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Bush Takes Heat on Corporate Governance; House Wants Guns on Airplanes; Has Baseball Lost Touch?

Aired July 13, 2002 - 19:00   ET


ANNOUNCER: Live from Washington, THE CAPITAL GANG.

MARK SHIELDS, HOST: Welcome to CAPITAL GANG. I'm Mark Shields with the full GANG, Al Hunt, Robert Novak, Kate O'Beirne, and in New York, Margaret Carlson.

President Bush went to Wall Street to deliver his long-awaited speech on corporate corruption.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The misdeeds now being uncovered in some quarters of corporate America are threatening the financial well-being of many workers and many investors.

The business pages of American newspapers should not read like a scandal sheet.

In the long run, there's no capitalism without conscience, there is no wealth without character.


SHIELDS: The president's remarks did not stop either the steep decline of the stock market or criticism from Democrats.


SEN. TOM DASCHLE (D), MAJORITY LEADER: The question is whether he is willing to take action on that outrage and support the legislation which will actually help solve the problem. The most recent statements from the administration are not encouraging.

REP. RICHARD ARMEY (R), MAJORITY LEADER: As angry as I am at those captains of industry that put themselves ahead of their stockholders, ahead of their employees, and ahead, indeed, of the confidence that we should hold in this economy, I am that angry, Tom Daschle, with you, for putting your next election ahead of the action that you repeatedly have called for...


SHIELDS: The Senate unanimously agreed to enact measures for tougher prosecution of corporate fraud.

Bob Novak, did the president's speech fail to satisfy the obvious demand for action?

ROBERT NOVAK, CAPITAL GANG: Well, of course, Mark, and you know there are certain people who would never be satisfied with anything a Republican...


NOVAK: ... a Republican president wanted. But it's worse than that. It turns out that Dick Cheney and some of the other people who had cautioned the president against this were right. It's a very bad syndrome.

President comes out with these very harsh things, they raise the ante, they have a feeding frenzy in the Senate, where they have unanimous votes. Whenever the Senate has unanimous votes on anything important, that's a totalitarian state, and I'm very, very worried about it.

So what you've had is a 450-point drop in the Dow Jones in the hours after the speech, not because it was too weak but because they are afraid of what's happening on the Hill and this feeding frenzy, and the president's going to be faced with whether to sign this terrible legislation that's coming over, or to veto it. (UNINTELLIGIBLE) bad choice.

SHIELDS: Kate O'Beirne, this feeding frenzy was endorsed by the Republican speaker of the House, who said what the Senate has done been responsible in the Sarbanes bill.

KATE O'BEIRNE, CAPITAL GANG: Mark, you couldn't -- President Bush this week couldn't have satisfied the Democrats unless in his speech he pled guilty to conspiring with his Crawford friends to bilk investors.

And I think the assumption that the market responded negatively just to the president's speech is wrong. That assumes that what the market's looking for is a new regulatory regime, new bureaucracies, and new rights for trial lawyers, which is what the Senate's serving up.

There's every reason to think -- I agree with Bob -- the market's skittish about an overreaction on the part of Washington, the anti- business climate there is now in D.C.

The fundamental problem the president's speech couldn't possibly address is, we're in a bear market. And the corporate scandals wouldn't frankly much matter if it weren't a bear market, and the bear market matters even in their absence. That's the fundamental problem.

SHIELDS: Margaret Carlson, are both Bob and Kate right about this, that George Bush is being too tough?

MARGARET CARLSON, CAPITAL GANG: Well, both seem to believe in market self-correction and in corporate self-correction, which I think the circumstances show is not right. Corporate CEOs do not police themselves, and they need regulation. Now we know that to be true.

What Bush did that was very good this week is that the sense that he conveys of moral clarity, he managed to apply in this area. Instead of saying misaccounting and shenanigans, he was harsh on calling for capitalists and corporate officers to have a conscience and do the right thing.

What he didn't do was to go the next step and say, Well, but you haven't, and so therefore we need a Sarbanes bill, we need more regulation.

I don't see how in this -- knowing what's happened over the last couple of months anyone can think that corporations can be left to self-regulate. It simply doesn't work. Or accounting firms, for that matter.


AL HUNT, CAPITAL GANG: Well, I agree with Margaret. You know, Teddy Roosevelt had the bully pulpit and bully policies. George Bush has the bully pulpit, which is -- I thought the rhetoric was quite good, and then he had wussy policies. He didn't do anything.

There's not just a few bad apples, Mark, this is a systemic problem. A thousand corporations have had to restate earnings over the past five years. Every one of the big accounting firms has been involved in some kind of shady shenanigans.

And if you treat it like a couple bad apples and a little bit of rhetoric will take care of it, then I think, you know, you're not going to really deal with the problem.

The accounting industry is a perfect example. There's a blatant conflict of interest between doing auditing and doing consulting. It's like -- accountants are like umpires, you're supposed to call balls and strikes fairly. If you have a separate deal where you get a piece of the concession for that team that you're umpiring, people aren't going to have much confidence in you.

And as for the market, I think one thing we all can agree on, we know a lot on this program, I'm sure. I think "The Wall Street Journal" Market column, there was more about markets than anybody in this -- on this program. And as it said, and everyone else who cover the markets, the market's dropped 600 points over the last couple days.

Bush's speech leaves investors wanting action. It wasn't too little, it was they wanted more, and every market column said that.

NOVAK: You know, you know, you know, if I could, if I could just...


NOVAK: ... apologize -- OK, I just want to apologize...

HUNT: (UNINTELLIGIBLE) has something.

SHIELDS: You want to apologize.

NOVAK: No, I just -- I would just say, I apologize for "The Wall Street Journal" saying this because you work for them, and I used to work for them. But they're often wrong and misinterpreting...

HUNT: Every market column said that.

NOVAK: ... they're often wrong...

HUNT: "The New York Times," "The Los Angeles Times," "The Washington Post," every market column said that. People who cover it said that.

SHIELDS: Let me just -- let me just say, I think Al is right here, because for a very simple reason. It isn't a question of bear market ups and downs. People aren't leaving the market because the stocks have gone down. People are leaving because they think the thing is rigged. They think, they think it's a carnie game.


SHIELDS: They think it's a carnie game...


SHIELDS: ... and until, and until that...


SHIELDS: ... trust and confidence is restored...

O'BEIRNE: If you...

SHIELDS: ... and people feel that they're getting dealt with (UNINTELLIGIBLE), because it just get -- every day, they pick it up...

O'BEIRNE: But Mark, if you look at mutual funds, they're actually surprisingly not leaving.

Nobody's arguing for just a little bunch of rhetoric to fix this, but it's also a fallacy to think that there's some set of laws that's going to cause the market to turn around. Look at who has the most incentive to fix this, because there are some systemic problems. The institutional investors, the markets themselves, publicly traded corporations.

And they are doing it because the markets aren't forgiving. George Bush certainly has an incentive to try to fix this, given that he's responsible for the state of the market and the economy.

Those, frankly, who have no incentive to fix this, who just would be happy come November to be running in the face of a bad market, are the Democrats. Yet everybody gives them the benefit of the doubt with respect to their reforms.

NOVAK: Mark, you miss, you misinterpreted what I said. When I -- you said I thought he was too tough, I didn't say the president was too tough, I aid by, by, by coming in with this -- these higher penalties, he raised the ante, and everybody on the Hill, mostly Democrats but Republicans, started running wild.

Now, what you're doing is, you're criminalizing business. That's what's happening. I can't believe it. If -- the -- you're saying to businessmen, If your accountant is wrong, you go to jail. And if you put that out there, you're not, you're not going to have any business at all in this country.

I, I am, I am much more worried than I was a week ago because of the, of the, of the, of the 95 to nothing, 96 to nothing votes on the Senate. That just scares the hell out of me.

SHIELDS: If Phil Graham starts voting for reform, you get nervous, huh?

NOVAK: You bet.

HUNT: If some street hustler goes and shakes people down, he gets prosecuted and sent to prison.

SHIELDS: Exactly.

HUNT: Just because you're rich, just because you're Bernie Ebbers or Kenny Lay, and you go and you lie and you cheat investors, is no reason you too shouldn't be sent to prison. And I don't think wealth ought to determine whether you're -- are, are, are -- should go to prison or not.


SHIELDS: The president, the president said -- let's get Margaret in here, because the president said there can be no wealth without character. We have seen nothing but a parade of wealth without character before congressional committees, Margaret.

CARLSON: Yes. You know, Bob has a point when he says that the public doesn't mind capital gains tax cuts, because they hope someday to be eligible to have -- to benefit from the capital gains tax cut. But that's because they assume that the game is fair. Maybe they don't have a leg up like George Bush, but the -- and the playing field isn't level. But the game's not rigged.

When the game is rigged, all bets are off. And that's why, when the social compact goes, that's when the market goes. It's not a bear market, it is a market that people don't want to be in because Bernie Ebbers is going to take all his money off the table. He's got his money...


CARLSON: ... he took it at the beginning. NOVAK: That's all that populist claptrap, because I'll tell you this, if the president is going to be in big trouble if that bill comes over the way it looks. He's going to have to veto that bill, and that's going to take guts.

HUNT: Won't happen.

SHIELDS: Won't happen, Bob. But listen, we'll look for it. THE GANG of five will be back with the past conduct of businessmen George W. Bush and Dick Cheney.


SHIELDS: Welcome back.

Sale in 1990 by George W. Bush of Harken Energy stock at a time when he was a director of the company, came under renewed scrutiny. Changes in Halliburton Energy's accounting practices when Dick Cheney was CEO also were criticized.


DASCHLE: I don't think there's any doubt that the deportment of both President Bush and Vice President Cheney are issues that are relevant to this debate.

BUSH: And the SEC fully looked into this. All these questions that you're asking were looked into by the SEC.


SHIELDS: The Judicial Watch legal group filed suit against Halliburton and against Vice President Cheney.


LARRY KLAYMAN, CHAIRMAN, JUDICIAL WATCH: If we can show, and we're confident that we will, that Vice President Cheney broke the law, then that will set an example, a much better example than the president with his rhetoric tried to set yesterday on Wall Street.

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The suit is without merit, and as you indicate this is a suit filed vis-a-vis Halliburton, and it's appropriate to address any further questions to Halliburton.


SHIELDS: That was a fashion statement by Ari Fleischer, the suit is without merit.

Kate, are the president, George W. Bush, and Vice President Dick Cheney in some trouble?

O'BEIRNE: First, I want to reassure our audience, they could be forgiven for not being sure who Larry Klayman is, because when he was filing an avalanche against the Clinton administration, he was largely ignored. Now that he's filing lawsuits against Dick Cheney, he's an avenging Clarence Darrow leading off all the network shows. So expect him to become quite famous in all this.

I don't think on the facts the president's in any trouble on the Harken thing. He's right, the SEC found no insider trading 10 years ago. Even "The Wall Street Post" is scolding the Democrats for trying to politicize that.

And the Dick Cheney Halliburton could be a fairly common back- and-forth between the SEC and companies, where they -- there is a legitimate disagreement on how to count, in this case, cost overruns.

But in this climate, anything like that that is fairly common looks at best fishy and probably fraudulent.

I think as long as it serves to make the president or vice president distracted and defensive, the Democrats will think this is a winner.

SHIELDS: Margaret Carlson, is it a winner?

CARLSON: Well, you know, the scandal isn't what's illegal, it's what's legal. A lot of what's happened that's left shareholders and employees penniless and the CEOs going off to their mansions in Florida and Texas, was legal. And so maybe the SEC didn't do anything about it at the time.

But certainly we now know that when you sell yourself something in order to pump up the value of your company and sell your stock before p figure it out, that's not a good thing, and that's what some of these corporations like Enron and Adelphia and WorldCom have done.

The other part of it is, is that, you know, political reporters don't like numbers, so during the campaign, I don't think anybody really looked that closely to see what was happening. No, I don't think they did. And business reporters were too busy lionizing Jack Welch to take a look.

You know, selling Aloha to Harken and then selling your stock is not, is not a good practice. And Bush says he didn't make that much money, and people who would have sold later would have made more money. But just because, you know, you, you -- it's a Seven-11 and not a jewelry store and the amounts today are much higher doesn't mean that that practice isn't unethical, if not illegal.

SHIELDS: Bob Novak, this week we did see, among other things the Senate Democratic leader, but also the Republican de facto leader of insurgents, John McCain, call for Harvey Pitt, the chairman of the SEC's ouster...

HUNT: Except he's not leaving (UNINTELLIGIBLE).

NOVAK: He's not leaving, it's, it's...

SHIELDS: He's not going to leave? NOVAK: ... it's ridiculous, he's done nothing wrong. He's recused himself from some things because he had business dealings with those firms, and that ends on when he's been in there a year. So that's a nonfactor.

But I got to respond to this Bush thing. I talked to William McPhillips, who is a very distinguished Washington attorney...

HUNT: McLucas (ph).

NOVAK: ... (UNINTELLIGIBLE) reports...

HUNT: McLucas.

NOVAK: McLucas, I'm sorry. He was a distinguished Washington lawyer. He was the guy who did the Enron investigation that caught all the faw (ph) there. And he said it was a straightforward deal, there was no problem. He was the head of enforcement at SEC since these many years ago.

The interesting thing to me is, it's all politics, it's -- the Democrats say -- thought they were going to get him. The amazing thing to me is that the president has a -- his first press conference in goodness knows how long. That's why he doesn't have press conferences. Do you think they asked him most about Iraq, about the Middle East, about the corruption?

No, they asked him about this silly deal. Nine questions on it, nine questions. Shame on the press.

SHIELDS: Well, let's say one thing, Al, in defense of the press or anything else. George Bush is now moving to outlaw the very practices which he benefited from.

HUNT: Oh, Mark, come on, it's shocking for anybody to revisit a private financial deal the president had 12 years ago. Can you imagine that ever occurring?

O'BEIRNE: That has been fully investigated.

HUNT: Huh? I mean, really. That has not been, exactly.


HUNT: Can you imagine that? Honestly, those people are so horrify (ph).

Look, I -- Bill McLucas, as Bob says, is a very reputable guy, and there may not be any legal issues here.

But, you know, and I suspect there weren't, there aren't, rather, with Bush.

But let's just understand what Harken was. I mean, this was a really shady company. This was a company where they got George Bush in as a facilitator, they had ties to BCCI, none of which was illegal, but it really -- they did shady things. And this was insider dealing that was probably legal but it really wasn't very reputable.

NOVAK: Can I ask one question?

HUNT: No, I'm going to finish on this, because it was a shady company, still. And Dick Cheney -- I have a lot of problems with Dick Cheney. But one thing I don't think is, I don't think Dick Cheney is a crook. I really don't. And I don't know what happened at Halliburton, but I don't think he did anything that was illegal.

But I'll tell you something, with Harvey Pitt, can -- and does anyone think if Harvey Pitt investigates Dick Cheney and says, He's exonerated, it'll have any credibility? No, it will not.

SHIELDS: Last word, Al Hunt.

Next on CAPITAL GANG, the House says yes to guns in the cockpit.


SHIELDS: Welcome back.

The House passed by an overwhelming margin, 310 to 113, a bill to permit airline pilots to carry guns in the cockpit, despite opposition from the Bush administration.


REP. DON YOUNG (R), TRANSPORTATION COMMITTEE: This is the final step to make sure that when I get on that airplane, I will arrive safely at my destination even if there is an attempt to take the airplane...

DEL. ELEANOR HOLMES NORTON (D), TRANSPORTATION COMMITTEE: We are rushing to the security blanket of guns in the cockpit that could do more harm than good.

Why is it that every European nation, every nation in the world, has decided to disarm its pilots?


SHIELDS: Meanwhile, House committees took tentative votes against elements of President Bush's homeland security plan -- for example, sending the Secret Service to the Justice Department instead of to the new agency.

Margaret Carlson, why is there a gap in thinking between the Bush administration and the Republican House of Representatives?

CARLSON: Well, you know, the most important thing a president can do is consult with the Congress and then ignore it later, but having paid some homage to them, he would have a little bit more room.

This Washington done in such secrecy among a handful of people that of course Congress is going to be upset. They even wanted to bypass appropriations for homeland security, and, you know, I think it was a Republican who called it a slush fund.

On the pilots, I think it's a good idea unless we're going to have -- fund U.S. marshals on every flight, to have pilots armed as a last -- a last line of defense. But you'll remember that two pilots were delicensed for being drunk in the cockpit. They had 0.08, and we found out that you can be 0.04 and still be allowed to fly a plane.

I wouldn't want those particular pilots to have guns.

SHIELDS: Well, I'd say this, it gives new meaning, Bob, to the term "a shot." A shot in the glass, huh?

NOVAK: Oh, that, that, there's, there's, there's no drinking on that. You know, Mark, my mentor and my -- who makes sense on this is Senator Barbara Boxer of California, I...

HUNT: You've always been close.

NOVAK: ... I've been close to Barbara. And Barbara says, "What would you rather do, have the Air Force shoot down a plane and have everybody killed, or give a couple of guns to the guys in the cockpit?"

And she's got that right.

Now, about these other things, moving the wrong boxes and the wrong holes in that, anybody who thought this was going to happen without turf fights...


NOVAK: ... just came off the -- just fell off the turnip truck.


O'BEIRNE: Mark, there's a simple reason why I think Congress is now getting to the right of the Bush administration on safety of the flying public. Congressmen might not know much about corporate governance or accounting business, they fly. They fly all the time.

It's no mistake that somebody who drives home on weekends, like a D.C. delegate, doesn't much care about this. There's nothing like flying coast to coast like Barbara Boxer to look at the current system and express a no-confidence vote in it by saying pilots ought to be armed.

SHIELDS: I agree with you. And the difference between the Congress and the president is, all the House and one-third of the Senate are up in November, and that's the reason they voted that way on corporate reform and accountability...

O'BEIRNE: Well, but...

SHIELDS: ... and that's why they're voting that way on...

O'BEIRNE: ... the -- the -- this -- the public's... SHIELDS: ... arm, on arming...

O'BEIRNE: ... with them on arming pilots.

SHIELDS: ... on arming pilots.

O'BEIRNE: Right.

HUNT: Hey, Mark, I was a jittery flyer when I thought I was flying with sober, unarmed pilots. I'm going to have a nervous breakdown if I'm going to be up there with pistol-packin' drunks, I want to tell you. I want to tell you...


HUNT: ... the two people -- the two reasons I know it's a bad idea, number one, the flight attendants, the people who are in the closest proximity, are dead set against it. And number two, El Al. If you want to look at an airline, El Al, the -- you know, does not arm their pilots.

On the other one, you know, I think Bob's right, this was put together so hastily. They had a party in the White House to celebrate the fact that this had been held so closely it didn't leak, they had a little small party.

Mark, the downside of that is that it's better to leak and consult and get behind that, get more input. They're paying a price for that now.


NOVAK: You know, Al, can I give you a piece of advice? If this -- if it bothers you to have pilots protecting me, take a Greyhound.

HUNT: You know something? If, as I say, if the flight attendants were for it, I'd reconsider it. But they know, these people, much better than you and I do.


HUNT: ... why doesn't El Al, why doesn't El Al...

O'BEIRNE: The homeland...

HUNT: ... why doesn't El Al have...

O'BEIRNE: The homeland...

HUNT: ... armed pilots?

O'BEIRNE: We -- well, because they have a much stricter security system, over (UNINTELLIGIBLE) puts the pilots (UNINTELLIGIBLE).

HUNT: Which we ought to have.

O'BEIRNE: But we're not anywhere near it yet.

NOVAK: No, we don't want to have that...


O'BEIRNE: We're nowhere near it.

SHIELDS: Margaret Carlson, will the president sign it?

CARLSON: Yes. In the end, I think he will, unless the airlines pressure him so much and threaten to not support Republicans, I think he'll sign it, because the public is going to be for it.

NOVAK: The worst irony would be if the president of the United States were to -- who has signed some dreadful legislation, and for his first veto was on a bill to arm pilots.

O'BEIRNE: The public safety.

NOVAK: That would really be terrible.

HUNT: Not a chance.

SHIELDS: How about, how about...

HUNT: (UNINTELLIGIBLE) a shot in the cockpit...


SHIELDS: Well, you wanted -- let's get one thing straight. You wanted a veto of a bill that's going to arm small investors and give them a chance against the sleaze...


NOVAK: ... wait, wait, wait, wait, wait, wait...


NOVAK: ... give me a (UNINTELLIGIBLE). You (UNINTELLIGIBLE) you mentioned me. I want him to veto...


NOVAK: ... I want him to veto a bill that will criminalize business in America and put a gun at the head of every businessman.

SHIELDS: The bill doesn't criminalize what -- what criminalized business in America are these criminals, these thugs...

NOVAK: I thought we finished...

SHIELDS: ... and these shysters, and that's exactly...

NOVAK: ... I thought finished that debate.

SHIELDS: ... right, and they're destroying confidence, and they're eroding trust and faith.

HUNT: You got it right, Mr. Mark.

SHIELDS: Thank you very much, Al.

We'll be back with a CAPITAL GANG classic, when we asked eight years ago whether O.J. Simpson could get a fair trial.


SHIELDS: Welcome back.

Eight years ago this week, a Los Angeles court ruled that O.J. Simpson must stand trial for a double murder. CAPITAL GANG on July 9, 1994, speculated whether he could receive a fair trial.

Our guest was former Democratic congressman Steve Solarz of New York.


MONA CHAREN, SYNDICATED COLUMNIST: If the question is, can he be acquitted, I think the answer is obviously no. But if the question is, can he get jurors who will weigh the evidence fairly, the answer, I think, is yes.

NOVAK: They can't convict anybody, and, you know, if you watched the preliminary hearing and all that crummy lawyering around, you know why it's so hard to convict a criminal.

HUNT: Yes, I think he can, I think he will get a fair trial. I think this prosecutor, Marcia Clark, is a very, very impressive figure. And O.J. Simpson is not a victim of racism or anything else.

STEPHEN SOLARZ, FORMER U.S. REPRESENTATIVE: I certainly hope he can, Mark. I think he can. But the real question, in view of some of the other recent jury verdicts in California, as in Menendez brothers case and the Reginald Denny case, is whether the public can get justice in California.


SHIELDS: Al Hunt, were those who said O.J. Simpson could receive a fair trial mistaken?

HUNT: Hanging my head in shame, Mark. I cannot believe...

O'BEIRNE: Oh, come on.

HUNT: ... what I said about Marcia Clark, who ended up one of the great clinker prosecutors we've ever seen. No, I'd like to see another -- no, I don't want to replay that one again.

SHIELDS: If it doesn't fit, you must acquit.

NOVAK: You know, it's embarrassing how often I'm right on these shows (UNINTELLIGIBLE) and these little things we have, but Steve Solarz and I were right. I knew they wouldn't convict him. There wasn't a chance they was going to convict him, and that's what's wrong with the jury system, and that's a flaw in democracy.

SHIELDS: Margaret, a flaw in democracy?

CARLSON: Well, Bob's cynicism served him well in this case. No one took into account Judge Ito, by the way, who ran one of the worst courtrooms, totally undisciplined, let everything in, let it run way from him during that discussion.

SHIELDS: Kate O'Beirne, our second attorney, we only have two on this panel, Margaret and Kate.

O'BEIRNE: Well, Margaret and I appreciate that Al was misled by his affection for woman lawyers, Al, I think that really did it. We benefited from that.

HUNT: Thank you, Kate.

O'BEIRNE: I'll tell you, this shows up why CAPITAL GANG with just the five of us is really crucial. We can't be having guests like Stephen Solarz showing us up, because of course he did, he did get the right question, Can the public get justice in the O.J. case? They didn't.

SHIELDS: Final word, Kate O'Beirne.

We'll be back with the second half of CAPITAL GANG. Our Newsmaker of the Week is Michigan Republican Governor John Engler from the National Governors Conference. Beyond the Beltway looks at the crisis in major league baseball with wise man Peter Gammons of ESPN, and our Outrages of the Week. That's all after the latest news following these important messages.



SHIELDS: Welcome back to the second half of THE CAPITAL GANG. I'm Mark Shields with the full GANG, Al Hunt, Robert Novak, Kate O'Beirne, and in New York, Margaret Carlson.

Our Newsmaker of the Week is Michigan Governor John Engler.

John M. Engler, age 53, residence Lansing, Michigan, religion Roman Catholic. Agricultural and economics degree from Michigan State, law degree from Cooley Law School. Elected to Michigan state legislature at the age of 22, serving there for 20 years. Elected governor of Michigan 1990, reelected 1994 and 1998.

He's currently chairman of the National Governors Conference. Earlier this week, our own Al Hunt interviewed Governor John Engler at the National Governors Conference in Boise, Idaho.

(BEGIN VIDEOTAPE) HUNT: Governor, most states have been flush with cash for the past decade. You've cut taxes, expanded services, they've been really, really great times.

But now there's going to be a budget shortfall of about $2.5 billion to $3 billion cumulatively, and states are going to have to cut back some services and increase some taxes.

Did governors let the good times roll too much and not prepare for these times?

GOV. JOHN ENGLER (R), MICHIGAN: No, I think one of the reasons that we've been able to survive -- and it's about 46 states, actually, I think more states have budget issues right now during this two-three year period, we're at the -- we're hopefully coming out of a recession, Al.

But I think the aggregate problem, $40 to $50 billion collectively among states, a couple of things really driving that. We had a nice gain on Medicaid health care costs during the latter part of the '90s. Now those have been unleashed again, and we're seeing double-digit increases. And no state by itself can handle the health care bill.

And then just the reduction in revenues. Fortunately, most of us had built up substantial rainy day funds, and they've served us very well during this period. But we're all at the limit, and it is time, really, for Washington to help out a little bit on the health care costs and say -- set almost all that policy.

HUNT: Let me get to that in a minute. But I want to ask you, if these tough times are temporary, like, just a year or two phenomenon, or with that eroding tax base and those exploding health care costs that you just talked about, could states have -- be in a fiscal crunch for years ahead?

ENGLER: Well, I -- these things tend to turn around and do so nicely. I think this slow recovery, it's a recovery, we're seeing some improvement. But it's not a boom, it's not a rapid jump ahead. And so steady and gradual.

The difficulty is then, I think, that it really has been ongoing for the 2001 and 2002 fiscal years, now the 2003. And I think to the extent that states have used one-time measures, used up their rainy- day funds to sort of get through the rough patch, now they're looking at 2004. And even with some pretty good revenue estimates, those are going to be very tight budgets in most of the states.

And some of the costs just are out of control. So it's a balancing act.

I think by and large, governors have done a pretty good job. There are some where entitlement programs at the state level have been created and expanded, and I think those are very hard to sustain. And in those states, there are some interesting issues that governors are dealing with. HUNT: Governor Engler, you mention the fed should help on health care costs a minute ago. What else should the federal government do to help states?

ENGLER: Today, what we have, Al, is a system where Medicaid's actually bigger than Medicare. Lot of focus in Washington on Medicare. But there's about 7 million cases that are what we call duly eligible. They're Medicare people who don't have any help on their pharmaceuticals, have become impoverished, and now they're in the Medicaid system.

Those -- that little population's accounting for 35, almost 40 percent of the Medicaid bill.

And so Washington really has to step up to its responsibility on the Medicare program, make that work, and then take the pressure back of Medicaid.

HUNT: Let me ask you a quick welfare question. You were one of those who said it would work well. It appears to have worked well. If that's the case, why change the Medicare bill, as the House did, and reduce state flexibility and enact more prescriptive mandates on things like work requirements?

ENGLER: The states have always had the huge incentive to get people working, because we save half the cost. So that alone is a great enough incentive. I think Congress has seen this work so well, seen the governors get a lot of credit, and some in Washington literally want to get their arms around it and say, Hey, we're part of this...

HUNT: And homeland security, is the federal government doing enough to help state governments, in about 10 seconds?

ENGLER: Well, I think they are, but they're not organized well enough. I hope the new department goes forward, and that we get some clarity. One position from the federal government per topic would be most helpful to all the states.

HUNT: John Engler, good luck at the convention this weekend. Thank you very much.

ENGLER: Thank you, Al.


SHIELDS: Al Hunt, what does it mean when a conservative Republican like John Engler is turning to Washington and asking for help, not to be liberated, but seeking a little tin cup here?

HUNT: The good times, they ain't rollin' any more for the states, Mark. But I think you got to give Governor Engler, a conservative Republican, credit. I'm sure Bob will. He is increasing fuel taxes in the state of Michigan. I'm not sure if I agree with his advocacy of higher Internet taxation, however.

SHIELDS: Bob Novak.

NOVAK: Yes, you know, John Engler used to be my favorite governor. When the good times were rolling, he was cutting taxes, he was doing educational reform. But I'm so disappointed in all the Republican governors, because they just kept -- when they were having all this revenue, they were just building up government, having more and more functions. And now they got to pay the piper just like the Democrats do.

SHIELDS: Kate O'Beirne?

O'BEIRNE: Bob, another revolution betrayed, a revolution in the states. John Engler reminds us of why conservatives ought to steer clear of the National Governors Association. It pains me to see somebody who has been as conservative as John Engler in the past defending the ruinous tax-and-spend policies of the governors during the '90s, who gave -- spent two out of three surplus dollars and are now whining about not having enough money.

SHIELDS: Margaret, quickly, in New York.

CARLSON: Mark, remember when the states were called the laboratories of democracy? Part of that came from the fact that they had money, and things like welfare reform, guess what, they take money. I was on a panel at the Republican Governors Association in '99, and they were living very large. They had the Beach Boys there.

And they were congratulating themselves and seeing each of them a vice presidential candidate because they had been successful. But a lot of that is having the money to spend to fix the things that are wrong. In fact, government works when it has money.

SHIELDS: I will say this about John Engler, I've oftentimes been a critic of his. He's stepping up to the responsibility. That's what governors have to do. Here in Washington they can continue to deficit spend, just exactly like this administration.


NOVAK: When you praise...

O'BEIRNE: ... newfound respect for (UNINTELLIGIBLE).

SHIELDS: They've risen.

NOVAK: When you praise a Republican governor, I know he's in trouble.

SHIELDS: Well, John Engler...

NOVAK: Big trouble.

SHIELDS: ... have a great weekend in Boise, John.

Next on CAPITAL GANG, Beyond the Beltway looks at baseball with ESPN's wise man, Peter Gammons. (COMMERCIAL BREAK)

SHIELDS: Welcome back.

On the eve of baseball's All Star game in Milwaukee, the players' union set plans for announcing a strike date.


DONALD FEHR, EXECUTIVE DIRECTOR, PLAYERS ASSOCIATION: And if a strike date eventually has to be set, the reason you set it is to reach an agreement, it's not to go on strike.


SHIELDS: The All Star game itself ended in a 7-to-7 tie after 11 innings, when both teams used up all their players.


BUD SELIG, BASEBALL COMMISSIONER: There was no other option. If you want to set different rules for the game, then make sure, and this, all that horribly painful and heartbreaking lesson we'll learn from this, this will never happen again.


SHIELDS: That was from Kennesaw Mulhill Landis (ph).

Joining us now from Cape Cod, Massachusetts, is Peter Gammons, former writer for "Sports Illustrated" and "The Boston Globe," now studio analyst for ESPN's "BASEBALL TONIGHT" and one of the wisest men I know.

Peter, thanks for being with us.


SHIELDS: Peter, is the All Star tie almost a metaphor for what's wrong with the game we all love?

GAMMONS: Absolutely. I mean, you know, this is one case where it wasn't Bud Selig's fault. I mean, actually Sandy Alderson (ph) is assistant head coach to Bob Brenley (ph) and said, Look, you got seven relief pitchers and three starters. You'd better use the starters two or three innings apiece so that we don't get into a situation where we run out of pitchers.

It was the fault of the two managers, Bob Brenley and Joe Torre. It should have never come to that. But that said, it just symbolized all the confusion. All that anyone talked about on Monday, the day, you know, where they had the press conferences the day before the game, they talked about the steroid question and the question of whether or not there would be a strike.

Then we had the question of a tie. And what was actually a great game, up through -- up until they had to call it, no one remembered that. And it's sort of what's happened in baseball, because nobody is talking about pennant races and extraordinary performances. They're talking about all the things off the field. And it's, it's, it's been led to the point where it's out of control, which means it hasn't been led at all.

SHIELDS: Robert Novak.

NOVAK: You know, I don't know anything about it, Peter, but I'd prefer to blame it on the commissioner, because I don't like him. And nobody in Washington likes him, because he keeps -- basically lies about whether baseball is coming here.

Can you tell me what his attraction is? He seems to have led baseball into very hard times. They had that terrible strike, they maybe going down the road to another strike.

And yet I never hear a word of criticism from the other owners.

HUNT: Well, I think that the way the other owners do them -- you have to understand that these are 30 owners with separate agendas. These are not 30 guys participating in one business. They're 30 guys running 30 businesses. They're very difficult to get along with in a lot of cases. And they all have very different agenda and reasons for owning teams.

Which is a problem. Now, the idea, when they brought in Bud, was first of all, he's always been completely ingrained in the political structure of baseball. He was head of a player relations committee for years, and he's always been head of a different owners' councils.

Bud was viewed as being a guy, like George Bush, Senior, that he could sort of bring some sort of group together and, and come -- you know, get some consensus. He was viewed as a consensus builder.

He probably does have that strength, and I think he does. But broader views of leadership, though, are a serious issue. And I think that unfortunately for him, it's come to the point where his image has really ended up hurting the game.

I -- someone said to me that, you know, he's almost -- you know, he's almost like Bob Dole, he's fine in the trenches, but if you get him out there leading, it's a failure.

SHIELDS: Margaret Carlson in New York.

CARLSON: Peter, I used to go to baseball games with my dad, but I think I took my daughter to all of two growing up, because baseball just lost me. And one of the reasons is, when a player like Sammy Sosa says he won't be tested for steroids. One of the players interviewed the other day said that the players were taking so many horse steroids he expected to see them grazing in the outfield in between innings.

If everybody's taking them, everybody's got to take them to keep up. Who's going to, who's going to stop this, Bud Selig? GAMMONS: Oh, I think that -- no, I -- see, I don't think that ownership can do it. I think that the players have to do it. And the majority of players are clearly for some sort of steroid testing.

But the issues are, how do you do it? And can you ensure that there's an independent testing service, and can you ensure that they don't start rummaging into a lot of other stuff?

(UNINTELLIGIBLE) Tom Glavin, who's one of the heads of the players union, said, you know, It's a no-brainer that we want testing for steroids. It's how we get there and how we administer it.

I -- that's, you know, when Barry Bonds and Sammy Sosa were asked to run off and take tests, the reason they did this, it -- the unions say, All right, let's see if we can find some way to do this and address it. But I think independent of these negotiations, there will be some form of testing that will go on. The problem is, how do you make it independent? And two, how do you make it so guys can't cheat, like in the NFL? I mean, I hear player, players in all sports tell me, Hey, it's really easy to get around these things.

Now we have to figure out a way to do it. But I think you'll see the players end up doing it. I just think it's going to take about a year for them to figure out how to do it.

SHIELDS: Kate O'Beirne.

O'BEIRNE: Peter, some critics think that the All Star game ended the way it did this week before the teams treat the game as though it doesn't matter, because it doesn't matter. If they're right, does it make sense to give the teams more of a stake in the wins, like offer a home field advantage in the World Series for whoever wins?

GAMMONS: Well, you know, that was something that some people raised last year, and I think it's -- you know, I think it's an interesting issue. And I wouldn't be opposed. I don't close my mind to it, because I think it has become -- it's almost like the Academy Awards. All the players like to show up and do a little strutting and walk down, you know, dressed well, you know, (UNINTELLIGIBLE) should have the E! Network cover it.

But they don't really want to play it, and it's not series, the fact that they ran out of players, the -- The notion that everyone's supposed to play is idiotic. It was never so in years past. Ted Williams never would have won the '41 All Star game, or Stan Musial hit the home run in the 12th inning in Milwaukee in '55.

Those games are supposed to be played to win. And while Tuesday's game was played at a very high level, particularly defensively, I think that the notion that it's sort of a cameo appearance thing has got to change, and I think that's the reason that it ended up. But I -- in the tie.

And I think that you'll see people try to address this in the next year. Unfortunately, you know, they're going in to Richard Daley's neighborhood there in south Chicago next year. SHIELDS: Al Hunt.

HUNT: Well, you know, Peter Gammons, the same Richard Daley from a great baseball-loving family, said the other day that if there is a strike, it'll be disastrous for baseball. I want to ask you two questions. A, what are the odds of a strike this year? And B, will the Montreal Expos be in Washington next year?

GAMMONS: Well, on A, I really believe it's 70 to 30 that there won't be a strike. And I -- I realize it's very difficult to get a settlement when you have two groups that absolutely despise each other. Or the leadership of the two groups despise each other.

I mean, frankly, I think Bud Selig and Don Fehr have been sitting across the table doing battling news conferences for too many years. They need some new faces. But we don't have that.

But in the end, I think September 11 looms very large, and I think both players and owners understand that it would do irreparable damage to the game to be out on strike on that day.

I think there are too many teams that are owner -- that are entertainment entities, in other words, television's, you know, basically, cheap television programming, that this strike would kill them, and the Giants as well, because of their ball park.

And I really think that there are, you know, there are dividable differences on all the major issues. I think this thing can get done.

On the second question, I keep being told by owners that they won't move the Expos to Washington, they'll move it somewhere else. Which doesn't exactly make a lot of sense. They bought the Expos for $135 million. They can probably get between $350 and $400 million in Washington to move there. You divide that profit up 29 ways, that sounds like a pretty good revenue-sharing deal to me.

And I think it would be great for baseball to be in Washington. It just makes no sense not to be there.

SHIELDS: Good word. Peter Gammons, we've only got 30 seconds to tell me, is this the year that the Curse of the Bambino is finally ended and the Red Sox win that World Series?

GAMMONS: Probably not. I hate to tell you that, Mark.


GAMMONS: (UNINTELLIGIBLE), it's great for people to listen.

SHIELDS: Thank you very much for being with us.

THE GANG will be back with the Outrages of the Week.


SHIELDS: Now for the Outrage of the Week. In New Mexico, state Republican Party chairman John Dendall (ph) admits he was repeatedly offered six-figure contributions to leaders of the state's Green Party if the Greens would run candidates in two House races to hurt Democrats and to help Republicans.

Chairman Dendall would only say the mystery donor was a Washington, D.C., Republican, not a party or federal official.

This is big money. Not trying to change public policy, but trying to sabotage the nation's electoral process. Voters deserve to know the identity of the Washington Republican bag man who could corrupt our democracy.

Bob Novak.

NOVAK: A little more than a year ago, newly installed Senate Majority Leader Tom Daschle addressed the Las Vegas fund raiser for newly installed majority whip Harry Reid of Nevada.

Senator Daschle promised to block Yucca Mountain as a nuclear waste repository, saying, quote, "As long as we're in the majority, it's dead." That would kill nuclear power to satisfy casino gambling.

This week, the Senate said no to high rollers made nervous by safe waste disposal 100 miles from Las Vegas. Yucca Mountain was approved 60 to 39.

SHIELDS: Margaret Carlson.

CARLSON: Mark, Ted Williams' death is a cause for sorrow and now a cause for alarm. One of his children wants to freeze him and sell his DNA. To whom, you ask? Not even crazed Little League parents are that loopy.

Actually, Williams' son doesn't appear to have Ted Williams' most important characteristics. Williams served his game and his country in an honorable way. What makes you think you could get another Ted Williams out of a petri dish when the actual money-grubbing son is nothing like the old man?

SHIELDS: Kate O'Beirne.

O'BEIRNE: The International Criminal Court, set up by a treaty the United States never ratified, is up and running, and the Bush administration appears to be running from its earlier insistence that American soldiers would not be subject to it. This court, whose international judges can define war crimes and excessive force, with no right of appeal, is accountable to no one.

Our European critics are free to surrender their own national sovereignty. What an outrage if American soldiers are sacrificed so we can follow their sorry example!


HUNT: Mark, stock options for were CEOS considered good for investors, because it was going to align their interests with managers. Instead, an unintended consequence has been that these multimillion-dollar options too often create an incentive to cheat and artificially inflate stock prices. CEOs get filthy rich, stockholders are left holding the bag.

Knowledgeable experts like Alan Greenspan and Warren Buffett, who care about investors, say one solution is to require companies to expense these options. But George Bush and Senate Democrats so far say no. They care more about rich friends than small investors.

SHIELDS: This is Mark Shields saying good night for THE CAPITAL GANG.

If you missed any part of our show, do not despair. You can catch the replay at 11:00 p.m. Eastern time and again at 4:00 a.m. Eastern.



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