Friday News Roundup - Hour 1

Transcript for: 
Friday News Roundup - Hour 1

MS. DIANE REHM

10:06:54
Thanks for joining us. I'm Diane Rehm. President Obama chided Congress over its failure to come up with a budget deal. He called for ending tax breaks for the rich to keep the U.S. from defaulting on its debt. Bank of America reached an $8.5 billion settlement in a mortgage-backed security suit. Rob Blagojevich was convicted on political corruption charges. And new questions in the case against Dominique Strauss-Kahn.

MS. DIANE REHM

10:07:32
Joining me for this week's Friday News Roundup of national stories, Jerry Seib of The Wall Street Journal, Lynn Sweet of the Chicago Sun-Times and David Welna of NPR. Of course, you are invited to join us as well, 800-433-8850. Send us your email to drshow@wamu.org. Join us on Facebook or Twitter. Good morning, everybody.

MS. LYNN SWEET

10:08:09
Good morning.

MR. JERRY SEIB

10:08:09
Good morning.

MR. DAVID WELNA

10:08:09
Good morning.

REHM

10:08:10
Jerry Seib, why does the White House now say July 22 is the new deadline for a budget deal?

SEIB

10:08:20
Well, the deadline for the government having to run the risk of defaulting on its debt hasn't changed. That's still Aug. 2. The Treasury is recalibrating that, but I think it's likely to stay there. The July 22 date is the White House's calculation of when Congress -- when negotiators would have to have a deal in time for Congress to actually codify it, pass it and the president sign it into law by that Aug. 2 deadline.

SEIB

10:08:44
So the reality of the government's fiscal situation hasn't changed. What you heard the White House tried to say yesterday was, here's the legislative political reality. We got to get this done by July 22, or we'll miss.

REHM

10:08:56
So President Obama got out front. He chided Republicans. How likely are they to come to some deal over tax increases?

SEIB

10:09:13
Well, I still -- they're not going to come to a deal on tax increases because nobody will say that that's what the deal includes. I still think they're more likely than not to come to a deal on a deficit reduction plan that allows them to raise the debt ceiling. What you're seeing right now are a lot of theatrics and a lot of playing to base constituencies in Washington. And the Republicans have had to say, over and over again, we will not have a deal that has any tax increases, period.

SEIB

10:09:38
And President Obama seemed to go out this week and say, we will have to have some tax increases if we're going to have a deal, because that's what his base wants to hear. In reality, there is a deal that we've done. It will combine somewhere around a trillion to $2 trillion dollars in spending cuts and some revenue increases. That will not be increases in anybody's tax rates, but will be changes to the tax code that will raise some additional money.

SEIB

10:10:00
That's the deal that's there to be done, and all the rhetoric is mostly obscuring that. That doesn't mean that it will necessarily get done, but it can be done. And that's the gamesmanship of the hour.

REHM

10:10:11
David Welna.

WELNA

10:10:12
Yeah, I think that there has to be some revenue component in this. And, by the way, the President has never said tax increases. He has only said additional revenues, and that's sort of key in -- watching the way people talk about this is interesting because I've noticed, also, some Republican lawmakers have spoken about increased tax rates now. And that's not something that's really in play.

WELNA

10:10:36
They're not looking to raise the tax rates for the top-income earners, something that had been talked about earlier. But I think that there are a couple of reasons why, I think, revenues have to be part of the mix.

WELNA

10:10:47
One is that they would need to get about $2.4 trillion in savings over probably the next 10 years or so to get to the target that John Boehner has set of having more savings than the amount by which the debt ceiling would be raised, and to be raised through the 2012 election. So that they don't have to vote on this again before that election, it would have to be raised by about $2.4 trillion.

WELNA

10:11:17
They might be able to find up to $2 trillion in cuts in various things and by adjusting the consumer price index first -- Social Security, for example. But that would still leave them short. That's one thing. Another thing is that, in the House, Speaker Boehner probably will not get enough Republicans to vote for raising the debt ceiling. And he will need Democrats to help him out on this, just as he did to avoid a government shutdown back in April.

WELNA

10:11:46
And I think that Democrats would be loathe to vote for something that was only spending cuts. And so there has to be some sweetener. It is going to be a lot of sort of rhetoric and semantics about what are these -- are these tax increases, are they revenue raisers, that sort of thing. But I expect some kind of a deal is going to come out.

REHM

10:12:09
Lynn Sweet.

SWEET

10:12:10
Government, unlike private enterprise or even schools -- Obama used the example of how his daughters, Malia and Sasha, got their homework done during his press conference. Why can't Congress get their homework done? It's not -- the outlines of the deal aren't there yet, so you can't do it. This is government. You govern by deadlines. It is dramatic. It is probably -- someone in the White House told me -- going to be a last minute.

SWEET

10:12:33
You know, this isn't revelation pressure that makes the deal. The term of art to watch for is, is it a -- is a tax -- closing a tax loophole a tax increase? That's what it's going to come down to is, is a loophole the same thing as an increase? Well, if it affects your...

REHM

10:12:50
Give me an example.

SWEET

10:12:51
Okay. Here's an example. If you have a race -- a horseracing subsidy, if you have a subsidy for ethanol, is a subsidy that may not be merited anymore, closing it a tax hike? Well, not for everybody. If you're on the receiving end, it is. Now, when you talk about -- and this is not on the table right now -- if you own a home, you get a tax break because you could deduct your mortgage.

SWEET

10:13:17
If it was taken away, it would be a tax hike. So this will be a discussion -- is a tax -- causing a loophole the same thing as a tax hike? And it gives the Republicans some breathing room because there are some Republicans that are purists on this issue, too, about fair taxation. I see there are several paths to get to a deal, but it will go to the last minute.

REHM

10:13:40
David Welna.

WELNA

10:13:41
Well, this is a key point, because, two weeks ago, there were 34 Republican senators who voted to end a $6 billion annual ethanol blender's tax credit. This is something that's not needed anymore because, by law, they have to blend ethanol, and they're getting paid on top of that to do it. And a lot of Republican senators who had signed the pledge with Grover Norquist not to raise taxes, just decided, no, this is too outrageous.

WELNA

10:14:07
I'm going to go ahead and break this pledge. And so, in some ways, they've lost their virginity on this one.

SWEET

10:14:14
Well, also, in terms of just discussing -- how can you have rational discussion about tax policy and say nothing can change? And I think that kind of conversation appeals to people on both sides of the aisle. You -- how can you say we're going to use the tax code to address different societal issues, which is what we do, and then say, it can never change? It doesn't make sense.

REHM

10:14:34
You know, who -- David Welna just mentioned Grover Norquist. How much is he behind the position Republicans have taken all the way through this?

WELNA

10:14:49
I don't think it's Grover Norquist. I think it's a Tea Party-fueled impulse among Republicans. A lot of Republicans were literally elected last year, in 2010, promising to, A, cut government spending and, B, never vote to raise the debt ceiling. And now those are promises that are coming back to them. And I think there's a Tea Party -- a drive within the party that is influencing its view of these things.

WELNA

10:15:12
So, I mean, Grover Norquist is a factor, but I think the bigger factor is kind of a Tea Party revolution. One thing to note here is that, you know, there could very well be some tax cuts in this package, too. There are couple of things that Democrats would like to do that might stimulate the economy in the short run if they could throw in here, including extending and maybe even increasing, the payroll tax cut that everybody agreed to temporarily earlier.

WELNA

10:15:34
So you may have a package that can be sold because Republicans can say, well, there's some revenue increases here, but there are some offsetting tax cuts that we've agreed to as well. So there's plenty in the mix to do the deal if people want to get it done.

REHM

10:15:48
Is default inconceivable, as Larry Summers has said?

SWEET

10:15:55
Well, it -- I think it's unlikely. It is -- I think it is theoretical still at this stage. This is only July 1. And as government negotiating days ago, this is like dog years. You still have a lot of time until July 22. The thing to watch for is how soon and if the markets respond. That's what will cause a speeding up of the timetable.

REHM

10:16:17
And, David Welna, there are reports out that Treasury Secretary Geithner has told the president he might resign. When? What are the implications?

WELNA

10:16:31
Yeah, he says he has not made a decision on this. And it seems that if he were to do this, he would certainly wait until after this debt ceiling debacle has been dealt with. That would be sometime in the fall, I suppose, if he decided to bow out now.

WELNA

10:16:47
But one of the problems of doing that is, of course, he would have to be replaced by someone who would have to go before the Senate for confirmation, which would then put the entire Obama economic administration on trial just as the 2012 campaign is really heating up. So it's a very tricky situation.

REHM

10:17:07
Jerry, who's waiting in the wings?

SEIB

10:17:10
Well, I'm not sure anybody is waiting in the wings. There are some obvious names that people are talking about, Roger Altman, who was the Deputy Treasury Secretary in the Clinton administration and has been kind of around the edges of Obama policymaking, but not in the middle of it. So he would be in outsider, which might be an advantage for the reasons David is citing.

SEIB

10:17:27
You know, Bill Daley, who's the new White House chief of staff is a kind of guy -- he's not an economist, but he's a business person and a man of stature who might be somebody who could fill that role. Erskine Bowles, who was a Clinton White House chief of staff, who was just part of the deficit reduction commission that the president appointed. The problem with that are -- although it might actually be an advantage 'cause he was really critical of the president in the end for not being more aggressive on the deficit.

SEIB

10:17:49
But in the confirmation scenario we're talking about, that might not be a bad thing. So those are -- and Jack Lew, the budget director, the current budget director is another name that you're going to see tossed about...

SWEET

10:17:58
Janet Yellen is a name that's been mentioned. She is the vice chairwoman of the Federal Reserve. Now, that name is out there, too. Yeah, there's not a lot of women names being mentioned.

WELNA

10:18:06
Sheila Bair, the FDIC chairwoman who's about to step down from that post, and who was a Republican appointee.

REHM

10:18:15
So, considering the fact that we have a Congress remaining in session, how likely are we to get something done?

WELNA

10:18:26
Well, I don't think we're going to get something done next week. Next week, I think it's mostly kind of showing the flag after being basically berated by President Obama at his press conference on Wednesday. And they're going to be there, but don't hold your breath for any deal next week.

REHM

10:18:44
David Welna of the NPR. Short break. We'll be right back.

REHM

10:20:03
And welcome back to the Friday News Roundup this hour dealing with national issues. One thing I wanted to ask you about is QE2, Jerry Seib, the -- remind us of what QE2 is and why it's over.

SEIB

10:20:24
Well, QE2 stands for quantitative easing, which is techno speak for two rounds of stimulus that the Federal Reserve board has tried to apply to the U.S. economy in the form of taking Federal Reserve assets and sort of pouring them into the banking system by buying U.S. Treasury bonds that frees up money that might go to Treasury bond purchases and allows it to be spent elsewhere in the economy.

SEIB

10:20:46
So it's a way of pumping money into the banking system indirectly. And the Fed did one round of this. When that didn't really spark a recovery, it did a second round. Hence, QE2, that was about $600 billion worth of these purchases, which ended this week -- hasn't really sparked the recovery everybody hoped. Obviously, lots of debate about whether it helped.

REHM

10:21:07
How come?

SEIB

10:21:08
Well, the debate is, did it -- would it have been worse without this? One of the problems is, is that there is actually plenty of money floating around in the system. The businesses just aren't spending it. There's an atmosphere of fear, both on the part of businesses and on the consumer.

SEIB

10:21:22
So there's an argument to be made that pumping more money into the system at a time when nobody is willing to spend it -- either consumers or because they're still paying off their credit cards from the binge, or businesses 'cause they're afraid of the environment -- doesn't really do you much good. And that may be why QE1 and QE2 didn't do as much as people thought they would.

REHM

10:21:41
David.

WELNA

10:21:41
Well, you also had the earthquake in Japan. You had all of the anxiety over Greeks' debt crisis. You had rising gas prices during that time. But, interestingly, at the beginning, when they launched this round of QE2, a 30-year mortgage was about 4.5 percent, very low. And then it went up to as much as 5.5 percent at one point. And now it's back down below 4.5 percent again.

WELNA

10:22:09
This is a reflection of the amount of liquidity that's out there for loans. And that was sort of the idea, that you would push down interest rates, and people would be more willing to snap up houses or do other things.

SWEET

10:22:23
But at the same time, they made it harder to qualify for mortgages. That's why so much of this is interrelated. One of the complaints with the Obama administration, by the way, is that banks, including the ones bailed out, aren't loaning money at the rate they would like it. But, yeah, interest rates for mortgages are very low, but the paperwork and threshold to qualify, very high.

REHM

10:22:46
So QE1, QE2 were supposed to put money in there to ultimately help Americans out, Jerry?

SEIB

10:22:58
Well, to basically make sure that interest rates stay low so that businesses could borrow money to spend, to invest, to build factories, plants and inventory and that consumers could go into the housing market and start reviving that. But the problem in the housing market is there is just so much excess inventory out there that it's just going to take a while. And even this much money isn't enough to get that problem resolved quickly.

SEIB

10:23:23
The other problem, the downside of QE1 and QE2, is that it had the effect of driving down the value of the dollar 'cause it just puts more dollars in circulation effectively. That has the effect of raising oil prices since oil prices are priced in dollars, which helped produce $4 a gallon gasoline, which just scared consumers again. So there's downside risk in these things.

SEIB

10:23:42
And that's one of the reasons why you might not see a QE3, why most people think the Fed won't go back and do this again. It might try to find other tricks to stimulate the economy, but there are -- it's not all good. There are downside risks to doing this, and oil prices are one of them.

REHM

10:23:56
And speaking of finances, before we turn to other subjects, a couple of our listeners are asking about the appointment of the head of the Consumer Financial Protection Bureau, Elizabeth Warren, where that stands, Lynn Sweet.

SWEET

10:24:16
It is in limbo right now. The Republicans are against her appointment. She's wildly popular among the consumer-oriented groups. She has been setting up the agency as an Obama appointee. He never -- now, the reason she never was just appointed to head it is that the Obama White House and Elizabeth Warren wanted to get this agency up and running.

SWEET

10:24:40
They knew that as soon as she was appointed, in a sense, she would have to be in a cocoon and not say or do anything to threaten her appointment. So it's better just to let her be an appointee and get the agency going and be free to speak out. So it is -- it -- I don't see a path for her to ever win confirmation. I do see some paths for the Obama White House to let her stay and play as a major player on the agency.

REHM

10:25:07
David.

WELNA

10:25:07
One of the huge obstacles, of course, is that she would have to be confirmed by the Senate to take that role. And there is no chance for a recess appointment right now.

SWEET

10:25:18
She hasn't had an effective -- you know, she's been effectively running it anyway.

WELNA

10:25:21
She has organized it...

SWEET

10:25:22
Yeah.

WELNA

10:25:22
...and hired a lot of people and really has set things up and gotten them running. But for her to formally take over as the head of that new bureau, she would have to be confirmed by the Senate. And I see no way that that could happen.

REHM

10:25:36
All right. We're going to open the phones shortly. First, I want to ask you about Dominique Strauss-Kahn and what has happened to the prosecution's case, Lynn.

SWEET

10:25:50
The prosecution case is collapsing on their own investigation of their key witness, the woman who worked in the hotel, who claimed that she was sexually assaulted. Well, it turns out that she has a questionable background. She may be involved, if not with people who have some questionable activity, criminal-related. And it just seems that her credibility as a witness now is going down the drain.

SWEET

10:26:18
There is a possibility that the house arrest that Strauss-Kahn is under may be loosened. And the case that the police once said was very solid now seems not so solid.

REHM

10:26:35
Jerry Seib.

SEIB

10:26:37
I'm not sure what you want me to say.

SEIB

10:26:39
Look, I mean, this is story has rippled out in a lot of ways. And this is a pretty amazing turn, I have to say. But it affected the International Monetary Fund, which Dominique Strauss-Kahn was running. He no longer runs that, as a result of these accusations. It affected the presidential race in France, which -- where he was likely to be a leading, if not the leading, candidate before this happened.

REHM

10:27:02
Could he still be?

SEIB

10:27:03
And, now, to -- this morning already, his supporters were saying in Paris, I think he's back. He can be revived here. This -- the case is falling apart. He will be vindicated. I don't think he'll be vindicated. But he'll get off the hook, and maybe he'll be back in the race for the presidency of France. There will be questions at the I.M.F. Did we bail out on him too soon? Was there a rush to judgment?

SEIB

10:27:22
All of -- there's a lot of messiness here. And it's all wrapped around the way this case blew up, in one sense, and now it's blowing up in another sense.

REHM

10:27:31
David.

WELNA

10:27:32
I think what's interesting about this case, too, is the journalistic part of it, the way this case was covered and the sprint to judgment that was made right from the get-go in the U.S. And if there's going to be a vindication, I think it might be of the French people who said, you know, in our country, we actually give some of the benefit of the doubt to somebody who stands accused. And we don't print front page photos of...

REHM

10:27:57
Photographs.

WELNA

10:27:58
...yes -- of those who stand accused, that sort of thing. I've always sort of struggled with the idea of the court of public opinion trying and sentencing somebody before that person's actually had a chance to have a trial. And here's a case. It's very murky, exactly what went on here. But, clearly, I think the guilt that seemed to be established in many of the reports of Dominique Strauss-Kahn is now in question.

WELNA

10:28:30
And, I think, it might be worth going back and looking at some of the coverage back when the story broke and thinking about, is there a better way to do this?

SWEET

10:28:38
Well, whatever -- the maid was portrayed as a very sympathetic, outstanding, upright citizen...

REHM

10:28:45
But who portrayed her that way?

SWEET

10:28:45
No, the press. I'm not running away from it.

SEIB

10:28:47
Well, the prosecutors as well.

SWEET

10:28:48
Yeah, yeah.

REHM

10:28:48
And the prosecutors.

SWEET

10:28:50
Sure. But it -- you know, this is -- how many times do you have to say -- since I've been -- my first days in journalism school, you have to have a benefit of a doubt. And this is a great example of one because, no matter how this case plays out, now we know the witness is not going to have the credibility that we once thought.

SEIB

10:29:08
You know, there's still ample reason to think something untoward happened in that hotel room. We just don't know exactly what. And the real issue here is whether prosecutors can put a credible victim on the stand and have people believe...

REHM

10:29:20
Yeah.

SEIB

10:29:20
…that what she said happened, happened. That's the issue.

SWEET

10:29:21
Right, because she -- 'cause that is the point. And, you know, the rule is something still could have happened that was improper, even if she did have a -- even if she does have a questionable background. This should not mean that you're off the hook if -- as the accused, just because...

REHM

10:29:38
We had a tweet here...

SWEET

10:29:39
Yes.

REHM

10:29:40
...that says, "Being involved with criminals and being sexually assaulted are not mutually exclusive."

SWEET

10:29:49
Exactly my point. But when you put on a criminal case, you have to be aware, as a prosecutor, that if your witness who might be telling the absolute truth about what happened in the hotel room, if -- and this is why it's very tough to be in a criminal trial. If your credibility on other fronts, having absolutely nothing to do with the case, is under attack, well, it's tough.

REHM

10:30:10
Except that according to the process...

SWEET

10:30:13
Or maybe the judge wouldn't let it in. I mean, there's just a lot of ways to go on this, now that we're thinking about it.

REHM

10:30:18
The prosecution says she made several telephone calls to this individual who is behind bars, who was convicted of having some 400 pounds of marijuana, money going into bank accounts around the country. It just looks very squishy at this point.

WELNA

10:30:42
And she was actually recorded making a phone call to this person at Rikers Island, discussing how she might benefit from pressing this case against Dominique Strauss-Kahn.

REHM

10:30:53
And that call was recorded.

SWEET

10:30:54
See, that's pertinent. Other legal issues -- I mean, other potential activities aren't. But they have that. That's why the case is melting.

REHM

10:31:04
We'll, we've already had a verdict in the case of Rod Blagojevich, Lynn.

SWEET

10:31:10
Well, the long march is over. Though there might be an appeal, we're not quite there. Rod Blagojevich, who was arrested in December 2008, he had his second trial concluded a few days ago, found guilty on 17 counts of criminal conduct. You add one from his trial last summer, so he's now awaiting sentencing on 18 counts. His sentence could run from a decade to decades, plural. He's 54, and he faces a very, potential, long sentence.

SWEET

10:31:45
He said he was stunned by the news. I don't think people that have watched these two trials -- I wasn't surprised. I thought maybe he would not be convicted on all 17 charges that he was, but it was clear that the Feds had a case. This -- in the second trial, by the way, the prosecutors streamlined it, made it simpler. They dropped his brother as a co-defendant...

REHM

10:32:08
Hmm.

SWEET

10:32:08
...which made it easier for the jurors to come to a conclusion.

REHM

10:32:13
And one begins to wonder, since Blagojevich is the fourth former Illinois governor to be convicted of felony since 1973, is politics in Illinois more corrupt than anywhere else in the country, David?

WELNA

10:32:34
Well, I was posted in Mexico for four years before coming back to the States and being sent to NPR's bureau in Chicago. And I covered a party in Mexico that had been in power since 1927. And it was a real machine, and it was really impressive, the way they had people wrapped around their little finger there. I got to Chicago, and I thought, where have I seen this before?

WELNA

10:32:58
It wasn't quite what was going on in Mexico, but there was definitely a political machine and the kinds of practices that, in any other place, people would have probably been appalled by them.

REHM

10:33:10
David Welna of NPR. And you're listening to "The Diane Rehm Show." Lynn.

SWEET

10:33:16
Well, in -- one of the things somebody has said to me in sentencing, well, I'm sure the judge is going to give Rob Blagojevich a big sentence to send a message. And I say, what more messages did you need? The former governor, who Rod replaced, George Ryan, is sitting in prisoner -- in prison. Otto Kerner -- these are the other judges just within my lifetime -- and Dan Walker all ended up in prison.

SWEET

10:33:39
We have numerous aldermen, who I knew and covered through the years, have been imprisoned. Numerous judges, Dan Rostenkowski, who I covered when I came to Washington. The pervasiveness of these acts of corruption from petty to felony is in the system. These sentences and these arrests have not stopped it.

REHM

10:34:04
Jerry.

SEIB

10:34:05
Well, meantime, the underlying problem is the state of Illinois is a mess. I mean, while all of these is going on and it's great drama, the state is...

SWEET

10:34:12
Budget mess.

SEIB

10:34:12
There's a huge budget mess, big budget deficit, seriously underfunded public pension plans, and they're not getting addressed. So you have both corruption and inefficiency here, I think.

SWEET

10:34:25
Pardon me for interrupting. The corruption, I think, is not the reason, though, that you have the budget crisis in Illinois.

SEIB

10:34:32
No. I was saying it's a distraction from the underlying reality...

REHM

10:34:34
Yeah, exactly.

SEIB

10:34:35
...which is that they got bigger problems than Rod Blagojevich in Illinois to worry about.

REHM

10:34:39
All right. We've had a federal appeals court in Cincinnati upholding the 2010 health care law. The ruling affirmed Congress does have the authority to require most Americans to have health insurance. How significant is this ruling?

SEIB

10:34:59
It's very significant because this was an appeals court. There are dueling cases, at least three of them bouncing around in the federal court system, which have come to -- which judges have reached differing conclusions about whether an individual mandate, as included in the Obama health care bill, is constitutional or not constitutional.

SEIB

10:35:16
This was a federal appeals court, which is the next step up and a step closer to the Supreme Court that came down on the side of the Obama administration and against conservative legal groups that have brought the case saying it's a constitutional element of this bill. That doesn't settle the issue by any stretch of the imagination. And I think everybody agrees it'll be settled at the Supreme Court.

SEIB

10:35:36
But when it gets to the Supreme Court, having a federal appeals court that has ruled this way makes it a little harder for the Supremes to move in the other direction.

REHM

10:35:45
Interesting, the make-up of this appeals court.

WELNA

10:35:48
Yes. Well, it was a three-judge panel, and you had two Republican appointees on it. Actually, Jeffrey Sutton, an appointee of George W. Bush, who Democrats actually resisted when he was nominated, came down and sided with the Democrat on the panel.

REHM

10:36:03
But one of them had previously clerked for Justice Scalia.

WELNA

10:36:09
Yeah. Right, right. Well, you know, this was the first case where you actually had a Republican siding with a Democrat on a decision like this. He said, you know, just because a law is intrusive doesn't mean that it's necessarily constitutionally intrusive, writing about the mandate that everyone has to have insurance.

WELNA

10:36:28
And that's a very key opinion in the sense that he really argued for the right of Congress to have this power to regulate insurance (unintelligible).

REHM

10:36:39
Any thoughts on timing, as to the Supreme Court taking this up, Lynn?

SWEET

10:36:46
I would think it's highly unlikely that there would be any kind of ruling before the 2012 election. The impact then of this ruling from the Cincinnati-based court is that it gives the Democrats very reasonable ammunition to rebut Republican claims that the Obamacare, their word for calling the -- what they call the Affordable Health Care Act, is unconstitutional or illegal.

SWEET

10:37:13
It is easier to say that it's up in the air when you have a ruling on your side. The White House blasted out stories all day when this ruling came out, making sure to get -- that the word was out.

REHM

10:37:26
Lynn Sweet, she is Washington bureau chief for the Chicago Sun-Times and a columnist at politicsdaily.com. When we come back, we'll open the phones for your comments. Stay with us.

REHM

10:40:03
And welcome back. It's time to open the phones. First to Crystal River, Fla. Good morning, Fred. You're on the air.

FRED

10:40:13
Hi, Diane. How are you today?

REHM

10:40:15
I'm fine, thanks.

FRED

10:40:19
I just wanted to make a comment about that jump, somebody with the I.M.F.

REHM

10:40:23
Sure.

FRED

10:40:24
I just feel that it all happened very quickly and very fast, and to see such a powerful man fall so quickly, I just -- I'm very suspicious, and I feel it was, like, politically motivated. Someone wanted to see this gentleman fall. Now, I don't know this gentleman's background and I've only heard a little bit about the woman's background.

FRED

10:40:45
But I think our media has a tendency to say you're guilty before you're proven innocent, and people should take a look at all the facts before they make their decision.

REHM

10:40:57
Absolutely. Jerry Seib?

SEIB

10:40:59
Well, two things. The first is, you know, there is a school of thought in France that says the guy was set up, that the whole thing was in a setup somehow concocted or arranged by his political opponents to take him out of the presidential campaign in France.

SEIB

10:41:13
On the reverse side of that, one of the reasons that this became -- this was taken as a credible accusation was that there was a previous episode while he was running the I.M.F. in which he was accused and the board formally investigated a charge of sexual harassment by Dominique Strauss-Kahn against a subordinate at the I.M.F. It was a case taken seriously, and he was reprimanded by the board.

SEIB

10:41:36
So there was a context for the case, which is one of the reasons that prosecutors took it more seriously than they might have, and one of the reasons the press took it more seriously than it might have otherwise.

REHM

10:41:46
All right. To Wakefield, R.I. Let's go to Tony. Good morning to you.

UNIDENTIFIED WOMAN

10:41:53
(unintelligible)

REHM

10:41:54
Tony, are you there?

WOMAN

10:41:57
He's a happy boy.

UNIDENTIFIED MAN

10:41:58
Oh, God.

REHM

10:41:59
Sorry. Let's go to Lewis, who's on I-40 driving a truck in New Mexico. I hope you pulled over, Lewis.

LEWIS

10:42:12
Yeah.

REHM

10:42:14
Uh-oh, phone's not working. Sorry about that. To Ellen in Grand Rapids, Mich.

ELLEN

10:42:23
Hello, Diane.

REHM

10:42:25
Hi, there.

ELLEN

10:42:25
I'm wondering if your guests could, please, comment on why our U.S. government does not launch a campaign for citizens to purchase bonds by way of revenue generation as we did in the time of World War II.

REHM

10:42:39
Interesting thought. David Welna.

WELNA

10:42:41
Were they called victory bonds?

REHM

10:42:42
Yeah.

WELNA

10:42:43
Right. Yeah, I mean, that's an idea. I wonder, you know, how many people would leap at that opportunity. Right now, it's still -- majority of T-bills still are sold in the U.S., but they're mainly institutional investors who buy them. And then a lot of other countries buy them to have U.S. reserves.

REHM

10:43:08
All right. To Pensacola, Fla. Good morning, Jay. What is going on here? Jay, are you there? Let's try Frank in Brighton, Mich. Good morning.

FRANK

10:43:24
Good morning.

REHM

10:43:25
Hi there.

FRANK

10:43:26
Hi. Great show, of course. I just wanted to ask a quick question on the constitutionality of the debt ceiling. There's been reports over the past week or so that, according to the 14th Amendment, which I printed out to look at it myself, that the establishment of the debt ceiling is held by some as unconstitutional so that if this is to Obama and his administration could just say, okay, forget the debt ceiling. No crisis, we'll just plow ahead.

REHM

10:44:02
Jerry Seib.

SEIB

10:44:03
It's true. Some Democrats have started in the last week making this point. I think it's an interesting theory, as to my knowledge, utterly untested in the courts, and I don't think it's going to resolve the debate nearly in time to get us beyond the potential crisis we're talking about.

SWEET

10:44:19
What's interesting is that some people see the debt ceiling vote as a second vote dealing with issues that Congress has voted on because, after all, Congress has already voted on revenue and spending. That's why we're in this situation we're in. Why have a second vote?

REHM

10:44:34
All right. Let's talk about the Bank of America. It announced on Wednesday it would spend $20 billion to satisfy investors in home loans, but later defaulted. David Welna.

WELNA

10:44:50
Yeah, this was to deal with the subprime loans that it made during the height of the housing bubble and about $8.5 billion of that is going to Countrywide, which is one of the more notorious lenders during that period. Bank of America is the first major bank to reach this kind of a deal, but there can be a lot of other banks in line to do this. And big, big losses for these banks are expected. And it's a huge mess that most of which has yet to cleaned up.

SWEET

10:45:22
And that is because what these banks did was that they sold subpar, poor quality mortgage-backed securities. They sold products that they should not have sold. And in any other business, you get in trouble when you do that, and now they have.

WELNA

10:45:37
And they did not ask the questions that should have been asked for verifying if people actually had the assets to acquire these loans. The most basic things that you would do out of a new share responsibility weren't done, and this is the price that they're paying.

REHM

10:45:52
But some people are saying that the banks have gotten bailouts. The investors have gotten settlements. What about the homeowners, Jerry?

SEIB

10:46:03
Well, that's actually one of the problems in the whole rescue effort. It'll be studied, I think, in the future, that there have been various government efforts to try not so much to bail out homeowners, but to allow them to stay in their homes, to not be foreclosed, not only 'cause that's good for the homeowners, but because that's the way you soak up the excess housing inventory. And it hasn't worked.

SEIB

10:46:21
There are a variety of reasons for that, but the reality is the governments made a couple attempts to do it, and it hasn't really worked. And that's one of the reasons that it seems unfair, but it's also one of the reasons we're still stuck in a non-performing economy.

REHM

10:46:35
I want to ask about Minnesota because that government, that state government has gone into shutdown after the state's budget failed to pass. Who's to blame, David?

WELNA

10:46:52
Well, the problem is that they have a $5 billion shortfall in their budget, and Republicans say that should be dealt with by cutting government spending, state government spending. Mark Dayton, the newly elected Democratic governor, says -- and he campaigned on this -- that wealthy Minnesotans should pay higher taxes to bridge that $5 billion gap. And that's where the standoff stands. Republicans are saying, well, we can do some short-term measure to keep the government open while we negotiate some more.

WELNA

10:47:27
And Dayton is taking kind of a hardline stance on this, saying, no, we have to work this out. And in many ways, it mirrors what's going on in Washington with President Obama heckering (sic) Congress about the need to have more revenues to deal with the budget deficit and Republicans saying, no way, no how are we going to raise taxes.

SWEET

10:47:52
With one difference. I believe Minnesota is like other states where they have to have a balanced budget. They can't issue debt.

WELNA

10:47:59
The other guy who's got a problem on this front this morning is Tim Pawlenty, who's running for president and who was the governor of Minnesota. And he left with the budget in balance, but with a lot of people saying that there were some landmines that were embedded in his last budget that would blow up later. And they're going to now look at this and say, we told you that he didn't really solve the problem. He hid the problem.

REHM

10:48:20
All right. To Foley, Ala. Good morning, Mark. You're on the air.

MARK

10:48:25
Good morning. It was just last year that the president said, we cannot raise taxes at this time 'cause it will jeopardize this treasury recovery in the economy. Now, the economy has not improved since last year, but now the president says, well, we must raise taxes to improve the economy.

REHM

10:48:41
Lynn Sweet.

SWEET

10:48:42
Sir, I don't think he has said it. He -- they've been very careful not to use that kind of language. This might go back to what we talked about earlier in the program, is closing a loophole of tax increase.

WELNA

10:48:54
Yeah, that...

MARK

10:48:54
That -- yes, it is a tax increase, obviously. Increases revenue, it's a tax.

SWEET

10:48:59
Is that what you're talking about?

MARK

10:49:01
Yes. I am talking about the president has changed his mind again or lied, one of the two.

WELNA

10:49:07
Well, we're actually talking about different things. It was actually back in December when Obama talked about the recovery still being very fragile. And the discussion was about the Bush era of marginal tax rates, whether they should be raised or not. And he decided against that. What they're talking about right now are not marginal tax rates. They're talking about deductions that people take, tax expenditures as they're called, tax breaks, loopholes, things like that that are being closed.

MARK

10:49:37
But -- excuse me. But then doesn't it bring us back to, I will -- read my lips. I will not raise taxes. And the...

WELNA

10:49:46
No. It wasn't a vow, though, that he made. He simply made an observation that extending the Bush era tax cuts was the prudent thing to do back then, even though that was really not his inclination to do.

REHM

10:49:57
Jerry Seib.

SEIB

10:49:57
I think the key distinction is in December, the issue was, do we raise taxes in the next year? And the argument was recession not over, not effectively over, not a good time to do it. The deal on the table now is about the next 10 years, and I think that we're, to some extent, talking about apples and oranges. The debate the caller is talking about will resume. It'll resume in 2012 when the extension of the Bush tax cuts expires, and then we'll have this discussion. But that's slightly different than the one that's occurring right now.

REHM

10:50:29
All right. Jerry Seib, that a farewell ceremony yesterday for outgoing Defense Secretary Robert Gates, the president gave him the Presidential Medal of Freedom. He really has been highly regarded at defense, and I wonder what your thoughts are.

SEIB

10:50:56
Well, you know, he's somebody that I've covered for a long time, going back to the first Bush administration. And I think he's really kind of an example of a kind of Washington establishment figure that you don't see very much anymore. Essentially nonpartisan, worked for multiple presidents of both parties, was -- ran the CIA for a Republican president, ran the Pentagon for a Democratic president and a Republican president.

SEIB

10:51:22
And I think he leaves with a lot of respect and a lot of institutional memory that will probably -- we'll all sort of miss to some extent. And I think, you know, to the extent that he personified a kind of nonpartisan or bipartisan approach to foreign policy, I think a lot of people will miss that also.

REHM

10:51:40
And how is Leon Panetta going to be in this job, David?

WELNA

10:51:46
Leon Panetta enters as Secretary of Defense with tremendous bipartisan support in Congress. He was unanimously confirmed by the Senate. Republicans applauded his nomination as much as Democrats. And, really, I was going to say about Gates, I covered his confirmation when President George W. Bush nominated him to replace Donald Rumsfeld as defense secretary.

WELNA

10:52:09
At that time, there was a lot of suspicion of Gates. There had been some bad blood back when he was in charge of the CIA about his management, policies and allegations that he had bullied people. He has completely rehabilitated his name and his image since then.

REHM

10:52:26
Interesting.

SWEET

10:52:28
One interesting sidebar to this is the relationship that he forged with Secretary of State Hillary Rodham Clinton and the rivalries of state and defense that we read so much of during the days of Colin Powell and Don Rumsfeld never existed in the Obama White House.

REHM

10:52:44
Interesting. Interesting. How do you think Gen. Petraeus will do at CIA?

SEIB

10:52:54
Well, for starters, he was confirmed easily this week as director of central intelligence. He's -- he also has, likely, on Panetta a huge amount of bipartisan support right now. I think he'll probably be different -- a different operator. He's less -- kind of less the politician, obviously, than Leon Panetta is, a military guy who operates slightly differently.

SEIB

10:53:16
I think the interesting thing about David Petraeus at CIA is that he is a military guy who arrives at the CIA at the time when the merging of military operations and, essentially, paramilitary operations by CIA operatives have become very closely entwined. And we saw it in the Osama bin Laden raid among -- most prominently, but among other options. And so there's a change in what people think of the CIA as being and, in some ways, he does personify that.

REHM

10:53:43
Jerry Seib of The Wall Street Journal. And you are listening to "The Diane Rehm Show." Let's go to Ryan in Indianapolis. Good morning. You're on the air.

RYAN

10:53:56
Good morning. Everyone seems to be saving from individuals to large banks. So how can the Fed makes saving even more attractive and use the popularity of savings to further stimulate the economy? Where's the creativity?

WELNA

10:54:08
Well, this is a real conundrum for economic managers right now. How do you get people to be both more thrifty and also to go out and buy things that will get things going again? Because I think that the trillion dollars or more that is being sat upon by corporate America right now, a lot of that money would probably be invested if people had a sense that consumer demand was going to reward them for investing it.

WELNA

10:54:35
But I think it's a chicken and egg problem. How do you get consumers out there buying and then corporations investing? Who makes the first move? And how do you get them to do that?

SWEET

10:54:45
What's interesting is that savings in any form, CDs, money market accounts, interest rates are at all-time lows, point nothing, point better than keeping the money under your bed. So you're not -- people aren't saving because they have other economic issues, not because they're getting great interest rates, which is another problem for the economy.

SWEET

10:55:07
If -- clearly, you're not saving because you're earning on an investment, but clearly you either don't want to buy anything because you're afraid the situation might change, or the volatility of the market means you don't want to invest in anything that has any risk in it. Very hard situation.

SEIB

10:55:21
Yeah, I mean, you can argue the Fed has made savings as unattractively -- as unattractive as humanly possible.

REHM

10:55:26
And yet they're telling us...

SWEET

10:55:27
And people are saving.

REHM

10:55:28
...that we need more savings.

SEIB

10:55:29
Well, there are savings and there's the paying down high levels of American debt, household debt, which takes years to do. And we're still undergoing that process. That's item A. Item B is, you may have saved some money, but if you're house is worth 25 percent less than you thought it was worth two years ago, you don't feel like you've saved money. You still feel that you're in a hole, and that's a big part of what's happening right now.

REHM

10:55:48
But if banks are lending at less than 4.5 percent and yet paying interest at about 1 percent, I mean, it doesn't seem to make sense. The banks are there, obviously, to make a profit. But it seems as though the gap between 1 percent and 4.5 percent has a little wiggle room there.

SEIB

10:56:17
Well, you have to remember a lot of banks are still dealing with bad loans on their books as well. They're still climbing out of the hole as well. And, secondly, the older money doesn't come quite that cheaply because people expect inflation to pick up because there's so much money sloshing around the system. Long-term rates, as David was pointing out earlier, aren't as low as some people thing they ought to be and not as low as a short-term rate. So the banks might get all that money at 1 percent, that's for sure.

REHM

10:56:41
Jerry Seib of The Wall Street Journal, Lynn Sweet of the Chicago Sun-Times and politicsdaily.com, David Welna of NPR, thank you all so much. We'll be on rebroadcast Monday for the Fourth of July holiday. I hope you all enjoy it and stay safe. Thanks for listening. I'm Diane Rehm.

ANNOUNCER

10:57:09
"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture, Monique Nazareth, Sarah Ashworth, Lisa Dunn and Nicki Jacks. (sp?) The engineer is Erin Stamper. Katie June-Friesen answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is drshow@wamu.org. And we're on Facebook and Twitter. This program comes to you from American University at Washington. This is NPR.
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