CNN CAPITAL GANG
Stock Market Tumbles While Congress Debates Proper Remedy; Party Line Splits Emerge on Homeland Security; New Yorkers Insult WTC Plans as Resembling Albany
Aired July 20, 2002 - 19:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: Live from Washington, THE CAPITAL GANG.
MARK SHIELDS, HOST: Welcome to CAPITAL GANG. I'm Mark Shields, with Al Hunt, Robert Novak, and Kate O'Beirne.
Our guest is Congressman Martin Frost of Texas, chairman of the House Democratic Caucus.
Good to have you back, Mr. Chairman.
REP. MARTIN FROST (D-TX), CHAIRMAN, HOUSE DEMOCRATIC CAUCUS: Good to be here.
SHIELDS: Thank you.
The Dow Jones average continued a tow-week decline of 14.5 percent with a 390-point drop yesterday. The four-month rout of stock prices continued after the Federal Reserve chairman and President Bush tried to reassure investors about the economy while condemning corporate corruption.
(BEGIN VIDEO CLIPS)
ALAN GREENSPAN, CHAIRMAN, FEDERAL RESERVE: An infectious greed seemed to grip much of our business community. Our historical guardians of financial information were overwhelmed.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The key thing for the American people is to realize that the fundamentals for economic vitality and growth are there, and that as Chairman Greenspan said yesterday, that we've got to change from a culture of greed to a culture of responsibility.
(END VIDEO CLIPS)
SHIELDS: The gap quickly closed between the House Republican accounting reform bill and the tougher Senate Democratic version as a Senate-House conference began its work.
(BEGIN VIDEO CLIPS) SEN. PAUL SARBANES (D), CHAIRMAN, BANKING COMMITTEE: But I have great respect for the work that the House did. But I just want to note that since the House acted in about mid-April, little later than that, an extraordinary number of things have transpired.
UNIDENTIFIED CONGRESSMAN: I believe the Senate amendments improved upon the House package in a number of ways.
(END VIDEO CLIPS)
SHIELDS: Kate O'Beirne, why does the market keep collapsing despite what our respected government leaders keep telling us?
KATE O'BEIRNE, CAPITAL GANG: Well, Mark, I think the message that Washington's coming to the rescue is not particularly reassuring when plenty of people on Wall Street are worried about regulatory overkill from Washington. That's in the mix here too when you look at what's happening with the stock market.
And when the majority of Americans are now in the market, good economic news doesn't persuade them when they see their own shrinking 401(k)s. And I think that's what's happening now.
Given the law of unintended consequences, like stock options, of course, are now the villain, considered the villain here in Washington, they look at the result encouraging those (ph) of previous reforms on the part of Congress.
So given the law of unintended consequences and the Republican Party that's trying to look as antibusiness, implausibly look as antibusiness as the Democratic Party, I think investors ought to be nervous about what Washington might serve up.
SHIELDS: Is that your assessment, Al Hunt?
AL HUNT, CAPITAL GANG: I would agree only with her critique of the Republican Party. Look, Billy Tauzin is an incredibly smart politician. He's also been a wholly-owned subsidiary of the accounting industry for the last 10 years, gotten over 200 grand from them. And when he starts shifting, you know the times, they are a- changing.
Mark, what we have is a crisis of confidence here. And I think it's a crisis that ignores the fact that most of the fundamentals are sound, with the exception of the fiscal situation a few years out, because of that reckless tax cut for the wealthy.
But other than that, you know, they're pretty sound fundamentals, which Chairman Greenspan made clear.
The problem, Kate, is that many of those people both on Wall Street and Main Street think that this is all blue smoke and mirrors. They're not worried about these -- about Paul Sarbanes doing too much, they're worried about people not taking this seriously enough.
SHIELDS: Bob Novak, what's going on? ROBERT NOVAK, CAPITAL GANG: I'll tell you what's -- well, Kate is exactly correct, only it's worse than she indicates. I have a feeling of, it must have been like in the -- after the stock market crash of '29, when the government was imposing tariffs, raising taxes, tightening money, doing all the wrong things, and they couldn't figure out why the market couldn't recover.
Now, all the things that are being done by the Democrats, by the Senate bill, are all counterintuitive as far as the market goes. It goes in the wrong direction. And I'll tell you this. When the chairman of the Federal Reserve, conservative like Arnold -- Alan Greenspan and a conservative president like George Bush attack infectious greed, the climate of greed -- greed is what makes the American system and the capitalist system work.
And sometimes you have some bumps in the road. But don't start with that Marxist propaganda about capitalist greed.
SHIELDS: Bob, America's about more than the gross national product, though...
NOVAK: We don't need your (UNINTELLIGIBLE)...
SHIELDS: (UNINTELLIGIBLE) it's more than the bottom line. Isn't it, Martin?
FROST: I think Bob has conveniently forgotten that right after the Depression hit, that the Securities and Exchange Commission was created during the early days of the Roosevelt administration, and that was what brought things back into balance. That's what gave us some confidence, so people could rely on the prospectuses that were sent out and the materials the companies sent out.
Now we have a situation where the average investor can't rely on the information he's getting from the company that he wants to invest in. We need -- there is a happy middle ground where the government has a role to play to make sure that businesses are being honest so that when I buy a stock for my grandchildren for their college account, I can rely on the information that company puts out.
I don't want that stock to be worthless when my kids go to college.
HUNT: You know, I'm baffled by what Bob considers irresponsible in that Sarbanes bill, endorsed by people like Paul Volcker, Alan Greenspan, Warren Buffett, who I think know a little bit about capitalism...
HUNT: I mean, what it does, what it does is, it says, among other things, that you can't have scams, that accounting, the accounting profession cannot engage in conflict of interest. You have an oversight board to make sure they're honest.
That has nothing to do with anticapitalism. And if you think that the greed, that the greed practiced by the Bernie Ebbers and the Kenny Lay is what America needs, then I think unfortunately you're out of step with most Americans.
NOVAK: Well, two points. You're misrepresenting me. I'd like to represent myself.
HUNT: No, I said, if you think.
NOVAK: I think you misrepresented me totally, Al. Because it isn't a question that I think you need their greed. What I am saying is that when people, and when people or conservatives like Greenspan and President Bush go out and attack greed, attack business, it reduces the confidence in the system and the confidence in markets.
And I'll tell you something else. The people that you mentioned, I know you always like authority figures, they are the people who make huge, huge mistakes. And I really believe that it -- that you can't rely on them.
O'BEIRNE: And I'll tell you the mistake that the Republicans are making. They are trying to look, as I said, as antibusiness as Democrats. They will never look as antibusiness as Democrats, as the Democrats run the risk of looking too much so themselves.
It's just not a plausible sales job for voters.
HUNT: Listen, the...
O'BEIRNE: What Republicans should do is look pro-investor. And to be pro-investor is to make sure Washington doesn't overregulate, making it easier for trial lawyers to sue corporations is not in the interests of investors.
FROST: No, no, this is nonsense that Democrats are antibusiness. Democrats believe in the free enterprise system, and we want to make it work. We want to make sure that people can get accurate information, and that people aren't stealing. You ought to hope that the Democrats are more successful in what we're trying to do to pass some decent legislation so the free enterprise system will prosper in this country.
SHIELDS: I think, I think the, I think the Republicans ought to point it to the president's leadership in this. I mean, you know, the president may very well be approaching the Teddy Roosevelt model. He might be that man born of privilege, born of wealth, who all of a sudden is going to stand up there to inherited money and take it on and take on big money.
Because I'll tell you, politically, be very blunt about it, if you don't level with the American people this year, you're going to pay a fearsome price in November...
NOVAK: Oh, Mark...
SHIELDS: ... and that's exactly what the Republicans are facing. And that's why George W. Bush is beating a stampede.
NOVAK: I hope you take the tongue out of your cheek, because it might damage yourself having it that far protruding. The matter of fact, we all know. Here we have here one of the most powerful Democrats in America, he is the chairman of the...
FROST: Look out, here it comes, here it comes.
NOVAK: ... caucus, he may be the next majority leader of the House, who knows? And, and, and, and these, and he, along with the, every Democrat I know, they're beside themselves with joy that they've got an entry into the 2002 election. This is all politics, and it...
NOVAK: ... and they're, and they're playing it right, and the Republicans...
O'BEIRNE: They'd be just as happy...
NOVAK: ... are (UNINTELLIGIBLE).
O'BEIRNE: ... they'd be just as happy if the market didn't improve, and they're looking at a bear market...
FROST: Bob, Bob, it's -- Bob, it's not all politics...
O'BEIRNE: ... (UNINTELLIGIBLE).
FROST: ... if the Republicans would have voted for the Sarbanes bill when they had the first chance in April, we wouldn't be where we are. Come on...
FROST: ... let's not talk about politics.
NOVAK: The -- what the Sarbanes bill is, it goes a long way toward criminalizing mistakes that are made when you're an accountant, and it's a, it is a bad signal for the investor. That's why, Al, think, think, that is why you have the market collapsing when the, when the Republicans say, We surrender, dear, we'll do whatever Sarbanes wants, and the market goes south.
HUNT: Bob, you left "The Wall Street Journal" 40 years ago, so I want to say it real slow for you so you understand. The market is collapsing because they think it's not on the level. And Bob, Bob, Bob...
HUNT: ... if I may finish, if when they think it's not on the level, when they think it's all a con game, then investors go south.
SHIELDS: The kind of thing that Paul Sarbanes wants to do...
SHIELDS: ... that's such a radical idea is to prevent, prevent brokerage firms, Bob, from giving one word to their investors, saying, Buy this stock, while internally saying, This thing's a dog...
SHIELDS: ... don't go near it, and, I mean, that, is that wrong?
FROST: And make CEOs sign the annual reports and stand behind them.
NOVAK: That, that, that's the line. But what we, what we, what we, what we know is, this is all political.
HUNT: Bob, Bob...
NOVAK: And you know...
HUNT: ... transparency, it's called honesty.
SHIELDS: That isn't a line, Bob, that's the bill, and it's the cure for a sick system right now.
Martin Frost and THE GANG will be back with Capitol Hill turf wars on homeland security.
SHIELDS: Welcome back.
Martin Frost serves on a Republican-controlled House select committee, which in a five-to-four party line vote approved President Bush's homeland security plan, reversing positions by House standing committees. It would transfer the Coast Guard and Secret Service, among other agencies, to the new department.
(BEGIN VIDEO CLIPS)
REP. NANCY PELOSI (D), MINORITY WHIP: People say that, Oh, it's just Congress protecting its turf. I say it's not about turf, it's about the constitutional separation of powers. It's about checks and balances in our government.
REP. BOB PORTMAN (R), CHAIRMAN, GOP LEADERSHIP: We also have a responsibility to protecting our nation and our citizens. But I think that has to be first, and while I agree that this is not all about turf, I think some of it is about turf.
(END VIDEO CLIPS) SHIELDS: The committee voted to delay the deadline for new airline baggage-checking machinery, reversing its earlier decision.
Meanwhile, John Magaw was forced out as head of the new Transportation Security Administration.
Al Hunt, is the president's homeland security program in trouble on Capitol Hill?
HUNT: Mark, for eight months this administration insisted the one thing we didn't need was a homeland security agency. Then they quickly and hastily assembled a plan that had all sorts of imperfections in it, and now Congress is trying to deal with it.
I think what the standings committees in the House did earlier was a matter of turf. They weren't looking at what made the most sense, they were trying to protect their own turf.
I think what the Army Committee did, in contrast, was give the president a victory. We don't care if it makes good policy or not.
What's the rush? What's the rush to do this by September 11? Let's get it right.
I think we have some very tough, complicated issues. Government reorganizations frequently have all sorts of unintended consequences. They usually cost more money (UNINTELLIGIBLE). Let's get it right.
I think -- and one other criticism. I -- whatever we do, let's not suspend freedom of information and whistleblowers' things. There ought to be accountability here.
SHIELDS: Martin Frost, just to put it bluntly politically, Republicans were saying when this Washington introduced, We'll be debating homeland security in September and October, it'll be good for the Republicans going in the November election.
Democrats, by contrast, who had urged this department, kind of backed off once the president endorsed it. Now they want it done. It seems both parties want it done. Is there a momentum which is going to accomplish it all by itself?
FROST: I think it's going to happen in the House next week, I don't know what's going to happen in the Senate. We -- people may have seen us on television yesterday, 10 hours' worth of markup...
SHIELDS: Endless, endless.
FROST: Endless, that's correct. But we got it finished. Democrats and Republicans ultimately want this to happen. There are some differences of opinion between Democrats and Republicans on exactly how it ought to happen.
For example, the Republicans want to take the existing civil service protections that federal employees have right now and go back, not even have the current system. We had two different bill -- amendments up yesterday. We had two votes. One of them was the exact work of the Government Reform Committee, which was adopted unanimously by the Government Reform Committee. They said, just take the current system and put it in place.
The Republicans voted against having the current system, these current guarantees that Al was talking about.
O'BEIRNE: (UNINTELLIGIBLE), good for them.
By the time George Bush gets this department, and I'm not so sure it makes sense even as he presented it, but by the time he gets it, it's not going to be the department he outlined. He said he wanted to move 22 agencies -- and most people don't even know where these agencies currently are, Customs and Secret Service, the Border Patrol, INS -- into one place.
But, he said, it has to be an agile organization. It has to be flexible. It can't be business as usual.
And of course what Martin Frost and others are arguing for is business as usual. They will so hamstring this new department with the current personnel rules and regulations.
For instance, collective bargaining agreements dictate you can't move a Border Patrol agent from where he is to where you really need him. You can't fire people. You can't hire who you want when you want them. You can't reward good employees. Eighty percent of poor performances all get automatic pay increases.
That's the kind of department he's going to get under this plan, and it's not worth having.
FROST: Well, you know why we have the civil service system, it's because we used to have the spoils system in this country.
NOVAK: It wasn't that bad...
FROST: There was all political patronage...
O'BEIRNE: And now you preserve it because...
FROST: ... and so what we did...
O'BEIRNE: ... because the unions all vote for Democrats.
FROST: ... and so what we did was to set up the system so that clerks are treated fairly, everybody who works for the government is treated fairly.
FROST: ... why should we treat people less fairly simply because we move them from over here to over here to the new department? Why shouldn't they have the same...
NOVAK: You know, one of the great...
O'BEIRNE: Everybody should be accountable.
FROST: ... rights they have right now?
O'BEIRNE: In their old department, they should be accountable too.
NOVAK: You know, one of the great -- the founder of the Democratic Party, Andrew Jackson, was the greatest spoils man in the history, so you shouldn't, you shouldn't...
FROST: I think Thomas Jefferson, I think, was the...
NOVAK: Let me just say this, that one of the most dangerous things that you people did up there was to put these things on television, because they -- it means it's not just the reporters and the lobbyists get to see it. And they realize it's not on the level. They're all working for constituency groups. The idea that there's a bipartisan willingness -- there was one five to four vote after another.
Dick Armey, the chairman, had his nicest, his company manners on, but he was -- it was a railroad going down there. And of course you were trying to protect your employee unions. It was all politics.
Now, the question is, what that has to do with security, and particularly the question of having these ridiculous baggage-checking machines, how soon you saddle the airlines with this new expense, it's this great debate, and the anguish by Congressman Menendez when they reversed it, I mean, that much confidence and that much ado with fighting terrorism.
HUNT: Robert, Robert, if I were a cynic, I'd think that you want to have, you want to have a very secure country, but nothing that inconveniences you or other travelers. Is that, is that...
NOVAK: That's exactly right.
NOVAK: Exactly right.
HUNT: I wish it were that simple, Bob. (CROSSTALK)
O'BEIRNE: Al, the problem with the mandate, Congress' mandate that all checked baggage had to be checked by the end of this year is, Congress could mandate pigs can fly, should fly by the end of the year. It's not going to happen. And the technology does not exist...
NOVAK: It's not even a danger, it's not even a danger.
O'BEIRNE: ... to check everybody by the end of the year.
FROST: Bob, that's not true. You know, first of all, it ought to exist, we ought to figure out when we can get it done. I don't know of you remember a few years ago, there was a plane that went from Dallas, Texas, to Wichita Falls, and some -- the young lady's boyfriend put dynamite in her luggage, because he wanted to do her in. Now, fortunately, it didn't, it didn't blow up.
FROST: It didn't blow up.
FROST: It didn't blow up, because -- and yes, and let me tell -- but let me tell you...
FROST: ... what happened. I called the FAA after that happened, and I said, What's going on here? Do -- didn't -- don't we X-ray those baggage to see if there's dynamite? They said, No, congressman, we don't do that, and please don't tell the public. We don't want them to know that we don't X-ray the bags.
NOVAK: Martin, tell me what -- this, this enormous expense, this enormous burden, I'd like to know who wants this expense, but that's another question.
FROST: Try the flying public when their grandchildren...
NOVAK: (UNINTELLIGIBLE), I'd like, I'd like...
FROST: ... get on an airplane.
NOVAK: ... I'd like to know what impact that would have on September 11. Can you tell you me?
FROST: Well, I don't know that...
NOVAK: None. Zero.
FROST: ... it would have had any, Bob.
NOVAK: Zero, right?
NOVAK: (UNINTELLIGIBLE), be honest.
FROST: ... but, but now they're not going to do the exact same thing. They're not going to do -- hijack a plane. The next thing they're going to do is try and put dynamite in a bag...
FROST: ... and I don't want my two grandchildren...
O'BEIRNE: Look what's happened to the...
FROST: ... who live in El Paso...
O'BEIRNE: ... the new agencies...
FROST: ... getting on a plane to come see me in Dallas and having that plane blown up.
O'BEIRNE: The new agency you created just last fall, everybody thought it would mean 30,000 new employees, they're already -- it -- projecting 70,000. This year alone, the budget doubled. A vote of no confidence we saw last week in Congress, despite this huge expense, and thousands of new employees, they want to arm pilots because even members of Congress...
HUNT: I've got bad news for you, Kate.
O'BEIRNE: ... don't think our airports are any safer.
HUNT: I got bad news for you and Bob. If you want to have a more secure country, you can. But dig into your pockets, baby, and you're going to have to pay some money.
O'BEIRNE: ... or we profile, we profile the...
HUNT: Or you don't.
O'BEIRNE: ... the traveling public...
HUNT: It can't be done on the cheap.
O'BEIRNE: ... and profile foreign nationals...
HUNT: Can't be done on the cheap, Kate.
O'BEIRNE: El Al profiles...
(CROSSTALK) HUNT: El Al also X-rays the luggage. And if they can do it, we can do it.
NOVAK: Good old El Al.
SHIELDS: Last word, Martin Frost.
Next on CAPITAL GANG, James Traficant refuses to go quietly.
SHIELDS: Welcome back.
The House Ethics Committee unanimously voted to expel Congressman James Traficant of Ohio. Traficant, who has been convicted of federal corruption charges, had his say before the Ethics Committee.
(BEGIN VIDEO CLIP)
REP. JAMES TRAFICANT (D), OHIO: (UNINTELLIGIBLE) give me some room. I mean, this is disgusting. Man, if I had a gastric emission, it would (UNINTELLIGIBLE) camera in the joint.
If they put me in jail in Ohio, I might just be the first American to win a congressional seat while incarcerated.
I'm prepared to go to jail, and for the length of time I spend in jail, (UNINTELLIGIBLE), I will die in jail.
But you know what? I will die in jail before I would admit to doing something I did not do and had no intent to break any laws.
I want you to disregard all that the opposing counsel has said. I think they should be handcuffed to a chain link fence, flogged, and all of their hearsay evidence should be thrown the hell out. And if they lie again, I'm going to go over and kick them in the crotch.
I will take with me a file, a chisel, a knife. I'll try and get some major explosives, try and fight my way out.
(END VIDEO CLIP)
SHIELDS: Bob Novak, can anything, anything be said in defense of Jim Traficant?
NOVAK: How many congressman do you have who compare themself to "Gladiator" in the movie, you know? So that's very -- boy, I mean, most of the congressman, I'm not -- present company expected -- excepted -- are very dull, boring, they have no imagination. He's an interesting fellow. And that's what I can say in defense of him.
But what a -- what the real problem is, that there's only been one congressman expelled from the House of Representatives since the Civil War, and that's Ozzie Myers (ph) on Abscam, Frank Thompson of New Jersey, I think Al knew Frank, wonderful guy, he was convicted, spent several years in prison, but he was a nice guy, and you didn't kick him off.
Charles Diggs (ph) of Michigan was -- pardon?
FROST: He resigned. Diggs resigned.
NOVAK: He didn't, he wasn't kicked out, though. And, and, and when, when Newt Gingrich as a young, Newt Gingrich was a young congressman, tried to kick him out, they just, Speaker O'Neill raised hell.
So they're making a case on, on, on Traficant because they don't like him. It's not the standard thing, that's what I can say for it. And let him serve. He's not going to get reelected. Let him serve out, let him go to prison, but it is hypocritical of the House of Representatives to expel him.
SHIELDS: Hypocritical, Martin?
FROST: Oh, I don't think so, Bob. He was convicted of taking kickbacks from his own staff. He was convicted of taking bribes from contractors in his home town. I mean, there is a point beyond which you can't go. Also, he has held the whole institution up in terms of disrespect, makes the public think that this institution is not, not a serious place to legislate.
I think he's going to be expelled. And it's unfortunate. You know, a year ago, there was an issue, and I had to rule on it as chairman of the caucus. The question was whether Traficant was still a Democrat, whether he could vote in the race for whip. I ruled that he could vote in the whip's race between Pelosi and Heuer (ph). He chose not to vote, he didn't show up for the meeting.
But we've given him every benefit of the doubt. We have -- all the way through this process, he's now been convicted of some very serious charges. I think he will be expelled.
O'BEIRNE: I guess...
SHIELDS: Kate O'Beirne.
O'BEIRNE: ... I guess I'm like Bob, I prefer my congressmen boring to being crooks and liars, which is what we've, of course, known Jim Traficant to be. Republicans should be grateful to him. There was some talk a couple of years ago about him switching parties. How do you switch to become a Republican? Overnight he would have gone from being a colorful, amusing rogue to being a felonious Republican.
So they ought to be very grateful that he stayed in the Democratic Party.
But it does turn out that this man of the people has been ripping off the people for years, abusing his staff and ripping off taxpayers.
SHIELDS: Al Hunt. HUNT: Mark, I agree with Bob that I think one thing can be said about him is that he is, he is colorful. And I kind of like the fact we -- you know, I like the fact when we had some rogues up there. When I first started to cover Congress 30 years ago, one of the reasons it was the greatest beat in town was because you had so many colorful people, mainly the big-city guys and the Southerners.
Some of them were incredibly competent. I mean, Russell Long and Danny Rostenkowski. Some of them, like Eddie Patton (ph) of Bayonne were just a hack. But they were made for more interesting institution than what you have now, which is a body full of almost totally TV- oriented, blow-dried -- obviously Martin is an exception -- types...
FROST: That's OK.
HUNT: ... and I don't think it's as interesting a body.
I would just say quickly as a point of information, Bob, Frank Thompson was not expelled because he was defeated in the election. I think, I think you're right, though, Congress should only expel someone after they've been indicted of a, of a, of a...
HUNT: ... convicted of a felony, rather. Adam Clayton Powell and Bob Packwood were wrong. But this one, this guy shook down...
SHIELDS: Let me just say, let me just say, you talk about blow- dry. No one's ever accused Jim Traficant. He looks like an eggbeater did his hair. I mean, that's the first thing.
But (UNINTELLIGIBLE) serious thing is, he's going to run. He's on the ballot as an independent.
SHIELDS: Well, you know, I mean, no, I'm talking about if he gets 15 percent, that could be the difference in that district, Martin.
FROST: Oh, I think the young man who won the nomination, a 28- year-old senator by the name of Ryan, I think is going to be the next congressman from that district.
NOVAK: Let me just get a word. He, Jim Traficant beat an income tax rap before a jury in the Mahon, in the Mahoning Valley...
NOVAK: ... in Youngstown about 20 years ago, and I, and he says, and I agree with him, that the, he has been targeted by the IRS ever since. I'm not saying he didn't do these things. But there's no question the government had him targeted to try to put him in prison.
O'BEIRNE: Well, all the more reason...
NOVAK: And that bothers me.
O'BEIRNE: ... (UNINTELLIGIBLE), Bob, when you know they're watching you, specifically, all the more reason not to do it. You know, there's never, I don't get this, how amusing Jim Traficant's job is. It's not like he's any great wit. There will never be a book called "The Wit of Jim Traficant." He engages in bathroom humor and people all seem to think that that's endlessly witty. I don't think he'll be missed...
FROST: Well, Bob, the worst thing...
O'BEIRNE: ... (UNINTELLIGIBLE).
FROST: ... you can do is to demand kickbacks from your own employees. I'm sorry, that's inexcusable. That should not be tolerated.
SHIELDS: Last word, Martin Frost. We'll be back with a CAPITAL GANG classic, a stock market collapse five years ago.
SHIELDS: Welcome back.
Five years ago, the stock market dropped 556 points, and the secretary of the treasury assured investors.
(BEGIN VIDEO CLIP, October 1977)
JAMES RUBIN, TREASURY SECRETARY: It is important to remember that the fundamentals of the United States economy are strong and have been for the past several years.
(END VIDEO CLIP)
SHIELDS: On November 1, 1997, THE CAPITAL GANG, your CAPITAL GANG, looked at the situation with our guest, Democratic Congressman Barney Frank of Massachusetts.
(BEGIN VIDEO CLIPS, November 1, 1997)
HUNT: Secretary Rubin has a very valid point. We have a strong and a vibrant economy. It's the envy of the Japanese and the Europeans. And just compare it to 10 years ago when the last market, quote, "correction" took place.
NOVAK: I would say that the -- there has been a change. What we have is in the Chairman Greenspan denies it, we have a global deflation going on, gold prices are down, copper prices are down, chip prices are down.
O'BEIRNE: Small, new investors didn't panic, which I think was amazing to see. They, they, they, they, I think, exhibited a level of sophistication that probably surprised others. They were right back in on Tuesday buying. And that was in -- that was great to see.
REP. BARNEY FRANK (D), MASSACHUSETTS: And the problem that the Federal Reserve has had is that we've had too much growth. But I do agree with Bob that that's been an inappropriate response. And there's a social problem here.
(END VIDEO CLIPS)
SHIELDS: Bob, we didn't seem very exercised about a 556-point decline then. Why is everybody so upset now?
NOVAK: Because this is a real definite bear market, it's the first bear market we've had in a long time. That means its continuing slow is a bad psychology. That was a momentary decline that we got away from.
But I said that we had a terrible problem with deflation, and we still have a problem with deflation that there's the Fed and Dr. Greenspan, who Al way follows his every word is never really understood. And it is a problem for the economy.
SHIELDS: You worry about gold and copper prices, Kate?
O'BEIRNE: Not nearly as much as Bob, I suspect, Mark.
O'BEIRNE: Bob worries enough for the both of us.
Back then, the small investors were not being treated every day to stories about corporate fraud, so they were willing to hang in there and ride out the inevitable ups and downs.
FROST: You know, you know, Mark, it wouldn't be bad to have Bob Rubin back. Be nice to have some people in the administration who...
O'BEIRNE: Oh, the golden (UNINTELLIGIBLE) years.
FROST: ... (UNINTELLIGIBLE), who really, who, who really, who really understood what was -- what's going on.
HUNT: That's an interesting point.
SHIELDS: Oh, amen.
HUNT: Would you prefer Rubin to Paul O'Neill?
FROST: I'd prefer -- I -- absolutely. And I think people in the market...
FROST: ... to Paul O'Neill.
HUNT: You're right, and I think how much richer you'd be if we had Bob Rubin back. You know, I think... NOVAK: (UNINTELLIGIBLE).
HUNT: ... we ought to start a...
SHIELDS: Greed is everything. Greed is everything, money's secondary.
HUNT: Whatever ratings problems CNN has, it could cure with a weekly show, Bob Novak lectures Alan Greenspan on how the economy works. Wouldn't that be great to see?
SHIELDS: I like the idea, I think it -- I'm going to call it...
HUNT: I, I think Dr. Greenspan...
SHIELDS: ... (UNINTELLIGIBLE)...
HUNT: ... would be incredibly appreciative.
FROST: You'll have to invite Barney Frank back when he's chairman of the Banking Committee next year.
SHIELDS: (UNINTELLIGIBLE), all right. Chairman...
NOVAK: Look at that, look at that.
SHIELDS: ... chairman -- (UNINTELLIGIBLE)...
NOVAK: Look at that confidence.
SHIELDS: ... thank you very much, Martin Frost, thank you for being with us.
We'll be back with the second half of CAPITAL GANG. Our Newsmaker of the Week is corporate watchdog Nell Minow, discussing CEO greed, a topic close to Mr. Novak's heart. Beyond the Beltway looks at rebuilding the World Trade Center with filmmaker Rick Burns. And our Outrages of the Week. That's all after these latest news following these urgent messages.
ANNOUNCER: Live from Washington, THE CAPITAL GANG.
SHIELDS: Welcome back to the second half of THE CAPITAL GANG.
I'm Mark Shields with Al Hunt, Robert Novak, and Kate O'Beirne.
Our Newsmaker of the Week is Nell Minow, editor of TheCorporateLibrary.com.
Nell Minow, age 50, residence McLean, Virginia, religion Jewish.
Graduate of Sarah Lawrence College and the University of Chicago Law School, former president of Institutional Shareholders, Inc.
Reports on the modern global corporation through CorporateLibrary.com. She's the author and co-author of six books, including a new edition of "Corporate Governance in 2001."
Earlier this week, Al Hunt sat down with Nell Minow.
HUNT: Executive compensation and perks have skyrocketed in recent years, Nell. Has that contributed to the wave of corporate fraud?
NELL MINOW, THECORPORATELIBRARY.COM: No question about it, because of the way we've structured that compensation. I mean, really, not since the days that we used to give people their weight in gold has there been such a perverse incentive.
HUNT: CEOs today, I read, make 522 times what the average worker makes. Peter Drucker, the great management expert, says that no CEO should make more than 20 times what the lowest-paid worker makes. Is that a reasonable formula?
MINOW: Not really. Ben and Jerry's used to have that as their formula, and they couldn't find anybody to take the job as CEO.
But we have to have a better way of telling the CEOs what it is we're paying them to do. For 10 years, we've been telling them that we're paying them to keep the stock price up, and so they did anything they could to keep the stock price up. And that turned out to be not so (UNINTELLIGIBLE) -- not such a good thing.
HUNT: Well, I think almost everyone can agree that Ken Lay of Enron or Bernie Ebbers of WorldCom ripped off their shareholders. But how about someone who performs? Let's take Jack Welch. He increased shareholder value tremendously during his years at General Electric, paid as much as $136 million a year, now I think he gets a $9 million a year pension.
Is the wealth treatment justified because he delivered?
MINOW: Almost. He certainly created a lot of value, and he certainly made a lot of money. But there is sort of that cherry on top of the whipped cream on top of the ice cream factor to his pay. He gets lifetime use of the corporate jet, for example. He gets all kinds of other cushy post-retirement benefits.
It would have been a lot classier if he'd said, You know what? I've been paid plenty, I think we're quits now.
HUNT: Much of the lavish pay, as you know, is in stock options, and critics like Alan Greenspan and Warren Buffett have said that those options should be expensed to reflect reality. Coca-Cola and "The Wall Street Post" and others are doing just that.
But some people on the other side say that would depress stock prices and profits. They cite a Merrill Lynch study that says 2001 corporate profits would have been 21 percent lower. Is it a desirable move towards transparency, or is it something that could hurt the market?
MINOW: I'd put it slightly differently. I would say that corporate profits are 21 percent lower than they were reported. It's just not good enough to say, Well, the news would be really bad, so maybe we shouldn't look at it.
The fact is that that's what financial reporting is supposed to do, it's supposed to be accurate.
It's not really fair to say that we're not valuing stock options at the moment when we don't expense them through the balance sheet. We are valuing them. We're valuing them at zero. And we have to be able to do better than that.
HUNT: Should investors feel good about Harvey Pitt, who used to represent some of the people he's now regulating?
MINOW: I'm a bit of a contrarian on Harvey Pitt. I do feel good about him. I think he knows exactly where the bodies are buried and wants to do the right thing.
HUNT: You have said and written that a truly independent board of outside directors is the key to cracking down on many of these abuses. But the CEO usually picks the outside directors, many of whom have lavish perks themselves. How, under that system, are you ever going to get truly out -- independent outside directors?
MINOW: One of the things that interest me is that we take these really distinguished, capable people who want to do the right thing, and then there's something about the oxygen of the boardroom that makes them dumb or something.
And we have to find a better way around that. The only thing that I've ever found that really works is to get management out of the room and require them to meet regularly in executive session so they can be honest with each other.
Management doesn't like that. They like to control the conversation.
HUNT: Final question. You wear another hat as a movie critic, and you remember that famous line from "Wall Street," Gordon Gekko (ph) said, "Greed is good." This -- it's a sentiment, by the way, that my colleague Robert Novak passionately shares.
Alan Greenspan this week, however, said that an "infectious greed" has afflicted American business leaders in recent years. What is it, is greed good? Or is it an infectious disease?
MINOW: Well, greed can be good as long as it's deployed in the right direction. And it's up to the board of directors to make sure that the CEO's greed is focused on shareholder value. Sure, greed is good, that's why a lot of us have our jobs and are ambitious. But ethics are also good, and it's important that we make sure we have a system in place that puts that at the top of the list.
SHIELDS: Al Hunt, was Nell Minow saying that CEOs' salaries are too high, but there's no way we can realistically impose any limits upon them?
HUNT: Some are obsessed -- are just excessive, no doubt, but it's not the role of government to do that. Corporate boards ought to do that, that's what I think she was saying.
Let me tell you a quick story about Nell Minow. She was known for years as the daughter of the fabled Kennedy FCC commissioner Newton Minow. And her group decided a couple years ago they would oppose any outside director who didn't go to 75 percent of the board meetings of a company, reasonable requirement.
One of the first to come up was none other than Newton Minow, who only went to 73 percent. And he -- of one board. And he called his daughter and complained, That was close. And she said, Dad, when I got in a half hour after curfew, you never accepted the fact it was close.
And she opposed her father. That's why he's now known as Nell Minow's father.
SHIELDS: Bob Novak.
NOVAK: She's a smart young lady, and I knew her father well, and she's gotten a little bit more reasonable than she used to be. But she has been harping about excessive pay by CEOs for a long time, and people who don't like business are upset by that. They also harp about too much pay for football players, too much pay for rock stars, too much pay for television anchors.
That's the politics of envy, and it has very little to do with the way the capitalist system works.
SHIELDS: Kate O'Beirne.
O'BEIRNE: I think the point she makes about the need for these independent board of directors, who, after all, do have a fiduciary relationship, is a wonderful point. We don't need legislation to do that. It's one of the reforms that I think we can look to, the institutional lenders, the investors, to be pushing in order to, in order to begin cleaning up this mess. It's not a Washington answer.
SHIELDS: I thought her point about, we do count stock options, we value them at nothing right now, I thought that was a very telling point. And I'm -- Martin.
FROST: No one's ever thought Michael Jordan was overpaid.
SHIELDS: No. Next on CAPITAL GANG... NOVAK: (UNINTELLIGIBLE).
SHIELDS: ... next on Capital Gang -- or Bob Novak, for that matter. "Beyond the Beltway" looks at plans for a new World Trade Center with filmmaker Rick Burns.
SHIELDS: Welcome back.
The Lower Manhattan Development Corporation released six proposals for the reconstruction of the World Trade Center, replacing all commercial and retail space that was destroyed September 11.
Each plan would build new towers, but the early critics of the proposals appeal for more nonoffice space, such as housing, libraries, and schools.
(BEGIN VIDEO CLIP)
JOHN WHITEHEAD, LAWYER, MANHATTAN DEVELOPMENT: What our plans demonstrate conclusively is that we will rebuild. It is now not a question of whether but a question of how. What specific forms will the rebuilding take? What precise features will it contain?
(END VIDEO CLIP)
SHIELDS: Joining us now from New York City is documentary filmmaker Ric Burns. His most recent work is the Emmy Award-winning "New York: A Documentary Film."
Thanks for coming in, Ric.
RIC BURNS, DOCUMENTARY FILMMAKER: Thanks for having me.
SHIELDS: Ric, what happened to the idea of turning the site into a memorial for the victims?
BURNS: I think it's been held, it's been sacrificed, or perhaps it's a little too strong. I think it's being held hostage temporarily to 12 million feet of commercial space in lower Manhattan.
I think that those -- that, that -- perhaps it's part of the strategy to get that issue out on the table early, to make people address the underlying claims of the leaseholders to, to the property for -- that the Port Authority leased a year and a half ago and get that issue up and running.
But I think that it's a little bit of a nonstarter. I think what's been clear today, the 5,000 people who sort of voted on this issue today in -- at the Jacob Javits Center show pretty conclusively, as have basically every editorialist in the country, that the plans are nonstarters, they're simply, they're simply not ambitious enough, in a funny way.
They're not emotionally ambitious enough, they're not architecturally ambitious enough. They're not imaginatively ambitious enough to deal with how important a site this has become.
It's always been an important site, and even without 9/11, what's built in lower Manhattan is of crucial importance. That's why the World Trade Center was built there at 1350 feet 30 years ago in such a spectacular way.
To see these plans come out is (UNINTELLIGIBLE) at the very least, these dreary plans is at the very least disappointing and dispiriting, I think, to most New Yorkers, and I think the people looking on from around the world.
But I think that we're only seeing the beginning of a process, as John White, Whitehead pointed out, that's now, now going to really start in earnest. I think this is the, the crucial window has opened.
SHIELDS: OK, Bob Novak.
NOVAK: I really don't understand it, and I think a lot of people who don't live in New York don't understand, is, is, is it what the, the -- they had such a low vote, I guess, Ric, of the people who showed up there, these proposals, the most got 19 percent approval, and many of them got, many, much less approval of the people who showed up, is what these people want, and many of them are relatives of survivors or friends of victims, I'm sorry, relatives of victims or friends of victims.
Is what they want, is, is, is just a, a cathedral? Do they, they're, they don't want a vibrant life in lower Manhattan? I mean, I don't quite understand what, what, what their, what their goal is.
BURNS: Well, I think that, I don't, I see it a little bit differently. I think that if you look at any of those plans, I think those are land, lame plans by any yardstick. I think that if those were, if that was a public, if that was a public square in downtown Milwaukee in 1970, it would be sort of laughed out as ludicrously unimaginative.
I think that what we know, the whole world is watching. This is an extraordinarily important collective event that took place, and has affected, literally touched the hearts and minds of people from around the world. What happens there matters.
And I think what people were registering was not that the thing needs to be turned over into, be made into a mausoleum, but rather that this, there needs to be architecturally and urbanistically gestures there which absolutely are soar (ph).
They have -- they don't necessarily have to soar literally as high as the original World Trade Centers, but they have to soar emotionally and touch us and make us understand that the developers and the people who are drawing up the plans understand how important a site this has always been and how especially important a site it's become.
I think it's not only about the victims' families. I think that it's much, much larger than that. New York has historically built very big. New York is almost always at the crucial moments in its histories. Think about the grid system from the early 19th century. Think about Central Park. It didn't just build.
There were arguments about Central Park, as I'm sure all of you know, when it went up in the middle, in the middle of the 1850s and the 1860s. People wanted to cannibalize that and turn it into, you know, 80 10-acre parks instead of one 842-acre park.
But no, the idea prevailed that in New York, there's going to be something that was not only a green space, but it was going to stand for a kind of a respite from the commercial culture which was growing up in the city.
We're at exactly that kind of moment in New York City's history. I would argue an even more important moment as we sort of cogitate and come together and think about what should be built there.
SHIELDS: OK, Kate O'Beirne.
O'BEIRNE: Ric, isn't the process on attempting to get agreement about how to rebuild part of a problem here? For good or ill, it seems to me, the World Trade Towers would never have been built if you had to please everyone sitting around the current table.
And I agree with you, the plans to me all look like Houston. But how creative can people be when you've got to please so many?
BURNS: Well, let's talk about staying at least as creative as the World Trade Center themselves. I mean, those twin towers were remarkably controversial when they went up, I mean, they were talk, they were described as monuments to architectural boredom, and, you know, the greatest aluminum siding job in the world, when they went up in the 1970s.
But the fact was, is that they were audacious architecturally and urbanistically audacious. And even those who criticized them when they went up in the 1970s took them to their heart sooner or later as the '80s and the '90s came about.
I mean, people really came to understand that they were remarkable structures in terms of their engineering, and it terms of the sheer audacity of the urban gesture that they made, to the community, to the local community, and indeed worldwide.
They were the tallest structures on the skyline of, of humankind, in a sense, even though it -- other buildings in Kuala Lumpur surpassed them.
We need that kind of gesture, something that has that kind of imaginative reach.
You know, the Port Authority put them up as they wanted to in the 1970s in the teeth of opposition. I think there's going to have to be someone who comes along and boldly takes the, takes the reins of this plan the way the Rockefeller brothers did in the 1960s and '70s, and, and, and really, really show the world that we can do something special.
SHIELDS: OK. We're down to just a minute or so, and Al Hunt.
HUNT: Ric, I understand the complaints that these plans are pedestrian, and, as you say, lack any kind of imaginative reach. But is there another issue too here of what exactly we're trying to achieve? How much of it is supposed to be commercial, how much of it is supposed to be a memorial? For instance, I think most of the plans assume we'll have the same amount of commercial space as existed beforehand.
Some people say that's highly unrealistic. Is that also an issue here?
BURNS: I think that that's absolutely an issue. I mean, I, I speak really merely as, obviously, as a citizen of New York with my own opinion. At some point, the leaseholders are going to have to let go of the idea that every square foot is going to be replaced. It's simply too important. I mean, they, they, they have -- that, that is something that's going to have to be addressed head-on in the coming weeks and months.
And there's going to have to be a process of negotiation, and the understanding that you can't do everything with that space and still have 12 million square feet of office and hotel and retail space.
There has to be some cession on the part of the underlying real estate interests so that the interest of an in -- of a much larger community can be served as well.
I would like to argue to those real estate interests that in the long run, the engine of New York's commercial development will be driven all the more vibrantly by doing something which captures the imagination of the entire world.
I mean, we come to New York because it has places like Central Park and the Brooklyn Bridge. And the World Trade Center themselves, when they were still, when they were with us.
We, we're drawn to the great magnet of New York because of the size of those gestures. Now we have to have an equally outsized gesture, and what it will benefit everyone. Of course it will benefit those people who simply have a romantic idea of the city, but it will also in the long run, not the short run, benefit real estate developers as well, I'm convinced.
SHIELDS: Ric Burns, thank you very much for being with us.
THE GANG will be back with our "Outrages of the Week."
SHIELDS: Now to the "Outrage of the Week."
Profits trump patriotism for those U.S. corporate freeloaders that incorporate in Bermuda to avoid paying U.S. taxes they owe while they retain all the benefits of their U.S. residency and protection under U.S. law.
House Republicans and this administration say you will pay no price, bear no burden, suffer no hardship. When Democrats tried to stop these corporate parasites from receiving billions of U.S. taxpayer dollars in federal contracts, House Republicans sided with the corporate freeloaders. And from the White House, not a peep of moral outrage.
NOVAK: Nor from me.
The Internal Revenue Service has disclosed the names of hundreds of taxpayers using a tax shelter challenged by the government. Among them, William Simon, Republican candidate for governor of California. Nothing illegal, of course, but a chance for Democrats to portray tax planning, tax planning, as tax cheating.
The IRS in hindsight says now it says it calls this disclosure a mistake. But was it? Is it really a coincidence that the lead IRS invest -- litigator in this case is a Democratic activist?
Apparently the IRS can harass prominent Republicans even during a Republican administration.
SHIELDS: All Bill Simon has to do is reveal his taxes. But go ahead, Kate.
O'BEIRNE: Pentagon brass has identified an enemy right here at home that puts soldiers at risk. A host of environmental laws backed by a host of liberal senators put the well-being of trees and critters over the safety of our troops.
At Camp Pendleton, for instance, miles of the shore can't be used for operations. And at Fort Bragg, there's a 250-foot buffer around each tree that prevents any noisy special forces training.
The Pentagon is begging for relief so troops can train like they fight.
SHIELDS: Al Hunt.
HUNT: Mark, the Bush administration plans to renege on giving $34 million to the United Nations Population Fund for family planning programs, which fund endeavors like contraception and abstinence education. Now, the administration claims that the U.N. fund really fosters programs like China's one-child policy that leads to more abortion.
But studies by both the British parliament and our own State Department conclude there was no link between the U.N.'s programs and these abuses.
But the White House apparently would rather pander to social conservatives at home.
SHIELDS: This is Mark Shields saying good night for THE CAPITAL GANG.
If you missed any part of our show, come in off the ledge. You can watch the replay at 11:00 p.m. Eastern and again at 4:00 a.m. Eastern.
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Party Line Splits Emerge on Homeland Security; New Yorkers Insult WTC Plans as Resembling Albany>