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The McLaughlin Group

Host: John McLaughlin

Panel:
Pat Buchanan, Author and Columnist;
Eleanor Clift, Newsweek;
Rich Lowry, National Review;
Mort Zuckerman, U.S. News & World Report

Taped: Friday, May 18, 2012
Broadcast: Weekend of May 19-20, 2012

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THIS IS A RUSH TRANSCRIPT.
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JOHN MCLAUGHLIN: Issue One: Jamie's Vicissitudes.

PRESIDENT BARACK OBAMA: (From videotape.) J.P. Morgan is one of the best-managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we've got. And they still lost $2 billion and counting.

MR. MCLAUGHLIN: That $2 billion loss is now a $3 billion loss and could bloat. President Obama believes there may be a remedy, however, to these colossal losses.

PRESIDENT OBAMA: (From videotape.) If we get all the rules that we proposed and were passed by Congress implemented into law, it should prevent this kind of stuff from happening.

MR. MCLAUGHLIN: The regulatory reforms passed by Congress in 2010 occurred in the wake of the financial crisis of 2008 with its massive TARP and other taxpayer bailouts.

The head of J.P. Morgan, Jamie Dimon, faced J.P. Morgan's shareholders on Tuesday and survived -- both his positions as chairman and CEO intact, as well as a $23 million bonus.

J.P. Morgan, however, is not in the clear. Both the SEC, the Securities and Exchange Commission, and the FBI have launched probes.

Question: Is Obama right? If the Volcker rule were already in effect, would it have prevented J.P. Morgan's $2.3 billion loss? Pat Buchanan.

PAT BUCHANAN: I think it might have, John, because I understand that Jamie Dimon set up this office in London and failed to oversee it. And the losses are, as you mentioned, $3 billion. But they may go to $5 billion.

I really think what needs to be done, John -- and this is an example of it -- is we've got to go back to what Teddy Roosevelt did with Standard Oil. Some of these banks that are too big to fail, they should be broken up, A, into smaller banks. Secondly, the banks where we guarantee the deposits and we guarantee the bankers and we come in and bail them out, they should be restricted in what they can do.

As for the buccaneers that go out there and they want to bet on all these derivatives and the rest of it, they ought to be allowed to do that, but they ought to take the losses and they ought to keep the gains, and we ought not to bail them out.

MR. MCLAUGHLIN: Eleanor.

ELEANOR CLIFT: That's right. You don't get to be a buccaneer with the depositors' cash. And I think the Volcker rule would help avoid this kind of conflict.

But the president's point is that J.P. Morgan is a well-run bank. Jamie Dimon is well-respected. And if they can engage in this kind of risky behavior, what about all the other lesser institutions?

And Dimon has been in the forefront of lobbying against the Volcker rule and trying to water down the Volcker rule. And I think this sidelines him to a certain extent on that. And I think it ensures the Volcker rule, which goes into effect this summer, that the tougher version of that will be put in place. So this has been a good thing at a very timely moment for the people who are urging tougher regulation.

MR. MCLAUGHLIN: OK, Mitt Romney's riposte.

Presidential aspirant and former Governor Mitt Romney, in a radio interview on Wednesday, gave his views on J.P. Morgan's losses.

FORMER MASSACHUSETTS GOVERNOR MITT ROMNEY (R, Republican presidential candidate): (From audiotape.) I would not rush to pass new legislation or new regulations. This is in the normal course of business, a large loss, but certainly not one which is crippling or threatening to the institution. This was not a loss to the taxpayers of America. This was a loss to shareholders and owners of J.P. Morgan. And that's the way America works. The $2 billion J.P. Morgan lost, someone else gained.

MR. MCLAUGHLIN: What do you think of that response?

RICH LOWRY: I think that's right. Look, this whole thing makes it clear there are two kinds of Wall Street scandals: One, when banks make money; two, when banks lose money. And you're just never going to be able to regulate the risk out of the financial business entirely.

And it's not even clear the Volcker rule would have applied in this case. And the Volcker rule is so hideously complicated, no one knows how exactly it would work. The draft rule had 300 pages, John, and 300 questions. So this is just a complicated business.

Romney is right. J.P. Morgan -- it took the loss. Its stock took a hit and Dimon's reputation took a hit. And that's the kind of thing that's going to happen in a free-market economy.

MR. MCLAUGHLIN: Mort.

MORT ZUCKERMAN: Well, first place, let me just say this. I do think this was not the kind of trading for your own account that the Volcker rule was intended to control. This is something that they were hedging in order to deal with certain potential losses or potential gains that they might face, but primarily potential losses. So it was a loss. It was a loss of about $2 billion.

Now, they have a portfolio of this kind of paper of about $100 billion, so it's a 2 percent loss in overall terms. This is not the kind of thing that is going to be avoided in a bank as big as this.

And I will say this. I was on one of his boards for six years. This guy is the most talented business executive in finance I've ever encountered. And just remember, he avoided -- this bank avoided any of the problems that the other banks came into when it came to all those mortgage-backed security losses. He stayed out of it, by and large. And he did it because he was on top of his game.

This was clearly a mistake. The bank pays the price for it. It absolutely is not consistent with the kind of way it's being presented by the press.

MR. BUCHANAN: But Mort --

MR. MCLAUGHLIN: If he's on top of his game, how come he let this happen?

MR. BUCHANAN: John --

MR. ZUCKERMAN: Because these things happen at a bank of this size. There's no question about it.

MR. LOWRY: So is J.P. Morgan supposed to --

MR. MCLAUGHLIN: You mean he was in an uncontrollable situation?

MR. ZUCKERMAN: No.

MR. BUCHANAN: He had oversight.

MR. MCLAUGHLIN: Why did he let it become uncontrollable? Why did he take on so much?

MR. ZUCKERMAN: Well, look, let me tell you, they were trying to protect -- and they do this in the ordinary course of business -- to protect against certain kinds of losses. They hedge positions so that --

MR. BUCHANAN: But he didn't oversee it properly. This was his baby. He put it out there.

MR. ZUCKERMAN: I'm sorry --

MR. BUCHANAN: And he didn't oversee it.

MR. ZUCKERMAN: He had a very talented --

MR. LOWRY: So, Pat, is it your position that --

MR. ZUCKERMAN: -- executive --

MR. LOWRY: -- banks should never have losses?

MR. BUCHANAN: No, no.

MR. ZUCKERMAN: You have to have --

MR. LOWRY: Even a good executive is going to have some losses.

(Cross talk.)

MR. MCLAUGHLIN: Wait a minute. Wait a minute.

MR. LOWRY: Even a good executive is going to have some losses. He thought it was a hedge, as Mort points out.

MR. BUCHANAN: All right, fine.

MR. LOWRY: It was performing very well. He took his eyes off the ball and he took a loss. This is going to happen all the time. You cannot regulate --

MS. CLIFT: When you see --

(Cross talk.)

MR. MCLAUGHLIN: Hold on. Eleanor -- let Eleanor --

MS. CLIFT: When you see a loss of this dimension -- $2 billion now, maybe going to $5 billion -- happening in the course of a couple of weeks, there's a sense of memory of what happened in 2008. This is a well-run bank. They can absorb the losses. But if this kind of behavior is going on at J.P. Morgan, what's happening elsewhere? And there's more to know. There's going to be an investigation, hearings. And Jamie Dimon is going to have to say what did he know and when did he know it, because that's unclear.

MR. BUCHANAN: John, Rich has a point. Rich has a point. Look, the guy made this bet. He didn't oversee it properly. They took the beating. They took the loss. What I'm saying is if you want to go out and do that, get yourself a separate institution. But if we're going to guarantee the deposits and pour money into these things when they go down and all the rest of it, separate that out. The old Glass-Steagall law should never have been repealed.

MR. MCLAUGHLIN: I want to ask you this. Does it make a difference that a hedge is involved? In other words, Dimon was really protecting himself to some extent by having a hedge --

MR. ZUCKERMAN: That's right.

MR. MCLAUGHLIN: -- which is, in itself, a little bit perilous intrinsically.

MR. ZUCKERMAN: But it's a way of managing risk. The problem that you always have -- when you make loans to corporations, you take a risk. You take the risk that the corporation's going to be able to pay it back. Here you had a whole series of loans.

What they try and do is to have -- for a whole category of loans, they try and have a protection against it. This is -- it's not gambling in any sense. This was a hedge in which they were trying to protect against a certain kind of risk. This is, in one sense, what a banker should do.

MR. LOWRY: Yeah. And if you --

MR. MCLAUGHLIN: Would the Volcker rule have sprung into effect if the Volcker rule were a matter of requirement?

MR. ZUCKERMAN: Well, I don't believe -- I don't believe they were trading for their account in the sense that the Volcker rule was intended to control it.

MR. MCLAUGHLIN: Meaning what?

MR. ZUCKERMAN: They're just basically gambling on various things. Here they were trying to protect --

MR. MCLAUGHLIN: You mean using their deposits as the collateral, as the term of the loan --

MR. ZUCKERMAN: As the --

MR. MCLAUGHLIN: -- or the term of the deal.

MR. ZUCKERMAN: They were using their -- they use the money that is deposited with them to make loans. That's their principal business, OK?

MR. MCLAUGHLIN: Make loans.

MR. ZUCKERMAN: Some of the banks were using it to gamble, in effect, OK --

MR. BUCHANAN: Right.

MR. ZUCKERMAN: -- on various -- this was not -- they were trying to -- they had hundreds of billions of dollars of loans outstanding. They were trying to protect against --

MR. MCLAUGHLIN: What does the Volcker rule prohibit?

MR. ZUCKERMAN: The Volcker rule --

MR. BUCHANAN: Trading --

MR. ZUCKERMAN: -- prohibits against, in effect --

MS. CLIFT: Proprietary trading.

MR. ZUCKERMAN: -- proprietary trading, trading for their own accounts, basically.

MR. MCLAUGHLIN: Using what funding?

MR. ZUCKERMAN: Well, using the equity of the bank.

MR. MCLAUGHLIN: The equity of the bank.

MR. ZUCKERMAN: That's right.

MR. MCLAUGHLIN: And the equity of the bank is composed of what?

MR. ZUCKERMAN: The equity --

MR. MCLAUGHLIN: The deposits of the --

MR. ZUCKERMAN: Oh, no. That's an obligation.

MR. BUCHANAN: It's the net.

MR. ZUCKERMAN: That's the net --

MR. MCLAUGHLIN: That's the obligation.

MR. ZUCKERMAN: You don't -- the banks do not -- they use that money, but that's not the equity of the bank. This is one of the best-capitalized banks in the world, so they can afford this. So -- but it did make a big -- he presented it badly, in my judgment.

MR. MCLAUGHLIN: How much does -- how much does Jamie Dimon make a year?

MR. ZUCKERMAN: He made $23 million, I believe, last year.

MR. MCLAUGHLIN: And did he get his $15 billion bonus -- ($15) million bonus?

MR. BUCHANAN: (Laughs.)

MR. ZUCKERMAN: I think that includes the bonus.

MS. CLIFT: Yeah --

MR. MCLAUGHLIN: It includes the bonus?

MR. ZUCKERMAN: That's right. That's my understanding.

MR. MCLAUGHLIN: You mean he has a very small --

MR. ZUCKERMAN: John, don't call $23 million a small payment.

MR. LOWRY: (Laughs.)

MR. MCLAUGHLIN: No. Well, you subtract $15 (million) from that.

MR. BUCHANAN: It's $8 million.

MR. MCLAUGHLIN: (Inaudible) -- taken out of that. That gives you a residual what?

MR. ZUCKERMAN: That's correct.

MR. MCLAUGHLIN: Seven (million dollars)?

MR. ZUCKERMAN: No, $7 (million) -- that's right -- roughly $7 (million) or $8 billion -- million -- (laughs) --

MR. BUCHANAN: (Laughs.)

MR. ZUCKERMAN: -- is his base salary, and the rest of it was a bonus based on the bank's performance.

MR. MCLAUGHLIN: Do you think, come Labor Day, Jamie will still be running the bank?

MR. ZUCKERMAN: Absolutely. He is recognized as by far and away the most competent banker in the country.

MR. BUCHANAN: He won't be, John, if some of the losses -- I understand this trading -- this office over there had something like $100 billion. It was not subject to the same rules as other offices, and it was Jamie Dimon's baby. If you have another big hit like that, another big hit, then I think his job is on the line.

MR. MCLAUGHLIN: Would Dodd-Frank --

MS. CLIFT: The question --

MR. MCLAUGHLIN: Would the Dodd-Frank law have played any role here?

MS. CLIFT: The Dodd-Frank law -- they're still writing the rules. But the Volcker rule is the one that most directly would have applied here. But the question is, how much risk is too much risk? Do you let the banks decide that, or should there be some government regulation in place? And I think we're moving towards --

MR. BUCHANAN: You know --

MS. CLIFT: -- regulation.

(Cross talk.)

MR. BUCHANAN: We guarantee it.

MR. MCLAUGHLIN: Do you want that?

MR. ZUCKERMAN: Here you create a great problem, because the banks have to take risks every time they make loans.

MS. CLIFT: Yeah, but --

MR. ZUCKERMAN: That's a risk they take.

MR. MCLAUGHLIN: Do you want to get in here?

MR. BUCHANAN: Why do the Canadian banks not go down?

MR. MCLAUGHLIN: No, let -- Pat, let Rich in here. Let Rich in.

MR. ZUCKERMAN: I'm going to tell you --

MR. LOWRY: The financial sector is already heavily regulated.

MR. ZUCKERMAN: Right.

MR. LOWRY: Right? I mean, it's always been regulated. It was regulated during the housing bubble, which nearly took the whole system down. And if you take a maximalist view --

MS. CLIFT: I don't believe that's right.

MR. LOWRY: -- of this and you want to stop hedging, you're actually going to make banking riskier than it is now.

MR. BUCHANAN: But they all --

MR. LOWRY: This was conceived as a way --

MR. MCLAUGHLIN: But if you don't have the hedge, you can't --

MR. LOWRY: -- to protect against risk.

MR. MCLAUGHLIN: -- extend the kind of loans that you could otherwise extend.

MR. ZUCKERMAN: But let me -- why did the Canadian economy escape a lot of the problems that we have? There are two reasons. One is there are just a few national banks. There are about 10 of them, basically, and they've all been carefully regulated and they're fairly prudent. OK?

MR. MCLAUGHLIN: Right.

MR. ZUCKERMAN: But the other thing is that if you want to buy a home in Canada, you want to get a mortgage in Canada, you have to sign the mortgage personally. That's why their real estate bubble never occurred. Here you didn't have to -- in this country you don't have to sign --

MR. BUCHANAN: The only bankers who suffered -- look -- what was our friends that went down? Fuld and his crowd went down there, Bear -- not Bear Stearns.

MR. ZUCKERMAN: Lehman Brothers.

MR. BUCHANAN: Lehman Brothers. All the rest survived, and they're big guys. They were funded by the Fed. And they're back up at the same old game.

MS. CLIFT: They're fat and happy.

MR. BUCHANAN: Exactly.

MS. CLIFT: And the only people --

MR. BUCHANAN: And they did it.

MS. CLIFT: -- who paid the price are the American people, who are still caught in a recession in part because of all of the overhang from the failed loans that they made.

MR. LOWRY: But absent some society --

MR. MCLAUGHLIN: You know, if Dimon is as great as --

MR. LOWRY: Absent some society-wide speculative mania, like the housing bubble, this kind of loss is not a threat to the entire financial system or the economy.

MR. MCLAUGHLIN: Why did he call this, Jamie Dimon?

MR. BUCHANAN: We just got -- what did we just go through? (Laughs.)

(Cross talk.)

MR. BUCHANAN: The whole economy went down. We had a -- we've got a financial --

MR. LOWRY: We had a housing bubble that everyone got caught into --

MR. BUCHANAN: We've got the Fed, the banks and the politicians -- the Fed, the banks and the politicians --

MR. MCLAUGHLIN: Do you understand that Jamie Dimon characterized this whole event as a tempest in a teapot?

MR. LOWRY: Initially.

MR. BUCHANAN: That was before he found $2 billion was gone.

MS. CLIFT: That's right.

MR. MCLAUGHLIN: What about that? How could --

MS. CLIFT: This is a version --

MR. ZUCKERMAN: If you look at it in the context of the bank, they made five and a half billion dollars in the first quarter. Yes, they lost $2 billion. They're still going to make $3 (billion) or $4 billion in the second quarter.

MR. LOWRY: Yeah, the scandal here is they only made $3 billion.

MR. ZUCKERMAN: So from his point of view, it is a kind of normal risk that you take, OK, whether you agree with this or not.

MR. LOWRY: Absolutely right. They're making $3 billion and we're having a screaming fest over it?

MS. CLIFT: What's --

MR. LOWRY: They should have made $5 billion?

MS. CLIFT: What's delicious --

MR. BUCHANAN: It is not a normal risk because Jamie Dimon himself said he didn't oversee it properly.

MR. LOWRY: That's correct. And people were fired --

MR. ZUCKERMAN: They didn't oversee it properly. I agree with that.

MS. CLIFT: What's delicious about this debate is it's exactly what's going on on Capitol Hill, and the banks will be hoisted by their own petard because this scandal happened just at the moment when the regulations are going to kick into place. And the regulators are going to win.

MR. MCLAUGHLIN: Do you think Obama should declare a bank holiday, just so we can --

MR. LOWRY: (Laughs.)

MR. MCLAUGHLIN: -- (sift ?) through all the argument on this?

Issue Two: Macho Vlad.

Vladimir Putin is now president of Russia, sworn in in an elaborate ceremony in the ornate Kremlin palace. This means President Putin has been ruling the Russian Federation now for 12 years. He'll now rule it for six more years, which brings his total number of years in power by 2018 to -- you guessed it -- 18.

The day before his inauguration, 20,000 protesters in Moscow demonstrated against Putin. The massive inaugural assemblage was not peaceful. The next day, at his actual oath-taking, Moscow was in lockdown mode, with riot police protecting Putin's motorcade as it moved through the security-swept and police-emptied streets.

Question: Over the past six months, the rhetoric coming out of Moscow has been distinctly anti-American. What's the background of that? Rich, can you speak to that?

MR. LOWRY: Well, it's been anti-American for a long time, John. And I think this is a power that is in decline, that pines for the days of the Cold War when it actually mattered more than it does now. And the Obama administration came into office with this grand idea that if you're just nicer to them, everything will be fine. The reset has turned out to be a disaster; no Iranian sanctions. There's going to be no START III, no missile defense deal, no cooperation on Syria. And that's what we're looking at.

MS. CLIFT: Well, that was a determinedly --

MR. MCLAUGHLIN: Eleanor.

MS. CLIFT: That was a determinedly bleak picture painted of Russia. And Romney, in fact, is trying to recreate Russia as one of our major enemies. It's really Cold War rhetoric coming out of the Romney campaign.

I think the reset didn't work 100 percent, but the START treaty was ratified by this president and this Congress. There's still a good relationship, I think, between the now prime minister and the president. And, you know, we're not going to agree with the Russians on every subject, but they are still a major power, if not a superpower. And to try to encourage friction with them, which is for political purposes --

MR. MCLAUGHLIN: Yeah.

MS. CLIFT: -- which is what Romney's trying to do --

MR. BUCHANAN: John --

MR. MCLAUGHLIN: OK, hold on, Pat.

MS. CLIFT: -- is nonsensical.

MR. MCLAUGHLIN: Among many other talents, Vladimir Putin is multilingual. He is fluent in German and Russian and knows some English. Here's an example of President Putin's command of English.

(Videotape of Russian President Vladimir Putin singing "Blueberry Hill.")

MR. MCLAUGHLIN: What do you think of Putin?

MR. BUCHANAN: I think Fats Domino was not threatened at all here, John. (Laughter.)

What do I think of Putin? I think he's a Russian nationalist. I think he's in office because of the feeling that the United States abused its victory in the Cold War. We moved NATO right up in his face. We bombed Serbia. We had a bunch of American advisers go over there and help the oligarchs loot the place.

John, Russia is a natural ally of the United States, in my judgment, for this reason. We have two potential adversaries coming. One is a militant Islamic world, and the other is China. Russia is, as I say, a natural ally because they have the same potential adversaries. And I agree with Obama. You should make an effort, really, to befriend or treat these people as equals and don't treat them the way we've been treating them ever since the end of the Cold War.

MR. MCLAUGHLIN: I have a note here. Putin has issued a white paper to his ministers telling them to pursue amicable relations with the U.S. The contrast between the campaign rhetoric and the official marching orders could not be greater.

MR. ZUCKERMAN: Right.

MR. MCLAUGHLIN: Does that give you --

MR. ZUCKERMAN: There's a good reason for both. When you -- there is a lot of hostility to the United States within the Russian community, the Russian people. And so if you were campaigning for reelection, which Putin was, you certainly want to exploit that.

Now that he's governing, OK, it becomes a very different game. And he's very constructive in terms of his relations with the United States and was the first time around, which was when I met him. And he was extremely constructive in the relationship that he hoped to have with the United States.

MR. MCLAUGHLIN: Was his relationship with George W. Bush closer than his relationship to Barack Obama? What relationship does he have to Barack Obama? He's not even -- he's not even going himself to the meeting in Chicago this week, the NATO meeting.

MR. ZUCKERMAN: I don't think there is a relationship at all with Barack Obama at this stage. There may develop one. But he had a very good relationship with George Bush, George W. Bush. And I think George W. Bush made a clear point of trying to establish that relationship, because those kinds of relationships make a difference in international relations.

MR. MCLAUGHLIN: Do you think the problem is with NATO as far as Putin is concerned?

MR. LOWRY: No. I just can't disagree more. I mean, this is a guy who's drunk on power. He imagines himself as a kind of latter-day czar. This term will not end well. I don't know whether it will go quite into Mubarak territory, but the Russian people do not consider this regime legitimate. And over time, that's going to play out.

MS. CLIFT: Yeah, but --

MR. MCLAUGHLIN: Pretty hard line. Wouldn't you say (this chap ?) is pretty hard line on Putin?

MR. BUCHANAN: Well, he is. But why did we move NATO right up onto his front porch and bring three Soviet republics -- Estonia, Lithuania and Latvia -- into NATO itself and almost bring in Ukraine and Georgia? That is right in your face.

MR. MCLAUGHLIN: Pat --

MR. BUCHANAN: I understand their defiance.

MR. MCLAUGHLIN: How can (they ?) do that?

(Cross talk.)

MR. MCLAUGHLIN: It's the North Atlantic Treaty Organization, the Atlantic. What's that got to do with the Atlantic?

MR. BUCHANAN: We're too far in Eastern Europe. We should have abolished NATO at the end of the Cold War.

MR. MCLAUGHLIN: Oh, you want to abolish NATO now.

MR. BUCHANAN: At the end of the Cold War, sure. It was --

MR. MCLAUGHLIN: NATO was our only hope, Pat.

MR. BUCHANAN: Hope for what, defending Europe from the Soviet Union, which has been dead for 20 years?

MR. LOWRY: Why is the former Soviet Union threatened by NATO?

MS. CLIFT: I love you, Pat, but NATO --

MR. BUCHANAN: Suppose they put an alliance with Mexico and they were in Monterrey.

MR. MCLAUGHLIN: Exit question: Rate Russian President Vladimir Putin on a charisma scale, zero to 10, zero meaning zero charisma, 10 meaning irrepressibly charismatic, like Mort -- zero to 10. Pat Buchanan.

MR. BUCHANAN: I think "Blueberry Hill" takes him to an eight.

MR. LOWRY: (Laughs.)

MS. CLIFT: I'm going to give him a four. He's a pretty steely figure, which is why Pat likes him. But forget about abolishing NATO, Pat. It's not going to happen.

MR. MCLAUGHLIN: Only a four?

MR. BUCHANAN: Oh, he's --

MS. CLIFT: I like the foreign minister.

MR. MCLAUGHLIN: Well, you're open to reconsideration.

MS. CLIFT: I like Medvedev. (Laughs.)

MR. LOWRY: I guess he's a -- I'm trying to imagine what he is to the Russians; maybe a six. He shoots lots of things.

MR. MCLAUGHLIN: What do you think?

MR. ZUCKERMAN: In Russia, I'd say he's an eight. Here, I'd say he's a six.

MR. MCLAUGHLIN: I think he's a universal 9.8.

Issue Three: NATO Chicago 2012.

SENATOR JOHN KERRY (D-MA): One thing is pretty clear about NATO. It has already confounded its skeptics. From Bosnia to Kosovo, from Afghanistan to Libya, the alliance has demonstrated an ability to adapt to the post-Cold War security environment. Obviously we've had our challenges in both Afghanistan and Libya, but we have learned from them.

MR. MCLAUGHLIN: John Kerry, chairman of the Senate Foreign Relations Committee, reaffirmed the U.S. alliance with NATO, the North Atlantic Treaty Organization, days before its representatives converge on Chicago, site of what will be the biggest NATO summit ever. Representatives from 60 countries -- that's 6-0 -- and organizations are attending, well beyond the number of states, 28, that actually compromise NATO.

Discussions on Sunday and Monday will focus on NATO's essential involvement in the war in Afghanistan and its aftermath. There's also this -- a shared missile defense shield system. NATO Secretary General Anders Fogh Rasmussen says that the alliance is determined to push ahead in building an operational shield to counter ballistic missiles, something more than 30 countries have acquired or are working to acquire, according to Rasmussen. By the way, the development of missile defense systems have cost U.S. taxpayers an estimated $274 billion since 1985.

That brings us to another important issue of this weekend's summit -- money. NATO is grappling with shrinking defense budgets, as European nations pursue austerity measures. NATO's rules, by the way, require members spend at least 2 percent of their country's GDP on defense, but only a handful -- the U.S., the U.K., and, remarkably, Greece -- actually do.

Question: NATO's founding purpose in 1949, 63 years ago, was a post-World War II collective defense alliance against the then-Soviet Union, the USSR. So what is NATO today? Mort Zuckerman.

MR. ZUCKERMAN: Well, it's really a way for the collective Europe, in a sense, to participate in major foreign policy issues, because individually they no longer have the kind of power, reach, or indeed authority that they once had. But as a collective, it's a very different kind of game that they can play in. And I think that's the principal role.

They're not really focused so much on the Soviet Union, obviously, but there are many things in the Atlantic that they have to worry about and the -- pardon me -- the Mediterranean. And they have to worry about the whole Middle East. It's really affecting them. And that's where they can play a role as a collective. But no individual country could do it.

MR. MCLAUGHLIN: Eleanor.

MS. CLIFT: NATO is also a fig leaf for the U.S. to enable the U.S. to engage in activities that they really couldn't do on their own and that you can do with the protective cover --

MR. MCLAUGHLIN: As in Libya?

MS. CLIFT: I would say Libya is a clear example. And NATO is helpful in Afghanistan too. I mean, the U.S. is obviously the major player. And in Chicago, one of the big issues will be that the newly elected president of France ran on a platform to pull out all their troops from Afghanistan by the end of this year.

Now, I imagine the president's going to try to get him to keep training troops in or whatever, because it's important to have that overlay of other countries supporting your mission.

MR. LOWRY: That's right. But the fig leaf, unfortunately, is probably going to get even thinner, because this Euro debt crisis is just going to hollow out --

MR. MCLAUGHLIN: Mm-hmm. (Acknowledging.)

MR. LOWRY: -- the European military even more than they have been before. And before they were unwilling to spend more. Soon they're going to be unable to spend more.

MR. MCLAUGHLIN: Quick question: If China were to attack one of our American vessels, what would be the responsibility of NATO?

MR. BUCHANAN: The same thing they did in Vietnam, which was exactly nothing.

MR. MCLAUGHLIN: That's not true.

MR. BUCHANAN: But John --

MR. MCLAUGHLIN: Article V states that an attack on one member --

MR. BUCHANAN: I know --

MR. MCLAUGHLIN: -- is an attack on all. If China were to attack U.S. vessels as a precursor to invading Iran -- Taiwan --

MR. BUCHANAN: John --

MR. MCLAUGHLIN: -- NATO would be obliged.

MR. BUCHANAN: Look at what they did. Look, as Dick Lugar said after the Cold War was over, NATO either goes out of business or out of area. And they did go into Afghanistan because the United States of America per se was attacked. That was the rationale for it.

MR. MCLAUGHLIN: Predictions, Pat. Five seconds.

MR. BUCHANAN: George Zimmerman will never be convicted of second-degree murder.

MR. MCLAUGHLIN: Eleanor.

MS. CLIFT: John Edwards will not be convicted of major campaign violations that will send him to jail for 30 years.

MR. MCLAUGHLIN: Rich.

MR. LOWRY: If Romney loses, Rand Paul will run for president, taking up the baton from his father.

MR. MCLAUGHLIN: Mort.

MR. ZUCKERMAN: China is going to have its first major decline in about 20 years in its economy.

MR. MCLAUGHLIN: I predict that Iran is in a detente mode and will signal a deal with talks with the United States.

Bye-bye.

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