go basically straight to a form of bankruptcy, which is what we should do. Because the markets can't have a concept that somebody can exist even though they're financially insolvent. That undermines basically the efficient use of capital. You do not want that to happen. We have to end "too big to fail" and on our side of the aisle we're totally committed to that and I think the other side of the aisle is too. They just haven't gotten there yet. We have got a better idea. Their idea doesn't get there.

KING: I want to get to some of the specifics because again this is important. It affects every single American watching up, but it is caught up right now in the politics. And here's what the Democrats are saying that these negotiations were ongoing. There were some differences but progress was being made. And then what their take on this is that in this political environment that Mitch McConnell, your leader, Senator Cornyn (ph), the head of the Republican Senatorial Committee, went up to Wall Street, met with hedge fund leaders and said you know what, we're on your side on this issue, give big to the Republicans. That is the narrative coming from the Democrats right now.

GREGG: Well you know that's a little over the top to say the least, too. I mean the simple fact is we were willing to reach an understanding -- I think the pullback here occurs as a result of a lot of different factors. But primarily it is that politics versus substance has taken the forefront. But I think it's coming from both sides of the aisle. I would say that the White House has been extremely populist (ph) on this issue recently. Now originally they had proposals which made a lot of sense and in fact they actually signed on to some of the proposals which were out there that had been reached in a bipartisan effort.

And then they backed up about three weeks ago and said no we're going a more populist route. Well populism has great jingle phrases. You know it makes people feel good to beat up on Wall Street. But in the end, if you undermine the financial institutions that create the loans that make the small business person able to hire people, it cuts off our nose to spite our face. And that's what happens here when you do a -- when you take a populist approach.

KING: So then help me out. A common sense conservative from the state of New Hampshire, a guy who almost became a cabinet secretary in the Obama administration at the beginning before you had second thoughts about that, the guy who was the lead Republican negotiator in creating the TARP Program back in the Bush administration.

GREGG: Right.

KING: You have been involved in this. You have a history of reaching across the aisle. You also have a history of being a pretty fierce partisan when you choose to be too. Where's the circuit breaker here not for who wins in Washington but for the people watching at home who are saying all this time after the collapse, all this time after September 2008 and all this time of watching their 401(k)s go this way and just starting maybe to come back to that point, why has the Congress and the president still done nothing on the big issues?

GREGG: Well first off, I don't want to be too supportive of the administration. I'm happy to be. I'm just kidding. A lot has been done. The simple fact is that the financial industry was stabilized. We were facing a calamity, a catastrophic event, an implosion of our entire financial industry not only on Wall Street but on Main Street and it would have had a massive effect on our economy and the recession we went through would have looked like small potatoes even though it's been very harsh compared to what potentially would have been a depression type event.

And we stabilized the financial industry and now we've gotten the money back from the banks at least. We're not going to get it back from the auto dealers -- with interest, so the taxpayers have actually made a fair amount of money here and that's taken a lot of time to work through. And a precipitous action to try to address this would have probably produced the wrong results. We have to take a look at what really happened, figure it out and try to adjust. Now there are four basic areas where we're trying to make corrections and they're all fairly complex but none of them in my opinion require partisan response.

(CROSSTALK)

KING: So then why does your leader -- why would your leader say today I would recommend Republicans to vote no? Why doesn't -- (CROSSTALK)

KING: Why doesn't everybody button it up and try to go back in the room and fix it.

GREGG: Because the bill that came out of the banking committee was partisan. I mean it did not include the core elements of a really good constructive bipartisan bill. Why don't we button it up and go back in the room? That would be my suggestion. Why doesn't the White House call a little bit of a conference here quietly, bring down the key players, you know Senator Shelby, Senator Dodd, a couple of the other folks who understand what they're doing on these very complex issues, sit them in a room, sit them around a table and say OK we're going to stay here until we get it done. That's what we did with TARP and it worked and I think we could do it now if we wanted to. But right now unfortunately the administration is pursuing this we want a political win, I think, as versus we want a substantive win and that's just my view --

KING: I'm going to ask Senator Gregg to stay with us.

As we mentioned, prices on Wall Street are at levels we haven't seen in 18 months. The Dow industrials did it again today but just barely closing only 13 points higher. The broad s7p 500 also closed at an 18-month high while the Nasdaq hit a 22-month high.

In a minute we'll switch the focus from money and financial reform to some pure politics. We'll see if Senator Gregg thinks it's really in the Republicans' best interest to as some say be the party of no.

(COMMERCIAL BREAK)

KING: We're back with Republican Senator Judd Gregg of New Hampshire. You are unique -- not totally unique but special in the idea that you're not running for re-election, so this is your last year, which I assume gives you the freedom, is this correct, to just maybe be a little bit more honest, a little bit more --

GREGG: You'd like to think you were anyway.

KING: Yes.

GREGG: But there's no question there's a certain relief from the day- to-day necessity of nuancing (ph) things. You just basically -- I was not much of a nuancer (ph) anyway --

KING: Third term in the Senate -- came here in 1992. Lived through the polarization of the Clinton days, the polarization of the Bush days, candidate Obama said Washington was going to be a very different place. I'm not assigning any blame. I think it probably shared on both parties but it's not -- Washington is not a very different place. Why?

GREGG: I think there are a lot of factors. But if I were to pick the number one factor, I believe it's the polarization that's the result of -- I hate to say this -- the 24/7 news cycle where hyperbole is the watch word of the day. And as a result, instead of having substantive thoughtful discussions everybody is trying to get the one-liner that gets them on the news or that makes them -- or that creates an event that's coverable.

And because the news cycle is such that everybody who is doing the news has to basically create attention, you don't get the in-depth sort of substantive thought process or analytical process that you used to have. Now, that may be just a perception we have because we live today. If you go back and you read what happened during Lincoln's day, I mean the vitriol was much worse than ours. I just completed a book on Andrew Jackson and the vitriol was incredible.

I mean the Senate even censured him -- never happened before, never happened since, so maybe it's just that in this moment in time we think it's worse than any other time but maybe it really isn't. Maybe it's just --

KING: What is possible -- what is possible in the rest of this year, midterm election year where everybody has pretty much already gone into their camps, everyone is thinking about raising money. We're going to have a Supreme Court nomination, for example. Do you expect partisan Armageddon there or do you think the president is going to bring Republicans down to the White House, try to have a little meeting of the minds, maybe some sharing information beforehand? Might that be an exception to the current climate?

GREGG: I would hope so. I mean there is certainly a lot of good people out there that he could nominate that wouldn't necessarily be of my philosophy but I'd vote for. I voted for Judge Sotomayor, for example, but as a very practical matter it's going to depend on who he decides to nominate and how he decides to vet that person with members of the Senate before he moves the name forward so that there's a feeling of inclusion as versus exclusion, which is very important.

KING: There's a debate in your party some people say especially in this midterm election year. It's not a national election. You're not pushing a presidential candidate or a big national agenda that say it is safe to be the party of no because people are skeptical of the Obama administration. People are in a bad mood because of the economy. People maybe don't like some parts of the health care bill which is part of the midterm election debate.

Some people say just be the party of no. Your former speaker on the House side Newt Gingrich yet again today said this at a speech here in Washington. "You can't govern by saying no. Imagine we won a huge victory. Imagine that John Boehner is the new speaker -- he's the House Republican leader right now. Imagine that Mitch McConnell, your leader at the moment, is the new majority leader. What's their agenda? It can't just be yelling no." Does your party yell no too much right now?

GREGG: Well we do and we need to when we're confronting things that are very bad for our country either fiscally or from a standpoint of policy. I do not want to see this country move down the road of Europeanization of our nation and basically you've got a government now that's moving to the left. I think the fundamental area that this administration --

KING: That far left? You came pretty close to joining this --

GREGG: Yes, I did and that was my mistake. But the -- all American politics is historically played between the 40 yard lines. But this administration came in with what was essentially super majorities in the House and Senate and they decided to govern like a parliamentary system and they went down to the 20 yard line or the 15 yard line on the left and they basically moved very aggressively out on an agenda --

KING: Did they earn that with their super majority? They won big in 2006 and 2008 --

(CROSSTALK)

KING: They could make the argument we won the election.

GREGG: They had the right to try it but we also have the right and the responsibility to try to resist it. And I don't think the American people are there. America is a center right government, center right people. They want government but they don't want it to be excessive. They want it to be affordable. And most importantly what Americans want is to pass on to their next generation their children a country that's better, stronger and more vibrant and more prosperous. What we're looking at now because of the debt that's being run up in this country is that we're going to be the first generation to pass on to our kids a country that's less prosperous where their standard of living goes down.

That's not fair and it's not right and it's really a function of excessive government, a government just simply growing too much and spending too much. And when you pass something like the health care bill, which is the single largest expansion of the government really in my experience and probably in the last 50 years and you couple that with a nationalization of the student loan program, you couple that with the taking over the automobile industries, you couple that with very significant aggressive procedure, proposals in the area of just general spending on the discretionary non-defense side, you're seeing a government that's just growing beyond our capacity to pay for it and our children are going to end up with a debt which is going to saddle them and make their lifestyles much less viable than ours as far as quality of life.

KING: There is a different perspective of course at 1600 Pennsylvania Avenue and your Democratic colleagues in the Senate, but we will bring them in to give their perspective on this (INAUDIBLE). We thank you for --

GREGG: Thank you, John. I appreciate the time. I love the set.

KING: I appreciate it. Thank you.