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LOU DOBBS TONIGHT

Massive Spending Plan; Hope for Failure; Red Storm Rising; Radical Reversal

Aired March 25, 2009 - 19:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


LOU DOBBS, HOST: Wolf, tonight, President Obama on Capitol Hill trying to sell his $3.6 trillion budget to members of his own party. There's also some good news on the economy and the housing market tonight, so much for doom and gloom in Washington and on Wall Street.

Also tonight, a troubling new report on communist China's rapid military build-up and the rising threat to this country, among my guests here tonight, Congressman Brad Sherman and Senator Judd Gregg will be talking about President Obama's budget and the future of this economy, all of that, all the day's news and much more, straight ahead here tonight.

ANNOUNCER: This is LOU DOBBS TONIGHT: news, debate, and opinion for Wednesday, March 25th. Live from New York, Lou Dobbs.

DOBBS: Good evening, everybody. President Obama took his budget sales pitch to Capitol Hill. Today, he met with Democrats in the House and Senate, trying to persuade them to go along with his $3.6 trillion spending plan, already Democratic leaders are scaling back the president's domestic programs and his middle class tax cut. Republicans tonight are calling upon the American people to rise up against the president's spending plan. Dana Bash has our report from Capitol Hill.

(BEGIN VIDEOTAPE)

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT (voice-over): A trip down Pennsylvania Avenue to rally support for his budget, going behind closed doors with fellow Democrats, wary of big spending and soaring deficits.

SEN. KENT CONRAD (D), BUDGET CHAIRMAN: He asked the caucus what he asked me; preserve my priorities, education, energy, health care. Reduce the deficit substantially.

BASH: But even as President Obama made his case, Democrat-led House and Senate committees were writing their own budgets and scaling back some of the president's plans. Most prominently, the signature tax cut he campaigned on, $400 for most individual, $800 for couples. The Senate budget would eliminate funding for that in two years, unless the White House finds a way to pay for it. Congressional Democrats are also slashing $250 billion the White House set aside for more Wall Street bailouts. The Democratic budget chairman called the changes critical to taming the exploding deficit.

CONRAD: In light of the new reality, those are the fundamental differences we have had to insist that things be paid for, and I make no apology for it.

BASH: CNN is told that some conservative Democrats used their private Obama meeting to question the wisdom of his plans for big spending on health care, education and energy in difficult economic times. Meanwhile, Republicans are trying to exploit differences among Democrats. Listen to this GOP appeal to conservative Democrats.

REP. PAUL RYAN (D), WISCONSIN: You hold the cards. You have the votes that can make the difference in this. You can stop this. I'm asking you join us to stop this fiscal train wreck.

(END VIDEOTAPE)

BASH: Now, one of the major changes congressional Democrats are making is, Lou, they are taking out the $600 billion-plus that the president set aside to reform health care. That of course is one of his top priorities. Now, Democrats say that they still, of course, vow to tackle this issue. But now they're going to have to find a way to pay for it. And everybody agrees it is going to be a mind-blowing price tag.

DOBBS: Well, the mind-blowing price tag may be coming down if people like Congressman Paul Ryan, as you just reported, opposing directly, publicly and with some passion, the president's proposals. We know 16 Democrats in the Senate, doing the same thing. This president has a real battle on his hands on Capitol Hill with this budget, doesn't he?

BASH: He absolutely does. He's unlikely to get any of those House Republicans. He doesn't need them in the House, but with regard to those Senate Democrats, I talked to a lot of them going in and out of the meeting with President Obama today. Many of them did tell me that they feel a little bit more comfortable with the budget that's going through the Senate now because of those changes. They weren't major changes, but changes enough for some of them that they feel more comfortable with the fact that Congress is trying to tackle the deficit issue, at least better -- from their perspective -- better than the president has.

DOBBS: "Better" is as it implies, a relative term. I mean, these are huge deficits and additions to the national debt extraordinary. Thank you very much, we appreciate it. Dana Bash.

BASH: Thanks, Lou.

DOBBS: Well Republicans are also directly appealing to the American people to fight the Obama budget. Mike Pence, congressman from Indiana, today calling on Americans to, as he put it, rise up against the president's proposals.

(BEGIN VIDEO CLIP)

REP. MIKE PENCE (R), INDIANA: I will always believe, as long as I serve here, that a minority in Congress plus the American people equals a majority. We intend to take our case for fiscal discipline, growth, and tax relief, to the American people from sea to shining sea and if the American people will rise up, anything's possible on Capitol Hill.

(END VIDEO CLIP)

DOBBS: Congressman Pence accused President Obama of proposing the most fiscally irresponsibility budget in history. Two more Republican voices tonight saying loudly and clearly that President Obama's policies take this country in the wrong direction and they want those policies to fail -- senior political analyst Bill Schneider with that story.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: It is not their right to remake this nation...

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST (voice-over): Last month, talk show host Rush Limbaugh created a stir when he said...

RUSH LIMBAUGH, RADIO TALK SHOW HOST: What is so strange about being honest and saying I want Barack Obama to fail, if his mission is to restructure and re-form this country so that capitalism and individual liberty are not its foundation? Why would I want that to succeed?

SCHNEIDER: Now, Louisiana Governor Bobby Jindal has joined the fray.

GOV. BOBBY JINDAL (R), LOUISIANA: Make no mistake, anything other than an immediate, a compliant well, no, sir, I don't want the president to fail, is treated as some act of treason, civil disobedience or political obstructionism. This is political correctness run amok.

SCHNEIDER: Former Senator and Republican presidential candidate Fred Thompson seems to agree.

FRED THOMPSON (R), FORMER U.S. SENATOR: I want his policies that I believe take us in the wrong direction to fail.

SCHNEIDER: Are these critics crossing the line between fair and unfair criticism? Where is the line anyway? It's fair for critics to oppose the president's policy. That's politics. It's harsh, but fair, to predict that those policies won't work.

JINDAL: And we believe that it is a dangerous path that could harm the very promise of America.

SCHNEIDER: But is it fair to say, unless the president does what I want, that I hope his policies fail?

JINDAL: Do you want the president to fail? It depends on what he it trying to do.

SCHNEIDER: These critics see the president's policies as failed by definition, bigger government, more debt. THOMPSON: Well if he takes us down the road of tripling our national debt in 10 years, and making us vulnerable to higher interest rates and higher inflation and things of that nature, I want all those policies not to succeed.

SCHNEIDER: If you believe President Obama's policies are wrong, you might assume they have no chance to work. But not everyone shares that assumption.

(END VIDEOTAPE)

SCHNEIDER: Ideologues believe that if a policy is wrong it can't probably work, even if it does work. Pragmatists believe that whatever works is right. Most Americans are pragmatists -- Lou.

DOBBS: And ideologues, to put it in the affirmative, also believe that what they believe will work, which creates the problem we're facing right now in the nation's capital.

SCHNEIDER: Exactly.

DOBBS: Bill Schneider, thank you very much.

The current president of the European Union says the president's recovery plan is, as he put it, a road to hell. Czech Prime Minister Mirek Topolanek says huge government spending is a mistake and it's already causing panic in Europe. Under the plan announced by Treasury Secretary Geithner, the federal government would buy half a trillion dollars of toxic assets from commercial banks that are in danger of further default.

Today, the dollar fell against the euro, another confusing statement from Treasury Secretary Geithner in which he contradicted his testimony before Congress. During an appearance at the Council on Foreign Relations in New York, the treasury secretary was asked about proposal from China's top central banker -- China's idea to replace the dollar as the world's reserve currency.

(BEGIN VIDEO CLIP)

TIMOTHY GEITHNER, TREASURY SECRETARY: I haven't read the governor's proposal. We're actually quite open to that suggestion. But you should think of it as rather evolutionary, building on the current architecture, rather than moving us to global monetary union.

(END VIDEO CLIP)

DOBBS: Well, you may remember that the treasury secretary had said just 24 hours earlier to Congresswoman Michele Bachmann something quite different.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I'm wondering would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested this morning by China and also by Russia, Mr. Secretary.

GEITHNER: I would, yes.

UNIDENTIFIED FEMALE: You categorically and the Federal Reserve chair?

UNIDENTIFIED MALE: I would also.

(END VIDEO CLIP)

DOBBS: Well, upon looking at the contradiction of his testimony, Congresswoman Bachmann says just a day later "Secretary Geithner has left the option on the table. I want to know which it is. The American people deserve to know" -- unquote.

Secretary Geithner spent the rest of the day trying to double back on what he had said this morning, trying to reassure world currency markets. That was not successful, the dollar plunging in currency trading.

British Prime Minister Gordon Brown taking searing criticism for following the lead of the United States on economic recovery. Listen to this statement from Daniel Hannan, a conservative British member of the European Parliament.

(BEGIN VIDEO CLIP)

DANIEL HANNAN, EUROPEAN PARLIAMENT: Perhaps you would have more legitimacy in the councils of the world if the United Kingdom were not going into this recession in the worst condition of any G-20 country. The truth, Prime Minister, is that you have run out of our money. The country as a whole is now in negative equity. Every British child is born owing around 20,000 pounds. Servicing the interest on that debt is going to cost more than educating the child.

(END VIDEO CLIP)

DOBBS: Well, we wondered how that particular comparison would work out with the president's projected debt in 2010 of 1.4 trillion deficit, rather. If those children in the United Kingdom were burdened with that, that would work out not to 20,000 pounds but 120,000 -- $127,000 each.

Well, there's good news about the economy for a third time this week -- sales of new homes, up almost five percent in February. This is the first increase in those sales since last July. That's on top of Monday's report that existing home sales rose more than five percent, the biggest increase since 2003.

On top of all of that, more good news, housing starts up 22 percent last month. That's the first increase since July. And more good news, another positive report on the economy. Durable goods orders up more than three percent last month and that is the biggest gain since 2007.

Up later here a troubling new warning from the Pentagon about communist China's rapid military build-up. That's something, by the way, the Defense Department may have missed it, but we've been reporting on here now for more than two years.

And next what Secretary of State Clinton is saying tonight about Mexican drug cartel violence and who is responsible. We'll tell you all about that next. You may not like the answer. We'll be right back.

(COMMERCIAL BREAK)

DOBBS: An Air Force F-22 fighter jet crashed in the southern California desert this morning; the jet on a test mission when it crashed about 35 miles northwest of Edwards Air Force Base. It is not known whether the pilot successfully ejected from the aircraft. The F-22 is the Air Force's new top of the line fighter and it's $150 million each. The F-22 is also the Air Force's most expensive jet. The Air Force has not determined the cause of the crash.

Secretary of State Hillary Clinton in Mexico tonight, her visit officially to pursue a broad diplomatic agenda, but it will certainly focus on the drug cartel violence raging along our border with Mexico across northern Mexico. The secretary said today the United States will work with the Mexican government to fight the drug cartel violence.

(BEGIN VIDEO CLIP)

HILLARY CLINTON, SECRETARY OF STATE: We have accepted that this is a co-responsibility. We know very well that the drug traffickers are motivated by the demand for illegal drugs in the United States.

(END VIDEO CLIP)

DOBBS: One has to wonder if that would be akin to suggesting that by removing children from playgrounds that there wouldn't be a drug problem in our schools. The secretary's trip is her first by this administration's high-level officials. It will be followed up by Homeland Security Secretary Janet Napolitano and Attorney General Eric Holder. They're also planning to travel to Mexico. The president will be in Mexico next month.

Well we'd like to know what you think and here is our poll question tonight. Do you agree with the Obama administration that America is to blame for Mexico's drug violence? Yes or no? Cast your vote at loudobbs.com. We'll have the results here later.

The administration's new focus on Mexico comes just a day after the Obama White House unveiled its plan to deal with deadly border violence. President Obama announced plans to spend more than $700 million to help Mexico fight the drug cartels. But that $700 million is money that's already been allocated under the Merida (ph) Initiative that was approved a year ago. Lawmakers say the Obama administration isn't spending nearly enough. Senator Joe Lieberman telling Homeland Security Secretary Janet Napolitano today that, quote, "I think you're going to need more resources to get the job done", end quote. The Mexican government, for its part, said today it arrested a key drug cartel leader and four of his bodyguards. Hector Juarta Rios (ph) was arrested near the U.S. border. He was flown to Mexico City. Juarta (ph) is believed to be a principal party in the Sinaloa cartel, which controls northern Mexico's drug smuggling routes into the United States.

The Washington establishment and the mainstream media finally recognizing the serious threat posed to the United States by Mexico's drug cartels and our wide-open border. It is a subject that we've been reporting on extensively and seemingly exclusively here for years. Here is, by the way, an example of our reporting from way back in 2006, a report on the dangers that were then being ignored in Washington.

(BEGIN VIDEO CLIP)

DOBBS: Homeland security officials today all but conceded that they have lost the war to control our nation's border with Mexico. Officials admit that border violence has risen by more than 100 percent this year. The sheriffs (ph) say Washington bureaucrats and Homeland Security officials are completely out of touch with what is actually happening on our borders. And Washington is indifferent to what they go through each day to protect this country. It is remarkable that people in Washington could be surprised about anything happening on our border after all of these years. Don't you think?

CASEY WIAN, CNN CORRESPONDENT: They must not be watching our broadcast, Lou.

DOBBS: That's the only explanation I can think of.

(END VIDEO CLIP)

DOBBS: Correspondent Casey Wian. Again, all of that more than three years ago. Mexico today, as it was then, is the principal source for methamphetamines, marijuana, cocaine and heroin entering the United States. And in Mexico, more than 8,000 people have been killed there in just over the past year.

This broadcast has also been reporting extensively on the rising military threat posed by communist China. Another subject ignored by the mainstream national media. In this example of our reporting, for example, from January of 2006, this broadcast was looking at Washington's failure to recognize the challenge of China's rapid military expansion.

(BEGIN VIDEO CLIP)

DOBBS: We're taking a closer look tonight at yet another complete U.S. policy failure, this time communist China. Years of U.S. neglect has helped transform the Chinese military into one of the world's most formidable military powers.

(END VIDEO CLIP) DOBBS: Well that was three years ago. The mainstream media again even criticized me at the time for calling China communist China. China, by the way, just for the record is ruled by one party, the name of the party is the Communist Party. It is the only party and it is the Communist Party that controls the government of China. Hence, I sometimes refer to China as communist China -- if there are any questions.

Tonight there are new warnings from the Pentagon about communist China's growing militarism, a new report citing China's improved military capabilities and new disruptive technologies. The Pentagon report goes on to say quote, "much uncertainty surrounds China's future course, particularly regarding how its expanding military power might be used." Pentagon correspondent Barbara Starr has our report.

(BEGIN VIDEOTAPE)

BARBARA STARR, CNN PENTAGON CORRESPONDENT (voice-over): The Pentagon report is blunt. China is accelerating the ability of its military to project its power and reach and also is, quote, "rapidly developing coercive capabilities to stop Taiwan's bid for independence."

DAVID FINKELSTEIN, DIR. OF CHINA STUDIES, CNA: We are talking about a Chinese military that is being told by the party-state (ph) leadership to develop capabilities, to secure Chinese interests around the world, wherever they may be, and this is something new.

STARR: The Pentagon's latest assessment of China's ballistic missiles shows the ability to target deep into the oil-rich Middle East and Central Asia and potentially hold the U.S. Navy at bay in the Pacific. Last year, China became the world's second largest importer of crude oil. Consumption could reach more than 10 million barrels a day in five years.

The U.S. worries China may resort to military force to keep accessing those resources around the world to fuel its economy. The U.S. has felt the chill in military relations with China even before the recent confrontation at sea between a U.S. naval research vessel and Chinese patrol boats.

ADMIRAL TIMOTHY KEATING, U.S. NAVY: We, as you know, do not -- are not able to conduct military-to-military dialogue with the Chinese now. They have suspended that aspect of our security relationship following the November Taiwan arm sales announcement.

(END VIDEOTAPE)

STARR: And, Lou, the report points out that while it's traditional military reach is more regional, China now can conduct some operations globally with its nuclear arsenal, its proven ability to destroy satellites, and even its prowess with cyber warfare -- Lou.

DOBBS: Barbara, thank you very much -- Barbara Starr reporting.

The United States now says North Korea has what is believed to be a long-range ballistic missile on the launch pad. The Taepodong 2 missile could be launched from North Korea's East Coast launching facility carrying either a warhead or a satellite. But what the North Koreans may be testing won't be known until the missile is launched. Secretary of State Clinton, in Mexico City, as I said earlier, calls this a provocative act that would have consequences.

Another effort tonight by the Obama administration to control language -- we reported last night that the Pentagon and speechwriters have sent this directive from the Office of Management and Budget. Quote, "this administration prefers to avoid using the term quote, 'long war' or 'global war on terror'. Please use, quote, 'overseas contingency operation'" -- overseas contingency operation.

Well, today, Homeland Security Secretary Janet Napolitano recommending of course another change, instead of the terrorism, the phrase man-caused disasters as a substitute for terrorism. Secretary Napolitano says quote, "man-caused disasters indicate a move away from politics of fear toward a policy of preparedness for all risks."

Up next, the Obama budget, boom or bust -- I'll be talking with Senator Judd Gregg. He says at this rate America is on a path to bankruptcy. Also, our Abbie Boudreau being shoved out of the way by the postmaster general -- what was he thinking? And why was he running? We'll tell you why in her exclusive report here next.

(COMMERCIAL BREAK)

DOBBS: We want to tell you about a sudden reversal tonight from the U.S. Postal Service. Earlier this month we reported that the Postal Service was buying million-dollar homes for its employees, relocating to other cities. Tonight, as a result of our reporting, the Postal Service says it is changing that generous practice. It's a story you'll only see here -- CNN Special Investigations Unit correspondent Abbie Boudreau trying to catch up with the postmaster general to talk about all of that today.

(BEGIN VIDEOTAPE)

ABBIE BOUDREAU, CNN SPECIAL INVESTIGATIONS UNIT CORRESPONDENT: Excuse me, Mr. Potter? Hi, my name is Abbie Boudreau, I'm with CNN and I was...

(voice-over): Postmaster General John Potter was in no mood to talk. We've been asking to interview him for weeks, but were turned down. We caught up with him in the hallway after the hearing.

(on camera): You've been talking about cutting back...

(voice-over): But then on a dime, he stopped dead in his tracks, pushed me aside, and slipped into a side door.

(on camera): (INAUDIBLE) like slamming the door on me.

(voice-over): Just moments before that, Potter was before the House Oversight Committee, talking about the Postal Service's financial crisis and his idea to cut back delivery from six days to five.

JOHN POTTER, POSTMASTER GENERAL: Based on current volume projections, we'll come up approximately $6 billion short of breaking even this year.

BOUDREAU: Committee members and the Postal Service Inspector General also responded to CNN's recent investigation into the Postal Services relocation policy.

DAVID WILLIAMS, USPS INSPECTOR GENERAL: CNN first broke the story. We began -- Senator Grassley called us and we worked out a request for an audit.

REP. JASON CHAFFETZ (R), UTAH: It seems like it's too lucrative and too expensive, the questions about giving out bonuses to an organization that is operating in the red. It doesn't pass the basic sniff test.

BOUDREAU: Earlier this month, CNN reported the Postal Service, through Cartus Relocation, a government contractor, purchased more than 1,000 employee homes in just two years. The average cost of those homes, $257,000. The Postal Service also bought 14 homes that were $1 million or more. A Postal Service spokesman said all but one of those houses, this six-bedroom lake-front mansion with an indoor swimming pool and spa, were sold.

On average, the Postal Service says it lost about $58,000 for each home purchased and later resold. But when we asked the Postal Service about how much it lost on those $1 million homes, we learned the average loss was a whopping $582,000 per house. A spokesman blames that high number on a house purchased at the height of the Florida real estate bubble, which skewed the average. A few hours after our brief hallway encounter, Potter changed his mind and wanted to talk.

UNIDENTIFIED FEMALE: Postmaster General John Potter.

BOUDREAU (on camera): Nice to see you again. Why did you avoid my questions today in the hallway?

POTTER: I wasn't avoiding your questions. I was being ushered out of the Congress by my staff.

BOUDREAU (voice-over): Surprisingly, Potter said he had no idea about the $1 million houses.

POTTER: When you brought it to our attention, I was really amazed and we spent time to look into that policy. We found out that we did have an uncapped value on the price of a house that could participate. We have since gone back and reviewed that entire policy.

(END VIDEOTAPE)

BOUDREAU: Lou, when we first reported this story a few weeks ago there was no limit on how much the Postal Service would pay to buy a home. Then, as the time our story aired it put a $1 million cap in place. And now as of today, the postmaster general tells us they're planning to lower that amount even further, so obviously we'll be keeping our eye on this one.

DOBBS: Well, good work, Abbie, outstanding reporting. And it's nice to see, if you will, I guess we could call that a hallway conversion on the part of the postmaster general. I think it's also fascinating language to hear the postmaster general, Mr. Potter, say, instead of the Postal Service is going to lose $6 billion, which has a decidedly negative ring, they're going to come up $6 billion short of break-even. That's wonderful Washington language.

BOUDREAU: I mean, that's exactly the point here, you know, they're complaining they don't have any money, yet they're still buying these $1 million houses. And just to note, they're, in the next 60 to 90 days, that's when they think the policy will take effect, the new policy. And at that point the postmaster general says, we promise, there will be no more $1 million houses bought on the Postal Service's dime, so we'll see.

DOBBS: You got it. Thank you very much. Abbie Boudreau, thank you.

Let's take look now at some of your thoughts. David wrote in to say, "Hillary Clinton can go straight to hell. I don't want anybody, especially her, to apologize for my country. One: We need to build a fence to reduce the demand for drugs. Two: We do not need Mexican truck drivers to take jobs from Americans. Three: We need to deport all illegal immigrants."

Andrea in Arizona said "I'm in the midst of spring cleaning. We should do the same in Washington."

Charles in Montana, "Will someone please tell President Obama the election is over? He can stop campaigning and get to work anytime now."

Gary in Arkansas, "I suggest that a plaque be made up with the names of all congressional leaders and the president, so future Americans will know who did this to them."

We love hearing from you. Send us your thoughts to loudobbs.com.

Reminder to join me on the radio Monday through Fridays for the Lou Dobbs show two to four p.m. each afternoon on WOR syndicated radio in New York. Get the local listings in your area on loudobbsradio.com.

And a reminder to vote in our poll. The question is do you agree with the Obama administration that America is to blame for Mexico's drug violence? Yes or no? Cast your vote at loudobbs.com. We'd love to hear from you.

Next the treasury secretary under fire again. This time, for the AIG bonus scandal and more. I'll talk with one of the lawmakers who tore into him at this week's hearing and who has more to discuss with him now. And Republican Senator Judd Gregg warns the president's budget changes the course of our nation. The senator joins me here next. We'll be right back with a democratic and a republican from Capitol Hill.

(COMMERCIAL BREAK)

DOBBS: A congressional battle has been joined over the president's budget now. Joining me is Senator Judd Gregg, Senator Gregg, Mr. Obama's designee for commerce secretary. Senator Gregg withdrew his name last month, citing differences over policies. Senator, it is great to have you with us. You have said this budget is basically going to lead to the bankruptcy of the nation, correct?

SEN. JUDD GREGG (R), NEW HAMPSHIRE: Well, it could. Because of the fact that it puts on the books a massive amount of debt. It doubles our national debt in five years, triples it in 10 years. And as far as the eye can see, essentially, it is running deficits of over $1 trillion a year. And you just can't afford that. We get up to -- it's a technical term, but we get up to a public debt ratio to GDP of 80 percent, which is about twice what most people think is sustainable. And if we maintain that level, which is projected in the president's budget, you basically -- you're running a banana republic is what it comes down to. You can't afford to pay those debts.

DOBBS: Let's share with our viewers -- because this is critically -- the frustrating thing about the budget is that it is a blueprint, a fiscal blueprint, but it is also a social and political document, of course.

GREGG: Very much so.

DOBBS: But if we could put up this full screen, please, to show precisely what Senator Gregg just said. This is the cumulative debt that will result over time from these deficits, reaching $9.3 trillion by 2019. And as you suggest, the current budget at $4.4 trillion. This kind of money, Senator, can Congress -- the chairman of the Budget Committee, I mean, he is saying to this president, a member of his party, he's saying to the president, don't do this, this is crazy. Yet there seems to be no hesitation whatsoever on the part of the administration.

GREGG: Well, I think the president's made it very clear that he intends to take the government very aggressively to the left here, basically expanding its size dramatically, extending its burden dramatically, expanding the tax burden, not for the purpose of reducing the deficit. Ironically, when Bill Clinton increased taxes, he used it to reduce the deficit, but the Obama proposal basically increases taxes in order to grow the size of the government. And it grows it so fast that it basically outpaces our ability to pay for it, in my opinion. And that's why we've got this looming issue, which is going to be very difficult for our children to deal with, which is they're going to have a debt that far exceeds their capacity to pay it.

DOBBS: The president has again said that he will reduce the deficit by half during the -- this first term as president. I...

GREGG: Well, that's true, but it's a little -- it's not really -- it's not a real victory, because basically what he's doing is he's taking a debt -- and it's going up to $1.3 trillion. He's reducing it to $700 billion. So you're basically taking four steps backwards and two steps forward. So that means you're still going backwards, and that's the problem here.

DOBBS: And there seems to be another problem as well, Senator. And that would be the percentage of growth in our economy. This is the president, who, until two weeks ago, was talking with the direst of language about our economy, talking about catastrophe, disaster and depression. And he projects -- and his Office of Management and Budget project the GDP to be growing at over 3 percent by next year, that he also projects a 4 percent GDP growth rate in the year following. If those are realistic numbers, hallelujah for all of us, but they seem extraordinarily optimistic.

GREGG: Well, they are the sunny side of a rosy scenario. Let's hope he's right. But even if he is right, even if they hit those numbers, they're still going to be running deficits, according to the CBO, that will range in the trillion-dollar range. I mean, you just can't -- the reason you can't close this down is because he's expanding the size of the government so quickly, the spending of the government so quickly.

He openly admits, if you listen to his press conference last night, that he intends to increase spending in a variety of areas because he thinks government spending creates prosperity. Well, I happen to take the view that government spending doesn't really create prosperity unless it's restrained and affordable. And the problem -- that's the difference of opinion here. We don't happen to think, people of my party, that you can spend this type of money, run up this type of debt, increase taxes this way, and expect the prosperity to follow. In fact, what follows probably is stagnation, and a lot of pressure on our children to have a big debt that they probably can't afford to pay.

DOBBS: Senator Gregg, when you put it in partisan terms like that, though, is your credibility diminished? Because under the Bush administration and the Republican Congress, when your party was in charge, I mean, admittedly there was a war and is a war in Afghanistan and Iraq, but the spending and the size of the government rose extraordinarily during the eight years of the Bush administration.

GREGG: And you're absolutely right, Lou. And I voted against almost all of it. But as a very practical matter, we were not good shepherds, we were not good stewards on the spending side of the ledger as a party when we had control of the government. But that doesn't mean that should be compounded this way. Because if you take all the debt run up in this country between George Washington and George W. Bush, all of it, President Obama is suggesting doubling that in five years and tripling it in 10 years. So even though we probably weren't very good stewards -- we weren't -- on the spending side of the ledger, what you're seeing here is an explosion in the size of the government as we have a presidency which really wants to move very aggressively in increasing the size of the government.

DOBBS: Senator Judd Gregg, we appreciate you being with us.

GREGG: Thank you, Lou.

DOBBS: Thank you. Up next, why the authorities are -- well, they're making an exotic spa treatment illegal. It's a fish story, believe me.

And up next, Treasury Secretary Timothy Geithner -- well, something fishy about his view of both the Chinese Central Bank and those AIG bonuses.

(COMMERCIAL BREAK)

DOBBS: Congress is backing away from that 90 percent bonus tax that was passed by the House last week in the wake of anger over bonuses to AIG executives. But one congressman wants tougher legislation to curb excess compensation for executives at companies receiving federal bailout money. Congressman Brad Sherman wants a surtax on all compensation, not just bonuses. The congressman joins us tonight from Capitol Hill.

Congressman, good to have you with us.

REP. BRAD SHERMAN (D), CALIFORNIA: Good to be with you. I'll be introducing a different kind of tax bill tomorrow that will focus on compensation in excess of $1 million, whether it's salary or bonuses. And we'll see -- we'll see if I'm able to pass it.

DOBBS: At this point, do you have any co-sponsors?

SHERMAN: We have about five co-sponsors, yeah.

DOBBS: So it's the beginning here, and it's a test that's going to be very uncomfortable for corporate America. Because, as you know, that relationship between the average pay of a median employee in corporate America versus that of the CEO has risen from 35 years ago just about 30 times to, now, just about 350 times that average employee's salary for a CEO. In other words, a CEO making in one day what the average employee's making in a year. You expect to address that in the issue at least where the issue is federal taxpayer dollars?

SHERMAN: Yeah, only where we're dealing with companies that would be frankly in receivership if it wasn't for the federal bailout. I'm not going after all of corporate America here. I think capitalism works pretty well when it's capitalism. But what we have here with the bailed out banks is not capitalism. When the government owns the enterprise, we shouldn't see compensation in excess of $1 million a year, except my bill will allow for restricted stock -- restricted stock that the employee can't get a penny out of until after the federal government has been fully repaid.

DOBBS: That's quite an interesting bet for any employee to make. SHERMAN: Well, they get a million -- you know, under my bill, they can get up to $1 million in cash, and that seems to be more than sufficient.

DOBBS: You would think. But you sparred with the treasury secretary yesterday, with the transparency regarding compensation. Let us share quickly with our audience that exchange between you and the secretary. Here we go.

(BEGIN VIDEO CLIP)

SHERMAN: The American people should be blindsided and find out about bonuses on a Saturday that are about to be paid on a Sunday. Can you give us a chart for each T.A.R.P. recipient?

TIMOTHY GEITHNER, TREASURY SECRETARY: We'll reflect on the suggestion you made and see if that is a reasonable...

SHERMAN: In other words, you won't commit to telling the American people how many folks at Goldman Sachs or AIG are going to make $1 million this year?

GEITHNER: Congressman, I will think carefully about your proposal --

SHERMAN: And thank you for thinking. Let me move on -

(END VIDEO CLIP)

DOBBS: Did you find the treasury secretary to be a bit -- well, snitty and snarky there?

SHERMAN: Well, you know, I was cutting him off. We only get five minutes. And so I was a little bit abrupt with him and had to be because I had several other questions to ask. We were able to move a bill through the Financial Services Committee today that had an amendment of mine that would compel by law the very information that I was trying to get out of the secretary yesterday. And that is statistical information. I don't want anybody's names.

DOBBS: All right.

SHERMAN: I don't want bus tours of their homes. I just want to be able to say this is the number of Goldman Sachs executives who made more than $3 million last year.

DOBBS: Let's turn to -- well, in December, you also spared with Neel Kashkari, the former Goldman Sachs executive, charged with managing the T.A.R.P., I love that name, toxic asset recovery program. You say Congress required Treasury to set executive compensation standards in the law, mandating that program. Let's watch and listen.

(BEGIN VIDEO CLIP)

NEEL KASHKARI: Congressman, we have imposed on AIG new corporate governance standards, executive compensation standards... SHERMAN: So you think that -- OK, do your standards prevent the payment of a $3 million bonus?

KASHKARI: I do not believe that they specifically prevent a payment of...

SHERMAN: So have you....

(END VIDEO CLIP)

DOBBS: Congressman, the people running this program -- and Kashkari is still there, right?

SHERMAN: Yes, he's a holdover from the Bush administration and frankly...

DOBBS: You can see why they're such big fans of him, he's done such a buffo job. There's no avoiding responsibility here. The government, the executive branch knew precisely what was going on throughout. And certainly the treasury secretary, who was the president of the New York Fed at the time, was fully a part of that effort, was he not?

SHERMAN: Well, I don't think until just before it broke that they understood the particulars and got a real visual image as to what effect it would have on the American people. When I was asking Kashkari those questions, I specifically asked about $3 million bonuses to AIG executives, and I wasn't talking about old contracts. I was talking about they just decide to give the guy voluntarily $3 million or even $30 million.

DOBBS: A performance bonus.

SHERMAN: Yes, or a retention bonus, employee of the week bonus. I think that, look, everybody in Washington knew that there were going to be huge payments to executives at AIG, but the fact that there were some bonuses as much as $6 million to the very unit that had destroyed the company and hurt the economy, that might have been new information to Geithner that he picked up just a couple of days before he shared it with us.

DOBBS: Congressman Brad Sherman, thank you for being with us.

SHERMAN: Thank you.

DOBBS: Coming up here next, flesh-eating fish. It's a gruesome story but it's all about beauty and pampering and a unique pedicure procedure. There's a legal issue now. We'll have that story for you next.

(COMMERCIAL BREAK)

DOBBS: Tonight, there are health concerns about a service being offered at salons and spas across the country. Pedicures with flesh- eating fish, live fish, that are imported into the United States with a specific purpose of removing dead skin from feet. The practice has been banned in some states, but so far the federal government hasn't been involved. They may be soon. Kitty Pilgrim has our report.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT: At this salon in Virginia, flesh eating fish eat the dead skin off the feet of customers as part of a pedicure procedure. John Ho is one of the first nail salon owners in the country to import these fish called garifuchi. He imports this kind of flesh-eating carp from Malaysia, Singapore, China, Japan and soon Russia. At least 21 states have banned or are not recommending the practice. The barber and cosmetology departments in these states say these fish pedicures do not meet sanitary requirements. The state of Virginia initially stopped the procedure in this salon because customers had the treatment in a communal tub where fish could swim from one customer to another. Mr. Ho has switched to individual tubs and his salon remains open.

JOHN HO, YVONNE HAIR & NAILS: I've been open for about a year now. We, you know, haven't heard anything from the board or from the county. We have satisfied what they looking for. So as of right now, no, we -- I think we should be fine with what we doing.

PILGRIM: The state cosmetology board says the procedure is not banned. While individual states grapple with the health concerns of this practice, the federal government has not ruled on it. The U.S. department of health and human services says there is, quote no discussion of it at the federal level. It is an individual state decision. The U.S. Fish and Wildlife Services says the fish can be imported legally and even shipped across state lines, with the proper license. Fish and Wildlife does warn importers that it does not know the impact of the species on native fish so the fish cannot be released, dead or alive, into the nation's waterways.

(END VIDEOTAPE)

PILGRIM: Now, in Virginia where Mr. Ho has his salon, state cosmetology officials say the actual regulation of the pedicure is not under anyone's jurisdiction is the procedure is not banned. Lou, tomorrow we'll be looking at this practice in Maryland. Their state officials say it is banned. We understand it's still going on there.

DOBBS: We'll look forward to that. You can see why this would be very popular, you know, a woman going to get a pedicure and going fishing at the same time. Pretty exciting. Kitty, thanks very much. Kitty Pilgrim.

Up at the top of the hour, Campbell Brown, "NO BIAS, NO BULL."

Campbell, top the fish story.

CAMPBELL BROWN, CNN ANCHOR: I don't know if I can, Lou. We are standing by, though, to hear from the president. He is speaking to Democratic Party donors tonight. This is his first round of political fund-raisers since taking office. We're going to have that for you just -- in just a few minutes. Plus, what you haven't heard about what's going on with the AIG executives who got those huge bonuses. Some of them even giving some of their bonuses back. Tonight, we're learning 20 of them have no intention of giving the bonuses back. We're going to find out from their lawyer what's going on, what their reasoning is. All of that coming up at the top of the hour.

DOBBS: Look forward to it, thank you Campbell.

We'll be right back with our poll results and more of your thoughts next.

(COMMERCIAL BREAK)

DOBBS: Tonight's poll result, almost 80 percent of you could not agree with the Obama administration that America is to blame for Mexico's drug violence.

Some of your thoughts.

Louis in Florida says, "Lou, I've heard a room better a new tax form. It asks, what is your income and states send it in."

Reba in Texas, "We once elected a movie star for president. Now we have a president becoming a television star." What a country.

We love hearing from you. Send us your thoughts to loudobbs.com.

And we thank you for being with us tonight. Please join us here tomorrow. For all of us, we thank you for watching.

Good night from New York.

Campbell Brown, "NO BIAS, NO BULL" starts right now.

Campbell?