• This is a rush transcript from "Your World With Neil Cavuto," October 3, 2008. This copy may not be in its final form and may be updated.

    NEIL CAVUTO, HOST: All right. So, now we are bailing out states. No sooner does that $700 billion bailout get approved, now word California Governor Arnold Schwarzenegger could ask the feds for a $7 billion loan. The Terminator's state nearly out of cash. Day-to-day operations of the state are being funded largely on promissory notes. But should that be the U.S. taxpayers' problem?

    Well, former California Governor, current state Attorney General Jerry Brown says they need the help, and they should get the help.

    Governor, Attorney General, very good to have you.

    JERRY BROWN, CALIFORNIA ATTORNEY GENERAL: Good to be here again.

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    CAVUTO: It is a slippery slope, is it not?

    BROWN: Well, it is a slippery slope when the discount window gets open to investment banks. We passed that a couple of months ago. So, California has been spending beyond its means.

    By the way, both parties, Republican and Democrat, all like to spend more than they earn or they collect in taxes.

    CAVUTO: You're absolutely right, absolutely right.

    BROWN: And that is why we are in this mess. They're given away either too much tax credits or too many benefits, too many spending programs.

    So, we are in the mess. Unfortunately, the private banks are not giving the money that California needs. So, we're going to the discount window as well. If we can get it out of private banks, we should.

    (CROSSTALK)

    CAVUTO: But if you're doing the discount window route, you are essentially trying to go through the Federal Reserve, right? You're not trying to go necessarily through congressional means, right?

    (CROSSTALK)

    BROWN: Well, this Federal Reserve, I heard one of these financial commentators say that their checkbook is infinite. Now, I do not believe that, but, if we are even slightly close to that, they have got enough money. And California will pay it back.

    CAVUTO: Well, you hope California would pay it back. And your state, by and large, has a good track record for that sort of thing.

    But here's what I worry about, Governor, that all of a sudden now, you have 49 other states suddenly that might see what is going on here, to say nothing of countless industries that have been coming up to Washington to say, what about me? It's out of control, don't you think?

    BROWN: Well, it is. It's getting out of control. And maybe they should put us on a program, like they do a debtor in Chapter 11 or something.

    The fact is that the whole country, the federal governments, the state governments, corporations, individuals, there has been an over-utilization of debt, leverage, whatever you want to call it.

    CAVUTO: Right.

    BROWN: And from time immemorial, we have been warned about excessive borrowing or lending.

    And, now, I think we have to take some of that historic knowledge and begin to align our work with our revenue and our compensation.

    CAVUTO: Yes, but no one ever says no, Governor.

    This sounds very hard and cruel, but if California is going to go to Washington and say, I need this, what is wrong with our saying no, I'm sorry; the spigot is closed; the well has run dry; you're going to have to figure this out on your own; we're out of money?

    BROWN: Well, if you tell that to some of the private banks, I would accept that.

    I do think someone has to say no. There has to be an encounter with reality. And I think there's such a level of fantasy and utopian hope here, and it is always morning in America. Well, it will be.

    CAVUTO: Well, why doesn't it start with you, then, sir?

    (CROSSTALK)

    CAVUTO: I mean, if you — all of a sudden say to California — and I know you're not the governor. You're the attorney general. But, all of a sudden, you say to the Terminator, hey, look, it terminates here. No more money. We're sorry. You are going to have to figure this out. We're in a bigger pickle than you are.

    BROWN: Well, if it does, I'm sure we will survive, because California is resilient.

    (CROSSTALK)

    CAVUTO: Then don't even ask. If you're so sure it will survive, don't even ask.

    BROWN: Hey, we are all asking. That is what Washington is there for.

    CAVUTO: You're right. You're right.

    BROWN: For people to ask them for money.

    CAVUTO: See, now, that is what I mean, that it is out of control.

    (CROSSTALK)

    CAVUTO: All of a sudden, we're going to have a guy downtown who can't pay his — he's in Chinatown, he can't pay his bill, he's going to raise it up, and say, maybe the Uncle Sam can, right?

    BROWN: Hey, if we could all jump off together, I would like to lead the charge into a greater discipline and ultimately greater innovation.