THE MCLAUGHLIN GROUP
HOST: JOHN MCLAUGHLIN
PATRICK BUCHANAN, MSNBC;
ELEANOR CLIFT, NEWSWEEK;
TONY BLANKLEY, THE WASHINGTON TIMES;
C. FRED BERGSTEN, INSTITUTE FOR INTERNATIONAL ECONOMICS
DATE: FRIDAY, DECEMBER 17, 2004
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THIS IS A RUSH TRANSCRIPT.
MR. MCLAUGHLIN: Issue One: Dollars and Cents.
PRESIDENT BUSH: (From videotape.) We'll do everything we can in the upcoming legislative session to send a signal to the markets that we'll deal with our deficits, which hopefully will cause people to want to buy dollars.
MR. MCLAUGHLIN: President Bush sought to reassure financial markets this week that his $2 trillion Social Security reform proposals will not worsen the U.S. budget deficit or further weaken the dollar.
Economists hope that he means it and say that if he does, he's got his work cut out for him.
Item: Dollar softening. Since February 2002, the value of the U.S. dollar has dropped against the yen by 22 percent and against the Euro by 55 percent.
Item: World's biggest debtor. Two billion dollars a day -- that's what the federal government has to borrow every 24 hour to pay for the trade imbalance between the U.S. and the rest of the world. Our country's trade and budget deficits are at an all-time high of almost 6.5 percent of the GDP.
Item: Oil may rise again. This year oil prices reached a record price of $55 a barrel. Some economists are predicting that over the next year, the rise in oil prices will be steep, to as high as $70 a barrel, due to the insatiable appetite for fuel in China and in India.
These elements add up to a huge debt and a huge problem for our federal government. This week President Bush tried to inject some levity into the subject during a press conference with Italian Prime Minister Silvio Berlusconi. Unfortunately to many, the president sounded blas‚.
PRESIDENT BUSH: (From videotape.) There's a trade deficit. That's easy to resolve. People can buy more United States products if they're worried about the trade deficit.
MR. MCLAUGHLIN: Question: The bloating U.S. current-accounts deficits will create an international economic crisis that could derail the U.S. economy and world economy and take the president's agenda with it. True or false?
MR. BUCHANAN: That is true, John. The November figures for the trade deficit came in at an annualized rate of $666 billion. The merchandise trade deficit is well over $700 billion, around 7 percent of GDP. America is being deindustrialized. The dollar is sinking. And I think this country is on the verge of a possible run on the dollar, which could destroy virtually every program the president has.
It has been the hidden crisis. And I don't see how this country is going to turn that trade deficit around when all our factories, technology and jobs are going to China, where they make $2,000 a year in manufacturing and our guys make $53,000 a year.
MR. MCLAUGHLIN: Eleanor.
MS. CLIFT: Well, the twin deficits, trade and budget, mean that there's such an outflow of capital from this country that it is really unsustainable. And the right always complains about compromising our sovereignty by even being a member of the U.N. or participating in world bodies when, in fact, we are relying on the good will of foreign countries to underwrite our debt. I think it's a dangerous situation.
And the president this week held this Potemkin village of an economic summit, talking about Social Security reform, more tax cuts, tax reform, none of which would address the problems of the trade or budget deficits. It's like we're going over a cliff and President Bush has got his foot on the accelerator.
MR. MCLAUGHLIN: Tony.
MR. BLANKLEY: Well, look, if current trends continue and you attach them to the worst-case scenarios, all of this is true. And most of the people who make these predictions have been predicting similar things. Pat's been very concerned for quite a while. The good doctor we listened to has been concerned about these programs for a long time.
Usually things adjust one way or the other. I don't think we should give up trying to deal with Social Security reform, which everybody used to say, until Bush came out in favor of it, everyone said we have to deal with it. I think we have to manage incrementally on all these fronts.
MR. MCLAUGHLIN: Fred, this issue was framed on the basis of your piece in the Financial Times, your essay, which says, as you see on the screen over there, "Bush needs to make a decisive change of course." What kind of a change of course do you have in mind?
MR. BERGSTEN: Two things. The main thing is to put forward a credible program to substantially reduce the budget deficit over the next three or four years and then get it back into surplus like he inherited it.
Secondly, he's got to get really tough with the Asian countries, particularly China, so they will let their exchange rates move up against the dollar.
MR. MCLAUGHLIN: Are they riding the dollar down?
MR. BERGSTEN: China has ridden the dollar down. Its currency has gone down with the dollar against the Europeans, the Japanese, everybody else. China, the world's most competitive country, is getting more competitive every day as its currency gets weaker.
MR. MCLAUGHLIN: Okay, what about consumer debt? That plays a role in the total indebtedness of this country, does it not?
MR. BERGSTEN: Consumer debt and government debt together play a huge role. The underlying source of the trade deficit is that the U.S., as an economy as a whole, doesn't save any money. Consumers borrow. The federal government is in deficit. As a result, we have to borrow huge amounts from the rest of the world to keep our economy afloat. That pushes the dollar to elevated levels. It prices our products out of world markets. We have a humongous trade deficit. And it is unsustainable.
MR. MCLAUGHLIN: Right. Now, of course, the Congress is a big offender here by big spending, correct? And the president sends these monumental bills there and we have the $100 billion mark that we've already crossed in Iraq.
We had in an earlier era Gramm, Rudman and Hollings. They were deficit hawks. Is there any deficit hawk up there now? And is it possible to grow yourself out of the debt even if there were deficit hawks out there?
MR. BERGSTEN: Growth is a crucial part of getting out of the deficit, but it's not enough. There have to be serious spending cuts and probably revenue increases.
MR. BUCHANAN: You mean taxes.
MR. BERGSTEN: You stressed the role of the Congress, which is serious, but there's going to have to be some tax increase. And that's where the president has also been at default here.
MR. BLANKLEY: Let me interject here.
MR. MCLAUGHLIN: What about his veto, the fact that he hasn't used the veto on Congress?
MR. BERGSTEN: Crucial. There's been no sanction on the Congress for big spending. Indeed, it's been encouraged by the White House.
MR. BLANKLEY: Let me --
MR. BUCHANAN: (Inaudible.)
MR. MCLAUGHLIN: Let Tony in. Let Tony in.
MR. BLANKLEY: Let me just suggest, I think it was in 1987 you had a wonderful article in Foreign Affairs Magazine where Japan was the bogeyman. If current trends continued, Japan had all the debt. They were buying into us. Well, Japan didn't continue its path. And China has problems with inflation, with their governance in the interior. And, yes, if China keeps going up in a straight line for 30 years, we've got a lot of problems. But probably -- usually things modify; they change. And the current trends don't always continue.
MR. BERGSTEN: They do --
MS. CLIFT: China's growth --
MR. MCLAUGHLIN: You really think that --
MS. CLIFT: China's growth has been explosive. I mean, in just the last year I believe they have doubled their imports of oil.
MS. CLIFT: And there's no indication that China is going to slow down.
MR. MCLAUGHLIN: Let Fred defend himself against this unforeseen attack here. What did you say about that in 1987? Is that how far back you had to go to find something this guy has gotten wrong?
MR. BLANKLEY: No, you go back to -- when you were assistant secretary of Treasury under Carter.
MR. MCLAUGHLIN: Well, I'm going to add to this. Here are some elements that make the U.S. a safe and profitable place to invest money: The perception that the dollar is a strong currency; the perception that the U.S. is politically stable; the track record of the U.S. government in not defaulting on loans and bonds; low inflation and stable economic growth.
Now, which one of those perceptions do you think has been altered at all so far? And, B, what's the likelihood that any one or combination of those would be altered downwards to such an extent that foreign countries would not invest in the United States to the level that we need to sustain our debt?
MR. BERGSTEN: All of the above. The U.S. government is not going to default.
MR. MCLAUGHLIN: These are all fragile perceptions.
MR. BERGSTEN: All fragile. The U.S. government is not going to default. But the fact that the dollar is going to go down another 15, 20, 25 percent --
MR. BUCHANAN: The dollars are worth less.
MR. BERGSTEN: -- means that the value of the dollars held by Chinese, Japanese, Europeans is going to decline by 25 percent.
MR. BUCHANAN: John, here's the problem. John, the problem is this. You take your U.S. bonds and your stocks; they're valued in dollars. The Europeans, they all put them in here. The Asians put them in here, because this is a good place to invest; you get a good return.
But if the value of your principal is going down because the dollar is going down and the value of your income is going down, at some point the foreigners say, "Throw in your hand and get out of these instruments." And when that happens, you get a run on the dollar. And if that happens, we'll get out of this trade deficit because we won't be able to buy what they're selling us from abroad.
MS. CLIFT: And the perception of the U.S. dollar as the almighty greenback, I think, is --
MR. BUCHANAN: It's gone.
MS. CLIFT: It's gone, along with --
MR. MCLAUGHLIN: Well, I thought --
MR. BLANKLEY: (Inaudible.)
MS. CLIFT: I have sat around on this set many times and people have laughed at the Euro. And the Euro is rocketing right on up.
MR. MCLAUGHLIN: One dollar and thirty-three cents. And I can remember on this set when it was 84 cents to the dollar.
MR. BUCHANAN: John, gold --
MR. BERGSTEN: There's a fundamental change in the world financial economic system. For the last 100 years, when the dollar was the key currency, there was no competition. There was no other economy anywhere near our size. Now Europe is at least as big if not bigger than we are. They have a single currency. People are moving into that currency and will continue to do so as long as we don't run our economy --
MR. BUCHANAN: You've got another problem, and that is --
MR. BERGSTEN: -- in a responsible way.
MR. BUCHANAN: -- the price of gold has gone up 73 percent in the last three years. It was at $260 around the time Bush came in. It's over $450 sometimes in the last couple of weeks. That means -- that's a harbinger of coming inflation.
MR. MCLAUGHLIN: I want to make --
MS. CLIFT: (Inaudible.)
MR. MCLAUGHLIN: Hold on, please. I want to make sure we've got the nightmare scenario straight.
MR. BUCHANAN: (Laughs.)
MR. MCLAUGHLIN: And I want to see whether I've got it here in this phrasing. You tell me. We take no effective action to curb our appetite for imports or to cut our budget deficit. Investors decide the dollar is a bad risk. At some date in the future, treasury bonds don't sell at auction.
Next comes a sharp downward correction in the value of the dollar on world currency markets. The lower value makes the price of all imports higher in real terms, including imported energy. The result is a spike in inflation, further dampening the dollar's value, and the U.S. empire goes broke.
MR. BERGSTEN: The final step is that interest rates, as a result of all that, shoot up sharply.
MR. BUCHANAN: Exactly.
MR. BERGSTEN: The Federal Reserve may even have to tighten further to stop the crash of the dollar, and all that tanks the stock market, tanks the economy, and we go into a sharp slowdown or a recession; on top of which, along the way, incidentally, we get a lot of trade protectionism --
MR. BUCHANAN: Exactly.
MR. BERGSTEN: -- because with the dollar overvalued, the massive trade deficit, industry after industry goes for restrictions.
MR. MCLAUGHLIN: Okay. This administration is not the first one to face this harrowing problem, which they have averted from their gaze, just as Reagan did and just as Nixon did, this benign neglect of the dollar. Then there came a moment of reckoning. What did Nixon did?
MR. BERGSTEN: In both cases, Nixon and Reagan, two former Republican administrations, they did 180-degree reversals. Nixon, after three years of benign neglect, not only devalued the dollar, but his secretary of the Treasury, John Connally, went out, put on an import surcharge, and essentially thrashed the world to do it.
Reagan, too, had Jim Baker call the Plaza agreement. He had to get international cooperation to get the dollar down, get the trade deficit down, and keep the world trading system intact.
MR. MCLAUGHLIN: Is that degree of difficulty that they faced, Nixon and Reagan, any more difficult or less difficult than Bush now faces?
MR. BUCHANAN: Yes. I mean, Bush is tougher. Bush is going to have to, what you're saying, is raise taxes. And he ain't going to do it. I'll tell you something, John; just like the Dutch and the Spanish in the 16th century and the British in the 19th, it is a declining currency that brings down the empire.
MR. MCLAUGHLIN: What do you think of his proposed one-dollar tax per gallon of gasoline?
MR. BUCHANAN: It is -- I was going to say, it is politically impossible for this administration to do. They will not do it.
MS. CLIFT: Well, if they're dealing --
MR. MCLAUGHLIN: I want to hear --
MR. BLANKLEY: I just want to --
MS. CLIFT: If they're dealing with financial collapse, then they have to, unless he just hands out medals of freedom to everybody. (Laughter.)
MR. BLANKLEY: Let me just make one point.
MR. MCLAUGHLIN: Okay, go ahead.
MR. BLANKLEY: I think our viewers, before they go out into the woods, need to remember the famous phrase that economists have predicted 10 of the last three recessions. There are books on (remainder?) desks -- the crash of '99, the crash of '97. There's a cottage industry in predicting disaster. We haven't had a disaster since 1929.
MR. MCLAUGHLIN: Okay, we can draw comfort from that.
MS. CLIFT: You're predicting fair weather and blue skies ahead.
MR. BLANKLEY: No, I'm predicting normal ups and downs.
MR. BUCHANAN: Blue-sky Blankley.
MR. MCLAUGHLIN: He claims that you are an alarmist. You're an alarmist.
MR. BERGSTEN: I would simply note that Japan was a huge problem during the 1980s.
MR. BLANKLEY: But it changed.
MR. BERGSTEN: The dollar had to go down 50 percent. A lot of (crockery?) was broken. Tony's right in the sense, if it's not sustainable, it won't go on.
MR. MCLAUGHLIN: Isn't --
MR. BERGSTEN: The issue is how it changes and how much --
MR. BLANKLEY: It wasn't that bad. Between '87 and now, we didn't do too bad when Japan crashed.
MR. MCLAUGHLIN: Isn't it also true, however, that Japan and China have increased their investment over the past couple of months? But is that owing to the strength of the dollar or deficiencies in their own economy?
MR. BERGSTEN: Well, the point is, they are trying to keep their currencies from rising in value, which would hurt their competitiveness and contribute to our trade correction.
MR. BUCHANAN: John, they're stealing our industries, the Chinese especially. As the dollar goes down, that goes down. More and more of our factories, jobs and technology are going over there. The Japanese and the Chinese have got to keep their control of their huge share of our $11 trillion --
MR. MCLAUGHLIN: You know that if you go to London and you try to get a hotel room, it'll cost you twice what it costs you in Manhattan. Exit question --
MS. CLIFT: I feel another Pat Buchanan campaign coming on.
MR. MCLAUGHLIN: Exit question: What is the more important -- important -- revamping Social Security to partially privatize it, as is the president's current centerpiece, or reducing the vast debt that the U.S. has accumulated?
MR. BUCHANAN: I think the second one is going to solve itself, and it's going to be a disaster. I think the president ought to focus on Social Security.
MR. MCLAUGHLIN: Really?
MR. BUCHANAN: Look, you can't --
MR. MCLAUGHLIN: What kind of logic is that?
MR. BUCHANAN: You can't solve this one. You can't solve it.
MR. BERGSTEN: No, look, he has to solve it.
MR. MCLAUGHLIN: Hey, the parachute isn't going to open, and so --
MS. CLIFT: Right.
MR. BUCHANAN: Exactly right.
MS. CLIFT: Right, right. Yeah, I think the crisis is out there, and it's not Social Security. If you want to deal with anything other than the deficit, you ought to focus on health care, which is contributing -- the lack of health care insurance.
MR. BLANKLEY: The --
MR. BERGSTEN: John, the business --
MR. MCLAUGHLIN: Let him finish.
MR. BLANKLEY: Social Security is a $10 trillion unfunded liability. If that's not solved, we're going to have to borrow money from the general fund -- that's what the statute requires us to do -- to keep it funding, which will make it impossible to reduce the deficit. We need to work on both fronts.
MR. MCLAUGHLIN: Why don't you tell the rest of the story? That kicks in in 38 years.
MR. BLANKLEY: No.
MR. MCLAUGHLIN: Thirty-eight years.
MR. BLANKLEY: It's not --
MR. MCLAUGHLIN: The doomsday scenario that he's predicting is going to kick in earlier than that.
MR. BLANKLEY: It starts in 2018, which is not 38 years as I measure time. And, in fact, if we don't deal with it now, we won't be able to deal with it closer to the time.
MR. MCLAUGHLIN: This is 2004. Twenty-eighteen is an eon away. That's the way Americans thinks.
MR. BLANKLEY: Not for the young Americans, it's not.
MR. BERGSTEN: The president has shown a willingness to take preemptive action in other areas. He better take preemptive action here to head off the crisis of a crashing dollar by dealing with the budget deficit, getting the Chinese to cooperate, or else his whole agenda literally goes out the window.
MR. BUCHANAN: Fred, it's happened.
MR. MCLAUGHLIN: Well, you also say that it's a good idea for the dollar to continue softening. But the danger is that it reaches a point where it goes into free fall.
MR. BERGSTEN: Exactly. That's the point.
MR. MCLAUGHLIN: He's got to know exactly when that occurs in order to reverse gears.
MR. BERGSTEN: If he lays out a credible program to reduce the budget deficit, I think the remaining substantial decline of the value can continue, as it has for three years, in a fairly gradual way.
MR. MCLAUGHLIN: Issue Two: Caught Stealing.
When a U.S. city has the option of building a baseball stadium and the infrastructure that goes with it -- roads, et cetera -- does it make good economic sense to go forward and use taxpayer money to fund it? That's the red-hot debate the District of Columbia now finds itself in. The D.C. mayor, Anthony Williams, with the support of some of Washington's business elite, struck a deal with major-league baseball in September.
WASHINGTON MAYOR ANTHONY WILLIAMS: (From videotape.) Baseball is back in Washington D.C.
MR. MCLAUGHLIN: The league would permanently move the Montreal Expos to Washington, and in return Washington would pay for the erection of a new stadium and its adjuncts, with a half a billion dollars of District of Columbia taxpayer funds.
This week the D.C. Council pulled the rug out from underneath the mayor, passing a law requiring that one-half of the stadium money, $279 million, would come from private investors.
The mayor and his backers say, predictably, as all such advocates do in situations like these, "A new stadium would spur economic growth. There will be thousands of new jobs and housing units and millions of dollars in tax and tourist revenue."
The Cato Institute snuffed out that little canard in a report entitled "Caught Stealing: Debunking the Economic Case for D.C. Baseball." Quote: "Our conclusion, and that of nearly all economists studying this issue, is that professional sports generally have little if any positive effect on a city's economy."
Roger Noll, noted Stanford economist and author of the book "Sports, Jobs and Taxes: The Economic Impact of Sports Teams and Stadiums," says, regarding the proposed Washington stadium, "It's a toy. If they're trying to sell it on grounds of actually contributing to economic growth and employment in D.C., that's wrong. There's never been a publicly-subsidized stadium anywhere in the United States that had the effect of increasing employment and economic growth in the city in which it was built."
You know, this is against the background of the current needs of the District of Columbia, where I happen to live. This is what is said in a report by the Council of Great City Schools. Quote: "The District has lost its instructional focus. Its effort has become fractured and incoherent. Its instructional moorings have loosened and its unity of purpose has splintered." Annual tests required under No Child Left Behind Act, over two-thirds of its students failed to pass those tests. Along with low tests scores, you've got District schools also suffering from high dropout rates, school vandalism, crumbling facilities and violence.
MR. BUCHANAN: John, we spend more in D.C. per student, per pupil, than any state in the Union virtually. It's not a lack of money. This is the most soulless report I've ever seen. The whole idea of a team here is for unity. There's a lot of intangibles here. I mean, you get your green eyeshade on about how much money it is. You don't realize what the Washington Senators once did for this town.
MR. MCLAUGHLIN: Well-spoken by a tweedy Virginian who drives in his Navigator to work.
MR. BUCHANAN: I grew up in this town. I used to go to Griffith Stadium.
MR. MCLAUGHLIN: Big deal. These are not intangibles. They're quite tangible because they have to be paid for.
MR. BLANKLEY: Wait a second.
MS. CLIFT: This is why --
MR. BLANKLEY: Wait a second. I'm wearing --
MS. CLIFT: This is why this is blowing up in Mayor Williams' face, because the residents in the city want good schools. They want a Metro that works and they want services. And it's the rich white guys in the suburbs who want the stadium.
MR. MCLAUGHLIN: (Inaudible.)
MS. CLIFT: And Mayor Williams negotiated a lousy deal, because any economic impact that was positive that would come out of this, he's given away in terms of the gate receipts, the parking --
MR. MCLAUGHLIN: Look at the deplorable health-care system in this city -- hospitals closing doors.
MR. BLANKLEY: I happen to be the tweedy Virginian today on this show.
MR. MCLAUGHLIN: Yeah, you look it and you dress it, and we all know that you're very monied.
MR. BLANKLEY: No, no, you're talking about tweed. I'm wearing tweed. And I agree with Pat regarding expenditures in education. But I've editorialized repeatedly in the Washington Times that we should not take taxpayers' money and subsidize the owners of professional sports teams.
MR. BUCHANAN: You're a -- (inaudible) -- utilitarian.
MR. MCLAUGHLIN: Fred, I'd like to point out to you that Washington D.C.'s murder rate is ahead of Baltimore, Detroit, Newark, Chicago, Miami, Dallas and Los Angeles. The police department is underfunded. The school system is underfunded, despite what Buchanan says.
MR. BUCHANAN: It is not.
MR. MCLAUGHLIN: And the hospital system is underfunded. Georgetown University Hospital has changed hands. George Washington University has changed hands.
MR. BUCHANAN: Washington Hospital Center is one of the best in the country. What are you talking about?
MR. MCLAUGHLIN: The biggest hospital for the poor, D.C. General, is shutting down.
MR. BUCHANAN: Well, look, Washington --
MR. MCLAUGHLIN: Twenty-five thousand patients have to be moved over --
MR. BUCHANAN: The problem is not a lack of money. You get rid of those bureaucrats in Washington and use the money --
MR. MCLAUGHLIN: The hospitals bring the patients -- they bring the patients into Maryland.
MR. BUCHANAN: John, a baseball team will give the town some spirit and unity it doesn't have.
MR. MCLAUGHLIN: Forget it. Forget it.
MR. BUCHANAN: You're too much of a utilitarian.
MS. CLIFT: Yeah, first of all --
MR. MCLAUGHLIN: We can live without that with better schools.
MR. BUCHANAN: You can. You always have.
MS. CLIFT: First of all -- it's a losing team, first of all. And what this is is privatized profit from socialized loss. That's the deal major-league baseball wants.
MR. BERGSTEN: The problem, in addition to the fact that some of the difficulties you describe are not susceptible to more money, is that the money is not fungible. If you save this money from the baseball stadium, it's not necessarily going to go into either hospitals or schools.
MR. MCLAUGHLIN: Why can't private investors do it?
MR. BERGSTEN: It's much better if private investors do it. But the test for the city is whether you bring in additional business, additional activities, including from rich white guys in the suburbs.
MR. MCLAUGHLIN: We've seen the research on this. It's untrue.
MR. BERGSTEN: That research is not --
MR. MCLAUGHLIN: It is a per capita reduction of income for everybody in the metropolitan area. That's what it means.
MR. BERGSTEN: Do you think the MCI Center has improved the District? It was privately financed. But the test is, did it add to the economy of the District?
MR. MCLAUGHLIN: I want to see the numbers on that.
MR. BERGSTEN: And the answer, I believe, is yes. I believe the MCI Center revitalized a series of downtown --
MR. MCLAUGHLIN: That's not a baseball stadium.
MR. BERGSTEN: It's a sports stadium with lower crowds.
MS. CLIFT: If the bulk of the money is raised privately, then we can talk about the intangible assets like lifestyle and status for the city.
MR. MCLAUGHLIN: Issue Three: Rudolph the Red-Faced Mayor.
Last Thursday, President Bush believed that his second-term Cabinet was nearly complete, with only two slots left to be filled. By Friday there was a third slot. Bernard Kerik had withdrawn scarcely after accepting his nomination to head the Department of Homeland Security.
He said he had employed a nanny who turned out to be an illegal alien and that he had forgotten about it until last week. Kerik is a former New York City police commissioner, and Rudy Giuliani urged President Bush to name Kerik as his Cabinet secretary for Homeland Security.
RUDOLPH GIULIANI (FORMER NEW YORK MAYOR): (From videotape.) It's an embarrassment to me and to Bernie and to those of us that supported him, because we should have disclosed this earlier -- we should have found it out earlier.
MR. MCLAUGHLIN: Question: Is it conceivable that Rudy Giuliani, ace prosecutor, former mayor of New York, overseer of the Big Apple's police force and general man about Manhattan, had no idea whatsoever that his business partner had such skeletons hidden in his closet? I ask you, Tony.
MR. BLANKLEY: Look, I don't know whether he knew. I certainly didn't. But immediately upon the story starting, New Yorkers all over the place started saying, "Well, we knew all along." The Daily News immediately got into the stories. Whether he did know it or not, it's still stunning that the man didn't admit it --
MR. MCLAUGHLIN: Why did he put that political capital behind him? There must have been something that perhaps -- it is said, at least -- Kerik would have delivered had he taken over Homeland Security. He made $6 million on the tazer deal. And, of course, the number of contracts that have to be given out in Homeland Security are, believe me, extremely lucrative and without end. True or false? Or is that saying too much?
MR. BLANKLEY: No, no. There was a lot of contracting, and necessary contracting, out. And the last thing you want is somebody doing sweetheart deals on matters regarding Homeland Security. I think one of the things that may have fooled the White House was both Hillary and Giuliani said, "This is the guy." So you had protection on both sides of the aisle. So maybe they didn't look quite as hard as they should have.
MS. CLIFT: Yeah, but Hillary's support was pro forma. I mean, she's a senator from the state and he was the police commissioner who performed very well through 9/11. And I think that's --
MR. BLANKLEY: But it indicated that the Democrats --
MS. CLIFT: I wouldn't lay it at her door.
MR. BLANKLEY: No, I'm just saying --
MS. CLIFT: Rudy Giuliani should have known. This guy was his driver. He was close to him personally and professionally.
MR. MCLAUGHLIN: Fred.
MR. BERGSTEN: I think the Kerik fiasco is going to have a subtle but very important impact on the Bush administration. Their tendency has already been to circle the wagons, put insiders in different jobs, avoid going outside, avoid bringing in fresh blood, such thinking.
MR. MCLAUGHLIN: Next week: The fabled McLaughlin Group annual year-end awards. Bye bye.