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Romer, Rangel, and Shelby on "Fox News Sunday"

Romer, Rangel, and Shelby on "Fox News Sunday"

Fox News Sunday - March 22, 2009

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

The White House pushes a budget congressional expects say will add almost a trillion dollars a year to the deficit for the next decade. Can we afford it? We'll ask Christina Romer, chair of the President's Council of Economic Advisers.

Then, the AIG bonuses have Congress scrambling to catch up to public outrage.

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(UNKNOWN): Arrogance, incompetence, greed.

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(UNKNOWN): That is simply unbelievable.

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(UNKNOWN): You are a disgrace to professional losers.

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WALLACE: With a retroactive punishment tax all but assured, is Congress easing the financial crisis or making it worse? We'll ask two leaders -- Congressman Charles Rangel, Democratic chair of the House Ways and Means Committee, which writes tax laws, and Senator Richard Shelby, top Republican on the Banking Committee.

Plus, the president uses this video to open a dialogue with Iran. We'll ask our Sunday regulars what are the chances it will work.

And our Power Player of the Week, recording history one snapshot at a time, all right now on "FOX News Sunday."

And hello again from Fox News in Washington. Well, it's been quite a week in the nation's capital -- congressional outrage over those AIG bonuses, a new estimate of trillion-dollar budget deficits as far as the eye can see, and the White House about to finally unveil its financial rescue plan.

Here to discuss it all is Christina Romer, chair of the White House Council of Economic Advisers.

And, Mrs. Romer, welcome to "FOX News Sunday."

ROMER: Great to be here.

WALLACE: The non-partisan Congressional Budget Office came out with its projection, its analysis, of the Obama budget on Friday -- and let's put up the staggering numbers, and you can see them right there.

The CBO says the deficit will be $9.3 trillion over the next decade. There are a lot of zeros there. That's 2.3 trillion more than the Obama White House is saying. The president's budget director says those kinds of deficits are not sustainable. Will the president scale back his budget?

ROMER: All right. Well, there are a couple of things to say. One is that there are actually some questions about the numbers, right? When you actually say, "Why are the Congressional Budget Office numbers different from ours," a big part of that is their estimates of long-run growth.

When you get out five, 10 years, they're assuming that real GDP is only going to grow about 2.2 or 2.3 percent a year, and that's just lower than private forecasters. It's lower than the Federal Reserve. And we think it's just too pessimistic.

So I think a big part of why they're getting such different numbers are just some of these technical issues.

On the bigger issue, though, I think in some sense, the president is addressing this, right? He absolutely said he's going to cut the deficit that we inherited in half, and that is a commitment that is as strong as it -- as it ever was.

The other thing is taking on health care. One of the biggest things that he's taking on is something I would guess the Congressional Budget Office is our biggest fan, because they have said for the last many years that the thing that is going to bankrupt us, that's going to make that deficit get bigger and bigger, is the fact that health care costs are rising very, very quickly.

WALLACE: But, Ms. Romer, the chairman of the Senate Budget Committee -- and that is a Democrat -- the Democratic chairman of that committee says that the CBO projections mean there must be cuts beyond what you've already talked about in the Obama budget. Let's watch.

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SENATOR KENT CONRAD: When you've got a new forecast of this magnitude, you've got to make hundreds of billions of dollars of changes to make it all work.

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WALLACE: Are you just going to ignore him? ROMER: The president has said from the beginning that he is absolutely committed to working with Congress. We've suggested cuts. We've suggested changes in revenues. He's -- he's...

WALLACE: But he's talking about billions of dollars of cuts beyond what you've suggested.

ROMER: I think -- I think, again, we're going to need to work with them. I would also just keep coming back to the kind of things that the president has in the budget, right?

He's got health care reform. He's got energy. He's got education. All three of those he said are just too big to wait, and especially come back to those long-run growth numbers that I told you about, right?

What's going to make those be bigger is if we invest in our kids and do good things with education, if we get off foreign oil and get a more vibrant domestic energy system. WALLACE: But, Ms. Romer, let's look at the economic forecast that you're talking about. We'll put them up on the screen. The White House projects 2.8 percent annual growth over the next decade. CBO says 2.5 percent. And in fact, the Blue Chip consensus is even lower than CBO and much lower than yours, 2.3 percent.

So in other words, the CBO projection is more in line and is even higher than the private forecasts, and certainly much closer to them than the White House is.

ROMER: You've got to be careful. Those are deficit -- those are decade-long numbers, and what -- what we...

WALLACE: Well, that's what you were just talking about.

ROMER: No.

WALLACE: These are growth numbers.

ROMER: Yeah, but they -- they actually -- something like the Blue Chip has very negative numbers for the next year or two, but then when you get back to normal, when you get back to normal growth, they're up there at 2.6 or 2.7, whereas the CBO only comes back to, say, 2.2.

WALLACE: Well, I don't want to get into a numbers game, but the point is that there -- people have criticized your budget, and I'm sure you were involved in it as the head of the Council of Economic Advisers, for having a rosy scenario of growth.

CBO says it's going to be lower than you, and the private estimate is even lower than CBO.

ROMER: Again, you've got to be careful. It actually has to do with the pattern of growth, right? What we have is we know that the next two years are going to be rough, but then we think we come back quite strongly to a fairly good, robust level of growth. So unlike -- the CBO actually follows us. They have us coming back quickly but then leveling off at a really, I think, unrealistically pessimistic long-run growth.

WALLACE: Bottom line -- at this point you don't plan to make any cuts, unilateral cuts, in the Obama budget.

ROMER: We're committed to working with Congress to doing what the president said he was always going to do, which is cut the deficit in half over the -- over his first term.

WALLACE: But no new cuts.

ROMER: We'll -- again, we're working with Congress and we'll see where it all comes out.

WALLACE: The Treasury Department will announce its plan tomorrow to buy toxic assets to get financial institutions lending again, but the plan depends on getting private investors -- hedge funds, private equity companies -- to partner up with the government to buy those assets.

Question: How much damage has the furor over AIG, hauling these members up before Congress, this 90 percent tax passed by the House -- how much damage has that done to getting private investors to partner up with the government?

ROMER: I think we ought to be careful for a minute, right? So the -- we ought to -- we have to acknowledge that the outrage is genuine. It's something that we all feel. And absolutely, what the president has said is what's happened at AIG is completely unacceptable. So that's crucial to get on the table.

In terms of what -- you know, I think we're going to have a sensible strategy going forward. The president has very much drawn a distinction.

We understand firms that at some level are only in existence today because the government has stepped in and supported them -- the kind of restrictions you'd put on them for executive comp. All right? That's -- the taxpayers are involved and, absolutely, that -- that makes sense.

What we're talking about now are private firms that are kind of doing us a favor, right, coming into this market to help us buy these toxic assets off banks' balance sheets. And I think they understand that the president realizes they're in a different category, and I think they are going to have confidence that they're going to be able to come into this -- into this program.

WALLACE: And they will be treated differently.

ROMER: I think, you know, we certainly are going to apply all the laws that we have to apply. But they should know that the president understands they are in a different category. They are firms that are being the good guys here, are coming into a market that hasn't existed to try to help us get these toxic assets off banks' balance sheets.

WALLACE: Are you prepared to say right now that the president won't sign a 90 percent tax or even what's talked about in the Senate, a 70 percent tax on these bonuses?

ROMER: That obviously is a decision for the president. What he has said is that he's going to look at any legislation. And I'm sure he will do that.

The other thing I think is so important -- the president's really been very -- I think very wise in saying we all feel this tremendous anger towards AIG, but let's channel that in a sensible way.

And he's already gone to Congress to talk about resolution authority, about saying the next time we've got a company like AIG, we need a mechanism where there is a judge in control, like a bankruptcy judge who can say, "We're breaking this contract, we're not going to do this," and that's really what's been missing this time, and that's why we're in this mess.

WALLACE: What do you say? You said, "Well, the companies should have confidence. They're going to -- they're in a different category. They'll, in effect, be treated differently."

What do you say to the head of a private firm who looks at the last week, who looks at being hauled before Congress, who looks at Congress changing the rules -- the House -- the deal that was made, and now taxing bonuses at 90 percent and says, "Why on earth would I want to do business with the government?"

ROMER: I think the key thing that you would say is what the president has said, which is, you know, these are firms that -- you know, he talks about changing the culture, right? We understand. We're fans of the market. We understand that when a firm's going well, people deserve to be paid well.

But he said there's got to be a new culture, that when firms are in trouble, when the government is having to step in, in that case, for heaven's sakes, don't go out in your same old way, paying great big bonuses.

And so I think they're going to understand that that's -- that's got to be the cultural change that the president has talked about.

WALLACE: And what do you say to taxpayers about why the government should partner up with Wall Street fat cats -- we're talking about private equity firms, hedge funds where people make a lot of money -- and allow them to get even richer in a situation in which the government puts up most of the money and takes most of the risk?

ROMER: Because -- right. The key thing, right -- we've got trouble in our -- let's do the big picture, right? We've got banks with a lot of these toxic assets. What toxic means is they're just highly uncertain. And because they're on banks' balance sheets, we think banks aren't lending. They're afraid to lend. And private equity or private capital is afraid to come in, right?

And so that is certainly the big picture here. And so I think we're -- we're just -- that's going to be the main reason for doing this.

WALLACE: We need them.

ROMER: We just -- right. We simply -- we simply need them. We need them -- you know, we've got a limited amount of money that the government has to go in here, so we need to partner, not just with private firms, but with the FDIC, with the Fed, to leverage the money that we have.

The other thing is we think the private sector is going to be very helpful here. We don't want the taxpayers on the hook for paying too much for these assets. And so part of what we're doing is using that expertise that the private sector has and going in as their partners.

WALLACE: There are growing calls -- relatively small, I grant you, but growing -- for the resignation of Timothy Geithner. What would the impact be on the financial markets and the president's recovery plan if Geithner were to step down and we didn't have a treasury secretary for the next few months?

ROMER: I think -- I think all of this discussion is -- is really silly. Tim Geithner is an excellent secretary of the treasury. He has been dealt an unbelievably difficult hand to deal with. But he's actually doing a fantastic job, right?

He announced back in February an overall plan for how we're going to deal with the financial system. And just remember, what he's been doing in the last several months is just filling in all the pieces.

We've had the housing program. We've had the small business program. We've gotten the consumer and business lending initiative going. Just last week we...

WALLACE: But there are growing calls building up there on Capitol Hill for him to step down. So it isn't silly.

ROMER: I think he is -- you know, the crucial thing is he is doing an excellent job. He has the complete support of the president. And he's going to keep doing an excellent job.

He's going to -- we're going to -- as you pointed out, we're going to be announcing how we're going to get the toxic assets off banks' balance sheets, and there'll be other pieces to come as well.

WALLACE: A couple of final questions I want to get into with you. While everyone was focused on AIG, it went almost unnoticed that the Federal Reserve is pumping another $1 trillion into the financial system.

Do you have any worries as an economist that pumping all of that money into the system is going to drive the value of the dollar down and lead down the line to inflation?

ROMER: No. Actually, I have to say I -- I think starting back with Paul Volcker in the early 1980s, the Federal Reserve has shown itself completely capable of keeping inflation under control. And I have every confidence that they will continue to do that.

I think what we're seeing coming out of the Fed is the same thing we're seeing coming out of our administration and the Congress, of a sense that we have a big problem and we need to take bold actions to deal with them. We've done that on the fiscal side, and the Fed has done that on the monetary side.

WALLACE: And finally, before you came to Washington, you and your husband were experts, leading experts, on business cycles and the recession. You have written that monetary policy alone, what the Fed does in lowering interest rates and pumping money into the economy, is enough to end recessions. You don't need big government spending programs.

And you've also written that tax increases can reduce growth. So my question is, given all of that, what's a nice girl like you doing in the Obama White House?

ROMER: A nice girl like me -- the crucial part of my research has actually said that aggregate demand, fiscal policy, monetary policy -- all those things have big effects on the economy.

And what I've said is sort of historically, monetary policy did most of the work. In most of our post-war recessions, it's what ended them. What we've seen this time is we had aggressive monetary policy. It wasn't enough, right? And that's exactly why it was so crucial that we did the fiscal...

WALLACE: But some would say you didn't give it enough time, that it always takes six months to a year, and when we get to that point it will do the -- do the trick.

ROMER: The signs were absolutely that the economy was getting worse rather than getting better.

And the other thing to say -- you know, again, historically, when we've tried fiscal policy, we never did it at the right time. And what's so impressive this time is we got that fiscal policy, that big stimulus package passed right at the heart of the recession, right when it could actually start doing some good.

WALLACE: So in 15 seconds, how confident are you that if we sat down here a year from today -- and it's a date -- that you'll be able to say, "You know what? Our policies have worked?"

ROMER: Incredibly confident. I -- I truly believe -- that's why we're taking them. We absolutely think that they are going to do the job for the American economy, and so I'm happy to see you a year from now.

WALLACE: And that a year from now we'll see the signs. ROMER: We will -- I feel very confident we'll be seeing the signs that the economy is -- has turned around and is growing again. Of course, it will take time before we're really back to normal, but I think we will absolutely see signs that everything is working.

WALLACE: Ms. Romer, thank you. Thanks for coming in. Please come back, hopefully in less than a year, but in a year it's a date.

ROMER: It is a date.

WALLACE: Up next, we'll talk with two congressional leaders who have very different views about how to fix the financial crisis. Back in a moment.

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WALLACE: Joining us from New York is Democratic congressman Charles Rangel, chairman of the powerful House Ways and Means Committee, which writes all tax measures, and from Tuscaloosa, Alabama, Senator Richard Shelby, the top Republican on the Banking Committee.

Gentlemen, the Treasury Department will announce plans tomorrow for private investors to partner up with the government to by up toxic assets.

Congressman Rangel, after that bill you sponsored last week to tax bonuses at 90 percent, and also the way that AIG was attacked on Capitol Hill, why would any private company want to do business with the government?

RANGEL: Well, it may allow them to understand what the American people feel about their method of compensation. You know, this is an entirely different world that they live in. They have no idea of the sensitivity of people losing their jobs, their health care, their homes.

And it's time now -- and I think the president made it abundantly clear that we have to level the playing field so that people understand the -- what happens, the results of some of their problems with greed.

WALLACE: So real quickly, Congressman, are you saying that if one of these private companies that didn't receive any government bailout partners up with the government, starts buying these toxic assets, and they end up giving these multi-million-dollar bonuses, that you may come back and want to tax them?

RANGEL: Well, I want you to make it abundantly clear that what the private sector does in terms of rewarding people that even if it appears on the outside that they don't deserve these type of reward or bonuses, as they call them -- we'll take another look at that.

But the truth of the matter is you don't do it with taxpayers' money, and that's where the House of Representatives is coming from under direction of Nancy Pelosi . She says get our money, the taxpayers' money, back.

WALLACE: Senator Shelby, do you think that the -- a 90 percent tax on bonuses or the 70 percent tax that's up before the Senate -- that those kinds of taxes could conceivably scare off the private investors that the government wants to team up with to buy these toxic assets?

SHELBY: It's possible. And what I think we have to be careful with is unintended consequences in legislation that Congressman Rangel authored and that passed the House.

I think that we need to pause and think this out and see what the effect of this would be. Nobody wants to award taxpayers' money to people who have caused institutions to fail. We're all against that.

But who put this in motion? You know, TARP and then the stimulus language put it in motion to where they could do it. We got -- lost the signal. We have no signal now.

WALLACE: Can you hear me, Senator Shelby?

SHELBY: The phone buzzed and now it's gone.

WALLACE: Congressman Rangel, let me ask you, just stepping back for a moment, do you support the basic idea of this public-private partnership, where the government would team up with private investors, but government ends up putting up most of the money and taking most of the risk?

RANGEL: No, I don't approve. But I don't think we have a lot of choices. This is a very complex financial crisis that we find ourselves in. And I'm really surprised that we have to go to people that come from the fiscal families that caused this problem to try to help us to get out of it.

When Secretary Paulson came to us, he didn't give any explanation about what he was going to do. He said if we didn't invest taxpayers' money into these large financial institutions, the economic sky would fall.

And so here we find ourselves in a dilemma in having to follow, to some extent, the direction which economists, working with these people, are telling us that we have to do.

It doesn't make sense to a guy in the street, but we've got to give this president, who's only been in office a couple of months, an opportunity to get us out of it.

WALLACE: Congressman Rangel, let me continue with you and maybe explain to the audience we're having some technical difficulties with Senator Shelby. When we get him back up, we'll start talking to him again.

Congressman Rangel, you initially opposed the idea of going after AIG and using the tax code to do so. Let me put it up on the screen. You said last Tuesday, "It's difficult for me to think of the code as a political weapon," but just a day later, you sponsored the 90 percent tax. Why the flip, Congressman?

RANGEL: It wasn't a flip. And it wasn't an opposition. I feel now as I did then. To use the tax code in what may appear to be a penalty to taxpayers I think is wrong.

And when we were told that we just had to make the taxpayers good -- on the other hand, we had to make certain that the American people felt good. We as a government have the responsibility to make certain that people have confidence in government. And the taxpayer did not have confidence in the system.

So when you weigh what options did we have -- did we have the criminal court system? Could they be indicted? Did we have bankruptcy? And it wasn't an easy decision that the members of the Ways and Means Committee made.

We finally decided if on one side these people can have complete disregard of the integrity of the fiscal system in the United States of America, the pain that it has caused Americans who lose their retirement funds, their homes, their dignity, taking their kids out of college, we didn't have any problem in reaching the conclusion that this was our only option, so it wasn't a flip-flop.

It had nothing to do with AIG. It had everything to do with the integrity of the tax system.

WALLACE: Congressman, after the House passed your bill, the 90 percent tax, you went after AIG and you said this. Let's put it up on the screen. "AIG executives have gotten away with murder in what they've done to our communities."

But, Congressman, over the years you've received $110,000 in campaign contributions from AIG. Just last year you were trying to get $10 million from AIG for a school that is named in your honor at a time that you were supporting a tax bill that ended up saving AIG millions.

You seem to have changed your tune about the company.

RANGEL: That -- that is just not so. First of all, as relates to the election system, I would hope that we would go to public financing of all offices.

But I think if you take a look not just at Rangel but Republicans and Democrats in terms of contributions that we receive, including the Republican Campaign Committee, the Republican Senate Committee, that you would find that I did not receive any more than most of the senior members of the House and the Senate.

Having said that, I sent out to all of the foundations an opportunity for them to meet with the officials of the City College of New York for them to contribute to a school that would try to support people going into public service as opposed to people just going to Wall Street and the private sector.

And the fact that they looked it over and didn't give a nickel to it certainly did not influence my opinion about AIG. And it wasn't just AIG that this thing is geared after. Anybody who's received $5 billion of taxpayers' money and received bonuses and that's been over $250,000 will be the target. So I think it's more popular for you to talk about AIG since they were the most open violators of the public trust, but I want you to know that my bill and my thinking goes far beyond that. It goes to the American people and the integrity of the tax system.

And nobody has ever accused me, except a reporter, of wrongdoing. And that's going to be looked at and dismissed.

WALLACE: Senator Shelby -- and we now have Senator Shelby back.

And thank you, sir. We apologize for the technical difficulties.

SHELBY: Thank you.

WALLACE: Back in January, you voted to confirm Timothy Geithner as treasury secretary. Do you still have confidence in him?

SHELBY: Oh, I -- my confidence is waning every day. I said competence brings confidence to anything. I don't see a lot of things positively thus far that Timothy Geithner's been involved in.

And then we saw what happened last week, dealing with the bonuses. You know, nobody wanted to claim responsibility for the language in the stimulus bill that grandfathered the bonuses in at AIG.

Now we know it came from Treasury. There's a lot of questions to be asked. I'm not a -- I'm not feeling real good about Treasury's role or the specific role of Tim Geithner at the moment.

WALLACE: Do you think he should step down?

SHELBY: Well, I said last week he works for the president, and I can tell you what, if he keeps going down this road, I think that he won't last long. I think he's probably on shaky grounds now, at least with the Congress and a lot of the American people.

WALLACE: And let me ask you, just following up on that, Senator Shelby, what do you think would happen if he were to step down and we didn't have any treasury secretary in the middle of this financial crisis for several months?

SHELBY: Well, I think that somebody would step up to the plate. They would have to. The question is, is Geithner the man for the job. A lot of people question that. I had reservations about him all along.

You know, he was the one that presided over the New York Fed as the regulator of the big banks for five years as they got in deep trouble. So I think the jury is really out on him, although the president says he's got a lot of confidence in him.

I don't know if he's looking for -- looking at his resume or looking to stay on, but he's going to have to do a 180-degree turnaround, I believe, to be a successful treasury secretary. WALLACE: Gentlemen, we're running out of time, and I'm going to ask you both for quick answers to this question. We saw the CBO estimate that the deficits from the Obama budget are much bigger, $2.3 trillion bigger, than the White House projects.

Senator Shelby, should President Obama scale back his budget given those new numbers?

SHELBY: Absolutely. He's going to have to. We're on a -- on the fast road to financial destruction, and I see a 20 billion -- a $20 trillion deficit in the few years to come.

WALLACE: Congressman Rangel, you've got to be troubled by these CBO numbers.

RANGEL: I am more impressed with the fact that Obama is looking for a better educated and a healthy -- a stronger workforce going into a new green economy, that this has to show that America can get off the ground with the deficit and move to where we were under the Clinton administration, drawing a strong surplus.

The only way for us to get out of this is to change our way of living in this country, and that's the direction in which the Obama budget is going, and I strongly support it.

WALLACE: Finally, Congressman Rangel, the House Ethics Committee, as you pointed out, has been investigating since September your failure to pay taxes on rent from a beach house you have in the Dominican Republic, the question that you have several apartments in New York City at below-market rent rates.

Without going into all the details, the question I think a lot of people have is you're the chairman of the House Ways and Means Committee that writes all the tax law. How can you have problems paying your taxes?

RANGEL: Just because a reporter from the New York Times has a problem with me doesn't mean that the Congress and the country has a problem. And every reporter, including you, would pick up without any facts, without any investigation -- indeed, suggest don't go into the facts -- because one of your colleagues in the press said it.

Nobody outside the press has made any accusations, and I have asked the House Republicans and Democrats to review it in order to have it dismissed. So you can tell the story over and over and over again, but it has no merit and it has no facts.

WALLACE: But the House Ethics Committee has been investigating this for six months and still hasn't reached a judgment, still hasn't cleared you. I guess one of the questions I have is, is it that complicated that it should take the House Ethics Committee six months to investigate this?

RANGEL: Maybe your question should be how long has the Congress been in session during those six months. If you take in consideration the Christmas holidays, you take in consideration the fact that we've had other national holidays, the fact that members have not been in Congress each and every day to look at it -- if I'm satisfied, and there has been no accusations coming from the Congress, I would think that the press ought to be fair enough to wait to see whether or not their colleagues have any substantive charge to make. I mean, that's fairness.

WALLACE: Well, we're always fair and balanced here, Congressman Rangel.

RANGEL: Oh, yeah, I forgot I was -- I forgot I was on channel five.

WALLACE: Well, Fox. That's right. But thank you.

RANGEL: Fox.

WALLACE: Thank you very much, Congressman Rangel.

And thank you, Senator Shelby. We apologize...

SHELBY: Thank you.

WALLACE: ... to you for the technical difficulties.

But we want to thank you both for coming in today and talking with us.

SHELBY: Thank you.

RANGEL: Thank you.

WALLACE: Up next, we'll ask our Sunday regulars about the outrage on Capitol Hill over AIG. Did Congress start to fix the problem or just make it a whole lot worse? Stay tuned.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

REP. EARL POMEROY, D-N.D.: Let today's vote say loud and clear to those running to cash their ill-gotten checks, you disgust us. By any measure, you are disgraced professional losers. And by the way, give us our money back.

(END VIDEO CLIP)

WALLACE: That was North Dakota Democrat Congressman Earl Pomeroy , who may have just won the contest on Capitol Hill this week for expressing the most outrage over the AIG bonuses.

And it's time now for our Sunday group -- Brit Hume, Fox News senior political analyst, and contributors Mara Liasson of National Public Radio, Bill Kristol of The Weekly Standard, and Juan Williams, also from National Public Radio.

So, Brit, what do you make of the condemnation of AIG in Congress this past week and the passage of that 90 percent tax on the bonuses?

HUME: Well, you know, Chris, isn't the case that great big, powerful, well-heeled companies have enormous influence through all their lobbying and campaign contributions and that the public will is going to be overridden on their behalf? No way. You get an aroused public, you get a stampede, and companies like that get legislated against. There's nothing more powerful.

On the other hand, that doesn't mean that the wise things are being done here. There are all kinds of likely unintended consequences. Some of them you discussed on this program. And it would have been nice, wouldn't it, if the president of the United States -- who is now, after the bill is well on its way, beginning to express some reservations about it -- had tried -- rather than to stoke this bonfire up there, had tried to temper it?

But no. This is what -- this would have been hard, and so far this president does not have a record of doing the hard things.

WALLACE: Do you think that the president was just caving, or do you think he felt like I better get ahead of this parade so I can redirect it?

LIASSON: That's what I think. But that is a very, very hard thing to do and it's a dangerous game to play. When you're trying to surf a wave of popular anger -- I think a lot of people in Congress, not just the president, said, "Look. We have to vent our outrage, show we identify with the American people, because otherwise we'll get run over by this."

I think what they're hoping is now that this thing is going to the Senate, which is, you know, in the cliche, the saucer where these passions cool, that they can rein some of this stuff in.

This is a danger to two things. Number one, it's going to make it -- it was already almost impossible, now it's going to make it completely impossible to go back to Congress for any more bank bailout money should they need it. And number two, it's going to make it harder for them to do the number one job which is get these toxic assets off the banks' books and get them lending again.

As you, you know, talked about earlier with the guest, what private companies are going to want to participate with the government if this is what's going to happen to them if they make any money? And what banks are going to want to participate in this program?

WALLACE: Bill, what do you make of the plan that we're going to get unveiled by supposedly Treasury Secretary Geithner tomorrow, public-private partnerships to buy up the assets, get the banks lending again? And how much harder did this whole AIG furor make it?

KRISTOL: You know, look. I think the -- their incompetence over the last -- apparent incompetence over the last six, seven months of the Paulson-Geithner Treasury Department and of the Bush and Obama administrations in addressing this crisis, and understanding it -- certainly, in explaining it to the American public -- has made it -- has not given them the benefit of the doubt which is what you need when you're introducing something so complex to deal with such a difficult problem.

I tried to study up on it last night. You read 10 economists' blogs and essays and you get, you know, nine or 10 or 11 different opinions.

But I would say I'm struck from left and right how little confidence there is that Treasury's plan will work, that -- that they're -- they still seem to think it's a liquidity problem. Get those toxic assets off the books and then the banks will start lending.

But it's not clear to me the problem is an absence of lending. The banks are insolvent. They're zombies. And they're going to be zombies -- the great worry, when you read people who seem to know what they're talking about about this is -- the great worry is we're just going to have a very expensive way of spending a lot of taxpayer money.

I think private firms will enter, incidentally. The fact that AIG was treated badly, maybe deservedly so, isn't going to stop firms coming in to help the government. AIG was a recipient of government money. I'm sort of on the populist side of this outrage. But anyway, I think firms will come in if they think there's a chance to make money. But I am -- I'm struck by how little confidence there is that this plan will work from the people who are intelligent critics, intelligent observers.

WILLIAMS: Well, to the contrary, I think that people see that there's something being done, and that they know something has to be done. And unlike the Republicans who are saying, "Oh, you know, we don't think this is necessary," here are Democrats who are taking proactive steps to try to cure a problem.

And you know, my curiosity -- I agree with you about these big companies. When you look at Goldman Sachs, U.S. Bancorp, Bank of America -- they're all taking the money. Why are we expressing such concern over whether or not they want to participate? It's their -- they don't exist without the government putting money in them. That's what we're talking about here.

WALLACE: Let me pivot a little bit here.

Let's talk about Tim Geithner, Brit, who clearly was slow to realize the public furor that the AIG bonuses would bring and also seems to have left Senator Chris Dodd out to dry most of this week about the fact that it was Treasury that insisted that he alter the amendment.

How much trouble do you think Geithner's in?

HUME: I think Dodd's in more trouble than Geithner. I mean, the Treasury encouraged him to do this. Dodd did it and then mounted this incredibly evasive explanation of it in which every single -- in his initial explanation, Dodd's initial explanation, everything he said was literally true and utterly misleading, and then he subsequently came out and said, "Yeah, yeah, I did it. The Treasury made me do it."

Well, wait a minute. If he'd looked at it and thought it was a bad idea, he would have said, "I'm sorry, Treasury, I'm not doing it." I mean, Treasury doesn't hold a whip hand over the chairman. He's one of the barons of Capitol Hill, after all.

Now, there are probably reasons that have to do with companies other than AIG and their bonus structure -- after all, bonuses sound like a big deal because most of us who work in the businesses we work in don't get bonuses. We get whatever payment we get in the form of salary.

But in the financial world, bonuses are extremely common. They have been recommended by management experts for years as a way to -- if they're -- particularly, if they're incentive bonuses, where your performance gets you a bonus and determines its size, that that at least gives you -- you know, it's not just salary for whatever you do. You get rewarded for doing well.

Now, obviously, some people who didn't do very well may have gotten some bonuses here, and that's -- and that's obviously a big part of the outrage.

But you know, Geithner's obviously in some trouble because the plan that was -- that should have been job one, which was the plan to deal with the credit crunch, has turned out to be much lower on the priority scale in terms of when they're rolling it out, when -- in the midst of all this outrage and all this money that's already been spent, and it makes the job much harder.

WILLIAMS: But don't you think there's a back and forth? Because in fact, Maxine Waters said it inelegantly this week when she said President Obama's just not up to speed, or something. But I think a lot of people didn't look at the bonuses as a big issue.

And if you break out the bonuses as a percentage of the big ticket here, what we're putting in to save the banks, it's really minuscule.

HUME: I agree.

WILLIAMS: So the large...

HUME: I agree.

WILLIAMS: ... picture is how can we get this banking system going.

HUME: You're right. You're absolutely right about that. And any perspective on it would lead you to focus on something else.

WALLACE: Mara? Mara, go ahead.

LIASSON: I think -- look. I think the big picture which now is being neglected in this uproar is the most important thing. And if the banks, as Bill says, are really insolvent, what are you going to do about them?

I mean, what -- we haven't heard one word about the stress tests and all this talk about this new plan to get the toxic assets off. I thought they were going to go into these banks, find out what they really were worth. Some of them were going to be insolvent. Some of them needed more infusions of cash. That seems to have completely disappeared.

And now we're going to wait for the banks to come forward and decide which toxic assets it wants to put up for auction in this new plan?

WALLACE: But let me -- and we only have a minute left, Bill. I mean, part of the problem with this is I don't think that any of us fully understand how this is going to work, but if the private-public partnerships come in and they buy the toxic assets and get them off the books, doesn't that make these banks solvent?

KRISTOL: No.

LIASSON: No. KRISTOL: No. It may...

LIASSON: They might be worth nothing afterwards.

KRISTOL: Exactly. It's not clear that Citibank is a solvent entity. It depends what the people are willing to pay for those assets. The reason Citibank looks sort of solvent now is that they're holding -- carrying these assets on the books at 60 cents or so on the dollar. If they're worth 30 cents on the dollar, they're insolvent.

And people I respect worry that the administration plan does not deal with the fundamental problem that the big banks are insolvent and that they're going to throw good money after bad when you've spent $182 billion on AIG. That's the big story, and that's why Tim Geithner should be in trouble.

Tim Geithner was the head of the New York Fed -- he was -- he was key in the original AIG bailout. They did not go to Congress for that. Paulson and Geithner said, "We've got to bail out AIG." Was that $182 billion well spent?

WALLACE: And Bernanke. It was the -- it was the Fed that was involved originally.

KRISTOL: And Bernanke, right.

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

But when we come back, we'll discuss President Obama's overture to Iran. What are the chances for a breakthrough?

(COMMERCIAL BREAK)

WALLACE: On this day in 1972, the Equal Rights Amendment passed the Senate. The amendment banned discrimination on the basis of gender. But the states failed to ratify it before the deadline.

Stay tuned for more from our panel and our Power Player of the Week.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: The United States wants the Islamic Republic of Iran to take its rightful place in the community of nations. You have that right, but it comes with real responsibilities.

(END VIDEO CLIP)

WALLACE: That was a video message from President Obama in which he seemed to turn the page on President Bush's policy in recognizing the government of Iran.

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

So, Bill Kristol, you have an editorial in the new Weekly Standard in which I think it's fair to say that you do not applaud the president's message to Iran or his new policy. What's wrong with it?

KRISTOL: You know, it's an embarrassment. There's no statement of solidarity with the people of Iran -- the word "liberty," the word "freedom," the word "democracy," the words "human rights" nowhere in the message.

He speaks to the leaders of Iran who have imprisoned Americans in the last couple of months and American journalists who -- an Iranian blogger died in prison last week -- not a word about that. But he speaks to the leaders of Iran and promises them respect.

And it's a gesture -- it's weak, and I think the Iranians took it as a weak statement since they immediately showed contempt for it and said, "Well, that's nice talk. Now follow up with some actions. Remove the sanctions."

And I suppose now Obama will be under pressure -- he'll feel that to really be nice to the Iranians, he's now got to -- you know, he doesn't mention the nuclear program, incidentally, in the statement. No, it's a weak and embarrassing statement by a president of the United States. I hope it doesn't actually have damaging effects.

WILLIAMS: Well, I couldn't disagree more. I mean, it seems to me this is the start of a new year there, and this was a new year statement and an attempt to sort of set forth new diplomatic opportunities to say we are going to view you as a government. He didn't use the term regime of President Bush's vintage. Instead, he says, "We view you as a government, but at the same time, you can only gain credibility in the international community by peaceful means, not through use of terror." And I think he speaks very clearly, if not, you know, powerfully, to the idea that there are alternatives here for the U.S., but we now choose to try to engage you, to speak to you.

And their decision to, you know, come back, you know, with -- sort of disrespectfully -- I think that speaks to them, but it says to the international community the United States is trying its best to work this out peacefully and, therefore, Russia and the European community might do something with the United States.

WALLACE: Brit, one of the things that the foreign policy people have noticed is that twice in his address, he talked specifically about the Islamic Republic of Iran, which President Bush never did -- and see that as him taking regime change of the Islamic fundamentalists government there off the table.

HUME: Well, perhaps he did. You know, Condoleezza Rice said something to me last year that when she -- when she said it, I was surprised. She said almost no governments in the world practice diplomacy the way the United States does. "Huh?" I said. She said that is that we practice diplomacy always backed up by the possibility or even the threat of some force -- forceful action, whether it be economic or whatever.

She said most governments in the world think diplomacy -- you don't do that. You talk, and then when that doesn't work, you talk some more, and then you keep talking, and eventually you hope through diplomacy of this kind to persuade regimes that you're having trouble with to behave differently.

Well, it appears that Barack Obama , by this statement, has joined the rest of the world. She said -- Rice told me -- she said the United States does it that way, the Brits do to some extent, and the Australians do. Well, it appears that President Obama has joined the rest of the world in practicing the diplomacy of talk.

WALLACE: Mara, let me -- the White House officials make two arguments to explain what President Obama did. They say, one, it's important to play the diplomatic card first, to show good faith, so that if it fails, then you can go back to the allies and ask for tougher sanctions.

And two, they say there are Iranian presidential elections coming up this summer. This kind of moderate talk perhaps undercuts the hardliners.

LIASSON: Well, I don't know about the second part. The first part I agree with. I don't think the damage by this videotape is going to be great, and I do think it gives Obama a firmer leg to stand on when he tells the Europeans, "I tried this, I got no response. Now I want you to join with me in these tougher sanctions."

Now, the second one, whether this kind of a statement can actually influence the Iranian elections -- I don't know. I think that, you know, the initial reaction from Iran was very hostile, and it came from the ayatollahs, but what -- you know, we're told by experts in Iran that sometimes it takes a couple weeks for them to actually formulate their response to...

HUME: The worst thing that...

LIASSON: ... something, and this is the placeholder.

HUME: The worst thing that could happen would be for the Iranian government to respond favorably and positively and want to engage and have a discussion. And then we would be on a track like that which will lead nowhere in the end.

I mean, it's not as if there's not enough evidence to figure out what kind of government this is and what its intentions are. That's been abundantly clear for many, many years.

And a -- and a -- and an endless round of talk -- first, there'd be talks about talks, and then there'd be talks, and then there'd be talking, and in the meanwhile the Iranian regime would continue to do what it's been doing, but everybody in the world would sit by nodding affirmatively that this is the right approach. It'd go nowhere.

WALLACE: But, Bill Kristol -- Bill Kristol, the -- President Bush didn't recognize the Islamic Republic of Iran. He didn't engage in diplomacy without preconditions. Where did that get us?

KRISTOL: It got us three rounds of sanctions agreed to by the U.N. and by the Europeans. Why did the Europeans...

WALLACE: But did the sanctions have any effect on Iran?

KRISTOL: Well, if not, then we have to consider the use of force. But if you want more sanctions -- the reason the Europeans went with sanctions is because we were threatening. It's because we deposed Saddam Hussein, and that's when they got interested in sanctions suddenly, in late 2003, and because they were worried that the Bush administration might actually do something.

With Obama taking the threat of force basically off the table, the willingness of the Europeans and certainly of the Russians to be serious about sanctions is going to diminish. Appeasement begets appeasement. Appeasement does not -- appeasement does not lay the groundwork for toughness among your allies who already are weaker.

WALLACE: Juan?

WILLIAMS: Why do you think -- why do you think that he's taken anything off the table? He simply offered...

KRISTOL: Here's why.

WILLIAMS: ... an opportunity to have a discussion.

The second point to make is in terms of these elections that are scheduled, I think that you have to have some faith in the Iranian people that they are, in fact, hoping for some moderation and change and view this as an opportunity to isolate the hardliners.

WALLACE: All right.

KRISTOL: If they could vote for someone who wasn't a hardliner, they might vote for people. But they're...

WALLACE: That's change.

KRISTOL: It's not a free country.

WALLACE: This is a perfect segue to the fact that I'm going to say thank you, panel. See you next week.

And don't forget to check out the latest edition of Panel Plus on our Web site, foxnews.com/fns shortly after the show ends, where we will continue this precise conversation.

Time now for some mail, and the uproar over the bonuses at AIG spilled over into our inbox. Tim Snook (ph) from Pensacola, Florida writes, "I am concerned that the same government that brought us Social Security, Medicare, Amtrak and the postal service, all operating at a deficit, thinks they should tell AIG and others how to manage their companies."

On the issue of what did they know and when did they know it, Bill Corper (ph) from Hattiesburg, Mississippi asks, "How is it possible that Frank, Summers and Geithner did not do basic research on the companies' compensation plans by now? They were surprised? They must be kidding."

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

Up next, our Power Player of the Week.

(COMMERCIAL BREAK)

SOUZA: Every aspect of Barack Obama 's presidency, from the grand events to the most personal moments, is being captured for history by one man, and he is our Power Player of the Week.

(BEGIN VIDEOTAPE)

SOUZA: People can go back in 50 years and look back at this set of pictures and get a good glimpse of this presidency.

WALLACE: Pete Souza is chief White House photographer. His job, to record everything President Obama does from the moment he leaves the residence in the morning till he goes home at night. That means taking between five and 1,200 pictures a day from big events to what he considers more important.

SOUZA: For me it's always the behind-the-scenes moments, because I'm in situations that other photographers aren't. WALLACE: Souza showed us his favorites, some of which have never been seen by the public before. On inauguration night, he shot this picture of the first couple.

SOUZA: He was in the freight elevator going to one of the balls, and it was cold, and he put his jacket over his wife's shoulders, and then they kind of touched foreheads. And you know, he's got these staff and Secret Service guys in the background not wanting to pay attention to this little private moment that's happening.

WALLACE: The president watching the Super Bowl.

SOUZA: You see the president signaling touchdown, and there's some dispute as to whether it was a touchdown at first. And he's already saying it's a touchdown.

WALLACE: Then there was a photo op in the Oval Office with the governor of Vermont.

SOUZA: As soon as all the press photographers left, the president said, "Well, let's move the furniture back into place," and the thing that's funny about it is he's moving the furniture, but the governor doesn't quite know what to do.

WALLACE: Souza was the only photographer to shoot the redo of the swearing in.

(BEGIN VIDEO CLIP)

OBAMA: I, Barack Hussein Obama, do solemnly swear...

(END VIDEO CLIP)

WALLACE: Was he overwhelmed by a sense of history?

SOUZA: In that particular case, it was, "Oh, my God, the light in this room stinks. How am I going to make this picture work?"

WALLACE: If Souza is businesslike, it may be because he spent five years as White House photographer for Ronald Reagan. And surprisingly, he said that president was harder to cover in private.

SOUZA: In some ways, he was a difficult subject, because he was very formal in his ways. He didn't show big emotions.

WALLACE: What he remembers best -- moments when Reagan forgot about the camera.

SOUZA: There's the one picture of him throwing a paper airplane from the balcony of a hotel in Los Angeles. Pictures of him at the ranch -- you know, I think those -- those pictures humanized him.

WALLACE: Souza met Barack Obama while covering his first year in the Senate for the Chicago Tribune.

How do you feel about the opportunity to chronicle not one but two of our most historic presidents?

SOUZA: Oh, I think I'm the luckiest photographer in the world. I'm not in this job because I'm the best photographer in the world. I'm in this job because I met Barack Obama in '05 and he liked me, so I just think I'm, you know, a lucky SOB.

(END VIDEOTAPE)

WALLACE: If you want to see more of Souza's pictures, there's a rotating display at the White House Web site, whitehouse.gov.

Now, this program note. Tuesday night you can watch President Obama's prime-time news conference at 8:00 p.m. Eastern on Fox Broadcasting with Shepard Smith anchoring and on Fox News Channel with Bret Baier leading the coverage.

And that's it. Have a great week and we'll see you next "FOX News Sunday."

For more visit the FOX News Sunday web page.

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