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THE MCLAUGHLIN GROUP HOST: JOHN MCLAUGHLIN PANEL: PATRICK BUCHANAN, MSNBC; ELEANOR CLIFT, NEWSWEEK; MICHELLE BERNARD, INDEPENDENT WOMEN'S FORUM; MORT ZUCKERMAN, U.S. NEWS & WORLD REPORT TAPED: FRIDAY, OCTOBER 10, 2008 BROADCAST: WEEKEND OF OCTOBER 11-12, 2008

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MR. MCLAUGHLIN: Issue One: October 29, 1929.

Black Tuesday, 79 years ago this month, Wall Street crashes. Incomes plunge. Construction stops. Manufacturing halts. Jobs disappear. Profits vanish. Soup lines and food kitchens abound. Thirteen million Americans out of work. Job lines stretch down vacant streets of once-thriving cities. Farms desolate. Mines closed. Automobile plants shuttered. Five thousand banks close their doors.

Shantytowns emerge all over the country called Hoovervilles, with President Herbert Hoover as crash villain. It wasn't until President Hoover's successor, Franklin Delano Roosevelt, that the U.S. economy regained its footing. Question: What's the difference between the great crash of 1929 and the great crash of 2008? Pat Buchanan.

MR. BUCHANAN: Enormous difference. We've lost 40 percent of the stock market. They eventually lost 85 percent. The economy contracted by 50 percent. GDP contracted. Unemployment rose to 25 percent.

MR. MCLAUGHLIN: You mean then.

MR. BUCHANAN: Then. Unemployment rose to 25 percent among primary wage-earners. We've got unemployment 6.1 percent. Our major economy, the real economy, is going to be hammered. It's going to be nothing like that, though, John. You know, we never got out of that depression until World War II. In 1937, four years into the New Deal, unemployment was 17 percent.

We've got a number of tools now that we can use, like federal deposit insurance, unemployment insurance, all these things that can ease the problem, and we know a lot of the tools we can use. But this is going to be a hellish worldwide recession, a deep one, I think. It's going to affect us certainly in the fourth quarter and the first two quarters of next year, and it's going to be a long while till we work ourselves out. And the United States of America, I think, is going to be a very diminished nation.

MR. MCLAUGHLIN: So it took over 12 years to get out of it?

MR. BUCHANAN: Until you got to World War II. Pearl Harbor basically brought the United States out of it. All during the '30s, the numbers were way, way, way below anything we've experienced since.

MR. MCLAUGHLIN: Eleanor.

MS. CLIFT: I don't want to take over Mort's role as the Cassandra, but we don't know where the bottom is in this. We don't know if this is sort of an ordinary economic cycle or whether this is something entirely different than we've never seen before. And I suspect it's the latter.

The big difference is that the government in 1929 -- the government didn't start acting until 1932. The U.S. government is acting now. It's not only acting on its own; it's acting in concert with the world, with governments around the world. And they're meeting with finance ministers in Washington this weekend. But politically we are less than a month away from an election, and this has been a political windfall for Barack Obama. But he did say rather ruefully that he does not lay awake nights worrying whether he's going to lose this election. He lays awake nights worrying he might win. I mean, this is an enormous task that the next leader is going to face.

MR. MCLAUGHLIN: Michelle. MS. BERNARD: This is -- we don't know where the bottom's going to be. The big elephant in the room is the housing crisis and the credit crunch, and how do we fix it? In terms of comparing us to 1929, like Eleanor said, we don't know where the bottom is going to be. But what we do know is that we are seeing government react. We don't know if the government's reaction is overreaction. We don't know if it's going to work.

It is a huge political conundrum for both Senator McCain and Senator Obama because we are lacking in leadership in this country right now. And the entire world is looking to the United States for leadership and for an answer as to how we're going to get out of that mess. We've got a debate coming up next week, and it's the last presidential debate. And I predict that the candidate who actually will give us a prescription that sounds like it makes sense as to how we get out of this economic mess is the person who's going to win the election.

MR. MCLAUGHLIN: Mort.

MR. ZUCKERMAN: Well, you're right that the government has reacted much differently now than it did in 1929. Nothing really started for four years, and by that time the depth of the decline was such that it took much longer to get out of it.

Look, monetary policy in those days, they literally contracted the money supply by one-third in the first couple of years. I don't know how many banks -- 5,000 to 10,000 banks went under. You had runs on banks. Now, in terms of monetary policy, we have -- they've added a trillion and a half dollars to the money supply. They have the guarantee, the FDIC guaranteeing the banks. They're guaranteeing money market funds. The government is putting up another $750 billion through the various other programs. One of them, the $700 billion, was just passed by the Congress.

In fiscal terms, it's also different. The government, which is the most stable part of the economy, was only 3 percent of GDP in 1929. It's 21 percent today. We have a huge medical and educational complex which is decoupled from all of these problems. So there's a lot more stability in terms of the macroeconomic forces.

And it doesn't mean that we aren't in something unusual, because this is an unprecedented financial crash. It may not have the same effect on the real economy, but we have never seen the kind of decline that we are seeing -- $9 trillion lost off of the stock market, $5 trillion lost off of housing.

Nobody has ever seen anything like this. In this sense, it's unprecedented.

And nobody can quite predict, because the destruction of confidence is absolutely astounding, because the panic selling that you are seeing now basically reflects a complete lack of confidence, which is nobody knows where the bottom is.

There's a wonderful story they tell about an economist who is walking on the street and he sees a $100 bill and he walks right by it. And a man says, "Why don't you pick it up?" He says, "Well, if it were a real $100 bill, somebody else would have picked it up."

Nobody has confidence in the value of money in what's going on in our financial world. We have leverage beyond what anybody's ever seen. We had a whole series of what is called the shadow banking system that was unregulated that is in the process of collapsing, and nobody knows what the consequences of that will be.

MR. MCLAUGHLIN: These were all reforms brought in by Roosevelt.

MR. ZUCKERMAN: Not all of them. A lot of them were.

MR. MCLAUGHLIN: A lot of them?

MR. BUCHANAN: Hoover brought in a lot of stuff. What Hoover and Roosevelt did wrong, they raised taxes at the same time they're putting all these regulations on. But what Roosevelt did do, he went from one idea to another to another. A lot of them were disastrous. And that's why he had the -- (inaudible).

MR. MCLAUGHLIN: Let's talk about --

MR. BUCHANAN: People said the guy was -- (inaudible).

MS. CLIFT: And he had a governing mandate to do that. People were willing to let him try to see what worked.

MR. MCLAUGHLIN: Let's talk about the banks. The U.S. is currently considering investing in banks for an equity position. Is this nationalization of the banks -- (inaudible) -- in the beginning?

MR. BUCHANAN: I think this is -- John, it is. But my view has always been that putting liquidity into the banks, even if you're buying property in the banks or buying ownership in the banks, and getting the lending going again and then holding on to these things like we did the warrants with Chrysler, was the right course to take, rather than this other bailout plan. We haven't even started buying these --

MR. MCLAUGHLIN: What's the private-sector protection against the nationalization and control by the government?

MS. CLIFT: Well, the --

MR. BUCHANAN: Look, if you do it now -- there is none.

MR. ZUCKERMAN: No, no, no --

MR. BUCHANAN: If you do it, I think you ought to --

(Cross-talk.)

MR. ZUCKERMAN: Very simply, the reason why there can't be the nationalization of the banks is because there's no people in government who can run the bloody banks. And they know if we don't have people running the banks and making loans, the credit system will just evaporate.

MS. CLIFT: They're also saying --

MR. MCLAUGHLIN: What kind of stock are they giving them? Are they giving them non-voting stock?

MR. ZUCKERMAN: No, no, they can -- it doesn't matter. They'll get preferred stock, which will give them a prior yield and give the capital to the banks.

MR. MCLAUGHLIN: Will it give them voting rights? Can they deprive the government of voting rights?

MR. ZUCKERMAN: Yes, they can -- they can take whatever -- ultimately, in five years or seven years, whatever it is, they'll have warrants to convert it into stock so that they can participate in some of the --

MS. CLIFT: Yeah, but the --

MR. ZUCKERMAN: -- (inaudible). But there's no way that the government can manage all of these loans.

MS. CLIFT: Yeah, but the thin reed that the government is relying on that it isn't nationalization of the banks is that it's voluntary, that the banks have to agree to this. If the government really took them over, then we'd really have outright nationalization. It's a thin reed, but it's there. MS. BERNARD: And if they're going under, of course they're going to agree to it. It's not voluntary. You know, it may be voluntary in name only, but it is nationalization. It is a very --

MR. BUCHANAN: Freddie and Fannie have been nationalized.

MR. MCLAUGHLIN: Is there another difference --

MR. BUCHANAN: The feds took them over.

MR. MCLAUGHLIN: Is there another difference from the Great Depression of 1929? The banks are going to roll out slowly if they go under (with us ?) --

MR. BUCHANAN: But as Mort said --

MR. MCLAUGHLIN: -- whereas in 1929 it was a thousand, almost --

MR. BUCHANAN: In 1929, guys bought on margin 10 percent. They went to the bank to get the money. The run on the banks dropped 10,000 of them. Now the Fed is moving on these things. We've got federal deposit insurance --

MR. MCLAUGHLIN: So that will slow it down and they will roll out --

(Cross-talk.)

MR. ZUCKERMAN: We've only had 20 banks that went under, compared to 10,000. And bear in mind, what is different now is you have this shadow banking system, which now covers 70 percent of all lending. And that is the private equity funds and the money market funds and the investment banks and the hedge funds. They are the ones who are in trouble. There are runs on every one of them. That's the risk --

MR. MCLAUGHLIN: So are we now in the good-news section of this discussion? (Laughter.) Is that where we are? Is that where we are? I think we are.

MR. BUCHANAN: It's not the Great Depression of the 1930s. But Eleanor's right; it is going to be rough.

MR. MCLAUGHLIN: Exit --

MS. CLIFT: The government is talking about doing instant audits of all of these banks. And I'm thinking the young people who are in college today -- and a generation ago, "Plastics is the way to go" -- regulation, that's where you want to go. That's where the jobs are going to be. Sorry, Pat.

MR. MCLAUGHLIN: Spread the word, Pat -- regulation.

MR. BUCHANAN: That'll make for a boom economy. We're all going to be regulators. (Laughter.) MR. MCLAUGHLIN: Tell the Buchanan brigades that.

MR. BUCHANAN: (Laughs.)

MS. BERNARD: The end of the free market.

MR. MCLAUGHLIN: Exit question: World leaders from the international financial community are meeting in Washington this week. Will they create a multinational global liquidity fund, since this is a global crisis, of $5 trillion to bail out the world economy?

MR. BUCHANAN: No. I think economic nationalism is on the rise. I think they're going to try to get together. But John, everywhere, everybody's looking out for himself. The Irish defended their banks. We defended deposit insurance on our banks. The Germans did the same thing. The Brits did the same thing. Nationalism is coming back, John.

MS. CLIFT: We stick together or we fail together. I think they're going to do something in concert. It may not be exactly the package you outlined, but they're going to do something.

MS. BERNARD: See, I think they'll have joint goals, but I don't think -- I think Pat is right. Nationalism is on the rise. I think, unfortunately, that means protectionism will be on the rise also, which is going to make things worse. But in terms of what happens over the weekend, I think they will set joint policy goals that no one nation is going to be tied to.

MR. ZUCKERMAN: There was a coordinated rate cut this past week, which is the first time that's happened in a long time. There's no way --

MR. MCLAUGHLIN: What do you mean by that?

MR. ZUCKERMAN: All the banks, all the major banks, lowered, in effect, the --

MR. MCLAUGHLIN: The United States.

MR. ZUCKERMAN: All the central banks lowered their rates by half a point. Now, it was a signal to the world that they are working together. And I agree, there will be joint policy. Five trillion dollars, by the way, wouldn't come close to dealing with the problem. We've already had a $14 trillion drop, and who knows where the bottom is. And frankly, this is -- the $14 trillion excludes what's happened in all the other countries. The Russian stock market is down 60 percent. The Chinese stock market is down 50 percent. The Indian stock market is down 50 percent. Nobody knows. This is a worldwide calamity.

MR. MCLAUGHLIN: Do you think the American people might be friendly to the idea of creating a multinational fund of $5 trillion to help these Chinese banks and the Indian banks that are going under?

MR. ZUCKERMAN: I think I'd be very reluctant to propose that if I were a presidential candidate.

MR. MCLAUGHLIN: Is there any merit to the idea?

MR. ZUCKERMAN: No, it's not. Each one is going to have to deal with their own particular situation. We have the biggest exposure. We've got to keep our capital and our dry powder for our own banks.

MR. MCLAUGHLIN: This is not a credit crisis. This is not a bubble crisis. It's not a credit crisis. This is a global crisis, is it not?

MR. ZUCKERMAN: Yes, but it's a global crisis of credit. Because there's been a complete collapse of confidence in the financial world, nobody is willing -- no banks are willing to lend to other banks. Banks aren't willing to lend to customers or to individuals. Home lenders are not willing to make --

MR. MCLAUGHLIN: Do you think --

MR. ZUCKERMAN: So you have a complete crisis now in terms of where we're going.

MR. MCLAUGHLIN: Do you think the United States could come out of what we're in now without a global participation in that emergence?

MR. ZUCKERMAN: Yes, they can in one sense. It will have to be coordinated with other central banks, which is what's begun to happen. But in terms of the problem, the United States problem is by far the biggest problem -- by far the biggest problem.

MR. MCLAUGHLIN: Have you heard anything about this group meeting, about --

MS. BERNARD: The G-7.

MR. MCLAUGHLIN: Have you heard anything about the degree of -- the sense of cooperation that exists?

MR. ZUCKERMAN: Oh, I think they will cooperate, as I said, in terms of policy. MS. CLIFT: Panic has a way of focusing the mind. And I would point out that there are some banks that are lending money, banks in Russia.

MR. MCLAUGHLIN: Eleanor --

MS. CLIFT: Iceland, which is a NATO country, was turned down for help by its NATO allies, and Russia came to its rescue. So there are some opportunities out there --

MR. ZUCKERMAN: Russia is falling apart. (Laughter.)

MR. BUCHANAN: They keep their rubles at home. (Laughs.)

MS. CLIFT: I thought NATO -- that was supposed to be --

MR. MCLAUGHLIN: We're not surprised at this. The president looked into Vladimir's eyes and you know what he saw there.

MR. ZUCKERMAN: He looked into his eyes and saw an IOU.

MR. MCLAUGHLIN: Issue Two: Rendezvous With Destiny.

Franklin Delano Roosevelt, another FDR -- that's what America needs today to lead the nation out of our spreading and deepening financial crash. The Republican presidential candidate, John McCain, proposed this week that the place to begin the recovery is at the level of home value; namely, the stabilization of falling home values.

Many economists and businessmen see home value as the key measure to stop our free fall. The U.S. Treasury, therefore, should buy home mortgages now at the risk of default directly from homeowners and lenders. With them in hand, the government should set new terms.

SEN. JOHN MCCAIN (R-AZ, Republican presidential nominee): (From videotape.) As president of the United States, Alan, I would order the secretary of the Treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes, at the diminished value of those homes.

MR. MCLAUGHLIN: To repeat, the McCain plan calls for the federal government to buy mortgages from homeowners and their mortgage servicers, then swap them for more affordable fixed-rate home loans guaranteed by the Federal Housing Administration, the FHA.

McCain says the recently enacted $700 billion bailout primarily addresses the top level of the current financial crisis. McCain takes the opposite approach, namely, start at the bottom level and work the way up to stabilize the housing markets, stabilize the mortgage finance industry, and stabilize the values of mortgage-backed securities. More in detail: Step one, contacting the mortgage broker. To initiate the process, the struggling borrower tells his mortgage broker that he would like to refinance his loan through the McCain initiative. You do not have to be in foreclosure or even under water on your mortgage to participate. That participation, by the way, is limited to primary residences and to homeowners who can prove that they were credit-worthy borrowers when they got their original loan.

Step two, government buys distressed mortgage. If the troubled borrower qualifies, the government will buy the mortgage.

Step three, government federally guaranteed mortgage. The Feds swap the distressed mortgage for a more affordable fixed-rate home loan backed by the Federal Housing Administration. The rate for the new mortgages would be in the low fives at this point.

Question: Why hasn't Obama offered a plan to get us out of this economic crisis? Eleanor Clift.

MS. CLIFT: Because he signed on to the plan that was voted by in the Congress and that has given these tools to the secretary of Treasury. One of the tools that Secretary Paulson has is his ability to renegotiate mortgages. And we will have a new Treasury secretary pretty soon. And I think if Obama wins the election, he'll probably name his Treasury secretary pretty promptly and will get a greater sense of how they will implement the plan that's been through. This is a time to show some unity of command and not throw wild ideas out.

MR. BUCHANAN: He hasn't stepped in, John, for a good reason. He's a very smart guy. He is benefiting from this crash every single day, denouncing the Republican politics and ideology as irresponsible. Why would you give someone a big fat target, the way McCain did, rather than ride this thing right into the White House?

MR. MCLAUGHLIN: What do you think of the McCain plan?

MR. ZUCKERMAN: Well, I actually think McCain's plan makes a lot of sense. It does go after the fundamental issue, which is the housing crisis and the continued plummeting of housing values. What it will do, amongst other things, is prevent a lot of foreclosed homes from being thrown on the market, which will cause the market to overshoot on the down side.

What is more, because these mortgages will now become liquid and will be valuable -- that is to say, will be worth 100 cents on the dollar because it's government-backed -- it'll tremendously change the whole mood of the mortgage -- firstly the mortgage market, because they'll get a lot of money. The lenders will get a lot of additional money to lend. And it'll solidify the mortgage-backed securities. As you point out, it's not perfect, because somebody is going to have to absorb the cost of giving the lending. (Cross-talk.)

MR. ZUCKERMAN: Excuse me. The taxpayers were doing it anyhow under the $700 billion plan. They were going to buy it at above market value. The real market value would break all the banks, so they couldn't buy the mortgage-backed securities. I'd rather have --

(Cross-talk.)

MR. MCLAUGHLIN: Let him finish.

MR. ZUCKERMAN: I'd rather have the homeowner benefit than the Wall Street world that got us into this trouble in the first place.

MS. CLIFT: But that's not the way his plan works out.

MR. ZUCKERMAN: That is the way it works out.

MS. CLIFT: And the bankers are the ones who are really --

MR. ZUCKERMAN: The bankers are going to benefit from the Wall Street plan, believe me. The people who are going to benefit here are the mortgage lenders --

MS. CLIFT: But it's part of the Wall Street plan.

MR. ZUCKERMAN: But it'll revive the housing industry and it'll prevent the housing collapse that is a sure thing without this. It is by far the right direction.

MS. BERNARD: It will make the U.S. government the biggest mortgage lender in the entire world.

MR. ZUCKERMAN: Yes, exactly. It'll make the United States --

(Cross-talk.)

MR. ZUCKERMAN: It'll make the United States the biggest investor in all these Wall Street firms that got us into trouble.

MS. BERNARD: It will be the end of the free market. It's not perfect, but there have to be better plans. We have nationalized Fannie and Freddie. We've just put $700 billion -- turned it over to Secretary Paulson. What else are we going to --

MR. ZUCKERMAN: We have no choice. There's no private capital equal to the scale of the problem. Only the public -- the government can step in and do it. That's why we have to do it.

(Cross-talk.) MR. MCLAUGHLIN: Let me in here. Let me in. Let me in. The fundamental dynamic is not from the top down, which is the Paulson plan --

MR. ZUCKERMAN: The Paulson plan.

MR. MCLAUGHLIN: -- but it's from the bottom up.

MR. ZUCKERMAN: That's correct.

MR. MCLAUGHLIN: That's a good idea.

MR. ZUCKERMAN: Yes. And it protects the housing --

MR. MCLAUGHLIN: Do you think it makes good strategic economic sense, I mean, that it goes to the heart of the matter and it goes right to the consumer?

MR. ZUCKERMAN: Absolutely. If it were up to me, I would have taken that $700 billion and put it all into support of the housing industry, which has been the basic problem, because indirectly you also support the -- (inaudible) -- not the Wall Street people.

MR. MCLAUGHLIN: Do we also have to protect consumers, because consumption is what is the balance wheel -- more than that, it's the engine of the economy?

MR. ZUCKERMAN: Absolutely. Sixty-eight percent of American families own their own homes. You break the housing market another 20 percent and you will destroy it.

MR. BUCHANAN: Buy up all the credit cards. Buy up all the credit cards and pay them off. Get the taxpayers to do it.

MS. CLIFT: Now you're talking. (Laughs.)

MR. MCLAUGHLIN: This McCain plan makes a lot of internal sense and external sense.

Issue Three: Outsourcing the Meltdown.

Blame game. The world is crashing and fingering America.

France: "An all-powerful market without any rules and any political intervention is mad. Self-regulation is finished. Laissez faire is finished. The all-powerful market which is always right is finished." Unquote. Nicolas Sarkozy, president.

Germany: "The U.S. will lose its status as the superpower of the world's financial system. The origin and center of gravity of the problem is clearly in the USA. This world will become multipolar. When we look back 10 years from now, we will see 2008 as a fundamental rupture." Unquote. Peer Steinbrueck, finance minister. Russia: "Everything happening now in the economic and financial sphere began in the United States. This is not the irresponsibility of specific individuals. It's the irresponsibility of the system." Vladimir Putin, prime minister.

United Kingdom: "While the problem comes out of America, it has consequences for all of us." Gordon Brown, prime minister.

Brazil: "This crisis belongs to the American bankers, to the European bankers. It doesn't belong to Brazilian bankers. It's not fair for Latin American, African and Asian countries to pay for the irresponsibility of sectors of the American financial system." Luiz Inacio Lula da Silva, Brazil's president.

Question: Is America the problem or is globalism the problem? Buchanan.

MR. BUCHANAN: America is the problem here, John. This is a scandal of two cities, New York and Washington, D.C. There's no doubt about that. And we brought on the disaster with the subprime mortgages and all the things we've talked about.

But I'll tell you this. We have heard about enough from these deadbeat Europeans and these other folks around the world whom we've defended for all these years. They're gloating and pleased and happy. We have bailed out the world again and again and again. They've got a right to laugh at us and mock us, but I would hope this country would get up on its hind legs and look out for its own interests and tell these folks exactly where they can go with regard to our defending them and our bailing them out.

MS. CLIFT: Okay, Pat the great isolationist lives another day. Look, globalization means the planet is getting smaller and we're interconnected in everything from fighting terrorism to climate change. And I can understand the anger of these countries, because this crisis did have its roots in Reaganomics and the Republican belief in free markets. And Democrats, a lot of Democrats, got on that bandwagon as well.

But capitalism without regulation leads to this. And I think the rest of the world is looking at us and rather enjoying the fact that we've lost our economic clout. But they're not going to enjoy that for long, because they get hurt as well. The ripple effect goes everywhere.

MS. BERNARD: Globalization is not going away. This is here to stay. The problem is a problem that started in the United States, but I would argue that it's not a lack of regulation. It is not the free market gone crazy. One can argue that it is overregulation. It was in the 1990s, in a government run by Bill Clinton at the time, that decided that our nation's policies should state that everybody should own a home.

Fannie Mae and Freddie Mac were not regulated properly, but they were in the mortgage business. They gave mortgages to people who didn't need to have them. People had second and third mortgages. It's not just a poor person's problem. It is our nation's problem, and it's people who should not have been allowed to get homes. And when a Democratic Congress decided to defeat a bill that would have regulated --

MS. CLIFT: President Bush --

MS. BERNARD: -- Fannie Mae and Freddie Mac, they put us in this problem.

MS. CLIFT: President Bush -- the ownership society.

MS. BERNARD: And President Clinton.

MS. CLIFT: It was an anchor of Republican politics. You cannot lay this off on the Democrats.

MS. BERNARD: Well, I will lay it off on Bill Clinton and President Bush.

(Cross-talk.)

MS. BERNARD: I lay it on both of them.

MS. CLIFT: Thank you.

MR. MCLAUGHLIN: Let me in here. America is not responsible. Globalism is. Here's the rationale. As corporations shifted manufacturing and jobs to India and China and other low-cost markets but kept selling into developed economies like the U.S. and Europe, it became impossible to sustain consumer demand and debt servicing. Doesn't that sound pretty good to you?

MR. ZUCKERMAN: Yes, to some extent.

MR. MCLAUGHLIN: Predictions. Pat.

MR. BUCHANAN: The United States will move to negotiate in Afghanistan with the Taliban.

MR. MCLAUGHLIN: Eleanor.

MS. CLIFT: Obama wins the election with over 300 electoral votes. MR. MCLAUGHLIN: Wow. Michelle.

MS. BERNARD: The economic recession that we're going to go into -- that we're going into right now is going to be just like what we saw in 1873, not 1929. But it's going to be long, it's going to be hard, and it's going to be very difficult.

MR. MCLAUGHLIN: Mort.

MR. ZUCKERMAN: Secretary Paulson will not go forward with the idea of buying these toxic securities from the investment banking firms. It's going to prove to be politically impossible. He's going to devote all of it to just liquefying the investment banking firms and the banks through preferred stock.

MR. MCLAUGHLIN: Do you think McCain can get any of that $700 billion for his plan?

MR. ZUCKERMAN: I hope he can. I hope some of it goes to the housing --

MR. MCLAUGHLIN: Here we go. Zbigniew's Brzezinski wisdom on Afghanistan, as Buchanan pointed out, will prevail over the sappy war- mongering of some of his hawk friends.

Bye-bye.

END.

MR. MCLAUGHLIN: This is not a credit crisis. This is not a bubble crisis. It's not a credit crisis. This is a global crisis, is it not?

MR. ZUCKERMAN: Yes, but it's a global crisis of credit. Because there's been a complete collapse of confidence in the financial world, nobody is willing -- no banks are willing to lend to other banks. Banks aren't willing to lend to customers or to individuals. Home lenders are not willing to make --

MR. MCLAUGHLIN: Do you think --

MR. ZUCKERMAN: So you have a complete crisis now in terms of where we're going.

MR. MCLAUGHLIN: Do you think the United States could come out of what we're in now without a global participation in that emergence?

MR. ZUCKERMAN: Yes, they can in one sense. It will have to be coordinated with other central banks, which is what's begun to happen. But in terms of the problem, the United States problem is by far the biggest problem -- by far the biggest problem.

MR. MCLAUGHLIN: Have you heard anything about this group meeting, about --

MS. BERNARD: The G-7.

MR. MCLAUGHLIN: Have you heard anything about the degree of -- the sense of cooperation that exists?

MR. ZUCKERMAN: Oh, I think they will cooperate, as I said, in terms of policy. MS. CLIFT: Panic has a way of focusing the mind. And I would point out that there are some banks that are lending money, banks in Russia.

MR. MCLAUGHLIN: Eleanor --

MS. CLIFT: Iceland, which is a NATO country, was turned down for help by its NATO allies, and Russia came to its rescue. So there are some opportunities out there --

MR. ZUCKERMAN: Russia is falling apart. (Laughter.)

MR. BUCHANAN: They keep their rubles at home. (Laughs.)

MS. CLIFT: I thought NATO -- that was supposed to be --

MR. MCLAUGHLIN: We're not surprised at this. The president looked into Vladimir's eyes and you know what he saw there.

MR. ZUCKERMAN: He looked into his eyes and saw an IOU.

MR. MCLAUGHLIN: Issue Two: Rendezvous With Destiny.

Franklin Delano Roosevelt, another FDR -- that's what America needs today to lead the nation out of our spreading and deepening financial crash. The Republican presidential candidate, John McCain, proposed this week that the place to begin the recovery is at the level of home value; namely, the stabilization of falling home values.

Many economists and businessmen see home value as the key measure to stop our free fall. The U.S. Treasury, therefore, should buy home mortgages now at the risk of default directly from homeowners and lenders. With them in hand, the government should set new terms.

SEN. JOHN MCCAIN (R-AZ, Republican presidential nominee): (From videotape.) As president of the United States, Alan, I would order the secretary of the Treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes, at the diminished value of those homes.

MR. MCLAUGHLIN: To repeat, the McCain plan calls for the federal government to buy mortgages from homeowners and their mortgage servicers, then swap them for more affordable fixed-rate home loans guaranteed by the Federal Housing Administration, the FHA.

McCain says the recently enacted $700 billion bailout primarily addresses the top level of the current financial crisis. McCain takes the opposite approach, namely, start at the bottom level and work the way up to stabilize the housing markets, stabilize the mortgage finance industry, and stabilize the values of mortgage-backed securities. More in detail: Step one, contacting the mortgage broker. To initiate the process, the struggling borrower tells his mortgage broker that he would like to refinance his loan through the McCain initiative. You do not have to be in foreclosure or even under water on your mortgage to participate. That participation, by the way, is limited to primary residences and to homeowners who can prove that they were credit-worthy borrowers when they got their original loan.

Step two, government buys distressed mortgage. If the troubled borrower qualifies, the government will buy the mortgage.

Step three, government federally guaranteed mortgage. The Feds swap the distressed mortgage for a more affordable fixed-rate home loan backed by the Federal Housing Administration. The rate for the new mortgages would be in the low fives at this point.

Question: Why hasn't Obama offered a plan to get us out of this economic crisis? Eleanor Clift.

MS. CLIFT: Because he signed on to the plan that was voted by in the Congress and that has given these tools to the secretary of Treasury. One of the tools that Secretary Paulson has is his ability to renegotiate mortgages. And we will have a new Treasury secretary pretty soon. And I think if Obama wins the election, he'll probably name his Treasury secretary pretty promptly and will get a greater sense of how they will implement the plan that's been through. This is a time to show some unity of command and not throw wild ideas out.

MR. BUCHANAN: He hasn't stepped in, John, for a good reason. He's a very smart guy. He is benefiting from this crash every single day, denouncing the Republican politics and ideology as irresponsible. Why would you give someone a big fat target, the way McCain did, rather than ride this thing right into the White House?

MR. MCLAUGHLIN: What do you think of the McCain plan?

MR. ZUCKERMAN: Well, I actually think McCain's plan makes a lot of sense. It does go after the fundamental issue, which is the housing crisis and the continued plummeting of housing values. What it will do, amongst other things, is prevent a lot of foreclosed homes from being thrown on the market, which will cause the market to overshoot on the down side.

What is more, because these mortgages will now become liquid and will be valuable -- that is to say, will be worth 100 cents on the dollar because it's government-backed -- it'll tremendously change the whole mood of the mortgage -- firstly the mortgage market, because they'll get a lot of money. The lenders will get a lot of additional money to lend. And it'll solidify the mortgage-backed securities. As you point out, it's not perfect, because somebody is going to have to absorb the cost of giving the lending. (Cross-talk.)

MR. ZUCKERMAN: Excuse me. The taxpayers were doing it anyhow under the $700 billion plan. They were going to buy it at above market value. The real market value would break all the banks, so they couldn't buy the mortgage-backed securities. I'd rather have --

(Cross-talk.)

MR. MCLAUGHLIN: Let him finish.

MR. ZUCKERMAN: I'd rather have the homeowner benefit than the Wall Street world that got us into this trouble in the first place.

MS. CLIFT: But that's not the way his plan works out.

MR. ZUCKERMAN: That is the way it works out.

MS. CLIFT: And the bankers are the ones who are really --

MR. ZUCKERMAN: The bankers are going to benefit from the Wall Street plan, believe me. The people who are going to benefit here are the mortgage lenders --

MS. CLIFT: But it's part of the Wall Street plan.

MR. ZUCKERMAN: But it'll revive the housing industry and it'll prevent the housing collapse that is a sure thing without this. It is by far the right direction.

MS. BERNARD: It will make the U.S. government the biggest mortgage lender in the entire world.

MR. ZUCKERMAN: Yes, exactly. It'll make the United States --

(Cross-talk.)

MR. ZUCKERMAN: It'll make the United States the biggest investor in all these Wall Street firms that got us into trouble.

MS. BERNARD: It will be the end of the free market. It's not perfect, but there have to be better plans. We have nationalized Fannie and Freddie. We've just put $700 billion -- turned it over to Secretary Paulson. What else are we going to --

MR. ZUCKERMAN: We have no choice. There's no private capital equal to the scale of the problem. Only the public -- the government can step in and do it. That's why we have to do it.

(Cross-talk.) MR. MCLAUGHLIN: Let me in here. Let me in. Let me in. The fundamental dynamic is not from the top down, which is the Paulson plan --

MR. ZUCKERMAN: The Paulson plan.

MR. MCLAUGHLIN: -- but it's from the bottom up.

MR. ZUCKERMAN: That's correct.

MR. MCLAUGHLIN: That's a good idea.

MR. ZUCKERMAN: Yes. And it protects the housing --

MR. MCLAUGHLIN: Do you think it makes good strategic economic sense, I mean, that it goes to the heart of the matter and it goes right to the consumer?

MR. ZUCKERMAN: Absolutely. If it were up to me, I would have taken that $700 billion and put it all into support of the housing industry, which has been the basic problem, because indirectly you also support the -- (inaudible) -- not the Wall Street people.

MR. MCLAUGHLIN: Do we also have to protect consumers, because consumption is what is the balance wheel -- more than that, it's the engine of the economy?

MR. ZUCKERMAN: Absolutely. Sixty-eight percent of American families own their own homes. You break the housing market another 20 percent and you will destroy it.

MR. BUCHANAN: Buy up all the credit cards. Buy up all the credit cards and pay them off. Get the taxpayers to do it.

MS. CLIFT: Now you're talking. (Laughs.)

MR. MCLAUGHLIN: This McCain plan makes a lot of internal sense and external sense.

Issue Three: Outsourcing the Meltdown.

Blame game. The world is crashing and fingering America.

France: "An all-powerful market without any rules and any political intervention is mad. Self-regulation is finished. Laissez faire is finished. The all-powerful market which is always right is finished." Unquote. Nicolas Sarkozy, president.

Germany: "The U.S. will lose its status as the superpower of the world's financial system. The origin and center of gravity of the problem is clearly in the USA. This world will become multipolar. When we look back 10 years from now, we will see 2008 as a fundamental rupture." Unquote. Peer Steinbrueck, finance minister. Russia: "Everything happening now in the economic and financial sphere began in the United States. This is not the irresponsibility of specific individuals. It's the irresponsibility of the system." Vladimir Putin, prime minister.

United Kingdom: "While the problem comes out of America, it has consequences for all of us." Gordon Brown, prime minister.

Brazil: "This crisis belongs to the American bankers, to the European bankers. It doesn't belong to Brazilian bankers. It's not fair for Latin American, African and Asian countries to pay for the irresponsibility of sectors of the American financial system." Luiz Inacio Lula da Silva, Brazil's president.

Question: Is America the problem or is globalism the problem? Buchanan.

MR. BUCHANAN: America is the problem here, John. This is a scandal of two cities, New York and Washington, D.C. There's no doubt about that. And we brought on the disaster with the subprime mortgages and all the things we've talked about.

But I'll tell you this. We have heard about enough from these deadbeat Europeans and these other folks around the world whom we've defended for all these years. They're gloating and pleased and happy. We have bailed out the world again and again and again. They've got a right to laugh at us and mock us, but I would hope this country would get up on its hind legs and look out for its own interests and tell these folks exactly where they can go with regard to our defending them and our bailing them out.

MS. CLIFT: Okay, Pat the great isolationist lives another day. Look, globalization means the planet is getting smaller and we're interconnected in everything from fighting terrorism to climate change. And I can understand the anger of these countries, because this crisis did have its roots in Reaganomics and the Republican belief in free markets. And Democrats, a lot of Democrats, got on that bandwagon as well.

But capitalism without regulation leads to this. And I think the rest of the world is looking at us and rather enjoying the fact that we've lost our economic clout. But they're not going to enjoy that for long, because they get hurt as well. The ripple effect goes everywhere.

MS. BERNARD: Globalization is not going away. This is here to stay. The problem is a problem that started in the United States, but I would argue that it's not a lack of regulation. It is not the free market gone crazy. One can argue that it is overregulation. It was in the 1990s, in a government run by Bill Clinton at the time, that decided that our nation's policies should state that everybody should own a home.

Fannie Mae and Freddie Mac were not regulated properly, but they were in the mortgage business. They gave mortgages to people who didn't need to have them. People had second and third mortgages. It's not just a poor person's problem. It is our nation's problem, and it's people who should not have been allowed to get homes. And when a Democratic Congress decided to defeat a bill that would have regulated --

MS. CLIFT: President Bush --

MS. BERNARD: -- Fannie Mae and Freddie Mac, they put us in this problem.

MS. CLIFT: President Bush -- the ownership society.

MS. BERNARD: And President Clinton.

MS. CLIFT: It was an anchor of Republican politics. You cannot lay this off on the Democrats.

MS. BERNARD: Well, I will lay it off on Bill Clinton and President Bush.

(Cross-talk.)

MS. BERNARD: I lay it on both of them.

MS. CLIFT: Thank you.

MR. MCLAUGHLIN: Let me in here. America is not responsible. Globalism is. Here's the rationale. As corporations shifted manufacturing and jobs to India and China and other low-cost markets but kept selling into developed economies like the U.S. and Europe, it became impossible to sustain consumer demand and debt servicing. Doesn't that sound pretty good to you?

MR. ZUCKERMAN: Yes, to some extent.

MR. MCLAUGHLIN: Predictions. Pat.

MR. BUCHANAN: The United States will move to negotiate in Afghanistan with the Taliban.

MR. MCLAUGHLIN: Eleanor.

MS. CLIFT: Obama wins the election with over 300 electoral votes. MR. MCLAUGHLIN: Wow. Michelle.

MS. BERNARD: The economic recession that we're going to go into -- that we're going into right now is going to be just like what we saw in 1873, not 1929. But it's going to be long, it's going to be hard, and it's going to be very difficult.

MR. MCLAUGHLIN: Mort.

MR. ZUCKERMAN: Secretary Paulson will not go forward with the idea of buying these toxic securities from the investment banking firms. It's going to prove to be politically impossible. He's going to devote all of it to just liquefying the investment banking firms and the banks through preferred stock.

MR. MCLAUGHLIN: Do you think McCain can get any of that $700 billion for his plan?

MR. ZUCKERMAN: I hope he can. I hope some of it goes to the housing --

MR. MCLAUGHLIN: Here we go. Zbigniew's Brzezinski wisdom on Afghanistan, as Buchanan pointed out, will prevail over the sappy war- mongering of some of his hawk friends.

Bye-bye.

END.