Fuzzy Math?

" This week on The Journal Editorial Report the stimulus speed out President Obama promises they get more money out the door and -- 600000 more jobs in the next 100 days. Will double check his map. Plus ten big banks get the green light to repay their -- loans but one name. Is conspicuously missing from that list and tensions -- with North Korea the UN Security Council agrees on new sanctions. As the rogue regime uses to American journalist as bargaining chips. The Journal Editorial Report begins right now. Welcome to the journal editorial."

" Port I'm -- just days after learning that unemployment rose to its highest level in almost 26 years President Obama promise this week to wrap up the pace at which. Funds from the 787. Billion dollar economic stimulus package are spent. So far only 44 billion dollars or just over 5%. Has actually gone out the door. The president predicted Monday that the increased spending would save or create 600000. More jobs by Summers and that's on top of the a 150000. Jobs the administration claims. The stimulus package has saved or created already. Here to check the president's math Wall Street Journal columnist and deputy editor -- here columnists Mary Anastasia O'Grady. And senior economics writer Steve Moore Steve so. The stimulus money was supposed to stimulate. What's taking so long for this money -- get out the door."

" Well you know pol when president -- this bill into action he said you know we didn't put this bill. We didn't sign this that if we didn't have this program we have 9% unemployment rate wiley signed that we got the money -- now we -- on unemployment rates -- hasn't. Worked very well I think you asked the right question what is taking so long. To spend this money. It and I think the answer is that whenever government tries to act quickly it's like watching a race between -- on a turtle -- government it's just too slow and plodding. To get this money out the door and it really raises the question if you wanted to have money expect quickly why not just give everybody a tax rebate -- I'm not in favor -- that which all the money would be out there on the economy right now when it's need to -- and I think the -- about is that yes the Democrats -- this money to go to their special interest groups like the unions and groups like acorn and so -- but."

" Leave the tax credits are part of this deal and that money is going out there as we speak it's not doesn't seem to be making that much of -- differences is not our -- other critics from the left Paul Krugman and others right that this was an insufficient stimulus we should -- more."

" Well that is the interstate -- you know that's -- a proposition you cannot possibly refute it doesn't work that -- about an arm or. I -- a war and I think the problem the whole problem with this theory -- is that look at what is happening to the dollar and look what's happening to interest rates there is a nugget of stimulus a fact from all of borrowing that I think is canceling out any positive effect of the --"

" You know let's look at that that the spending Mary you've got 787 billion dollar stimulus you've got 410 billion that they it was left over from fiscal year 2009 they -- a budget proposal of three and a half. Trillion dollars and you have the health care spending that is pending that could be anywhere between one point two and one point five trillion dollars is is Steve right that this is having some kind of an effect. -- expectations. For inflation and causing the increase in interest rates."

" Sure I think that the idea that -- spending is going to and create growth and that growth is gonna create tax revenues in the tax revenues are going to be used. To pay off the and we all live happily. After that is not flying particularly unit in the financial markets as Steve mentioned. Interest rates going up. You know that's the Fed federal poverty and the Federal Reserve had the idea that they would buy treasuries and by buying treasuries in other words financing the government federal debt issued to pay that to finance deficits that that that would hold interest rates down. But in fact the way the market is reading that is that as the Federal Reserve is now blurring the line that's supposed to be. Outline of independents. And buying federal debt they're get -- the market's getting nervous about inflation and what happens is. That the ten year note of the Federal Reserve and the thirty year bond starts to go up in price and those are closely tied to mortgage and those are also."

" Very significant indicators of future inflation expectations. Not that there's inflation -- the system because nobody thinks -- wrist but what people think they might have to repay. In ten years or twenty."

" Right well what I'm saying is that the that the market is worried that the Federal Reserve has taken them a job of financing -- don't tell us what --"

" One place where this is having a real world -- that in Washington DC. The famous blue dog Democrats are in a panic over all of this data is -- there aren't any Democrat conservative Democrats from south plains states centrist. There are constituencies. Are showing anxiety over this level of spending and they have been telling Barack Obama that who expects them to -- this huge. Health care initiative that he wants to pass and they're telling him how can we passed for that look. -- vote for that much spending. When we have this deficit."

" And why you don't need that's why the president this week that day after he talked about getting this stimulus money out faster he announced that we've got to get their deficits down more it because any -- and all those blue dogs brought in the White House said boy I am a deficit hawk and -- we won't we won't let those increase. It is that going to fly as a political matter."

" Yet it would the other big budget story here this week was that President Obama announced he's going to go back -- got when I look at this is pay as you go spending and when I heard him I and I literally thought it was an April fool's joke when he said this because this is something that was put in place. Back in 2000. I believe it's 2007 when Nancy Pelosi became speaker at that time we had a budget deficit of 150 billion dollars we've had this -- as you go mechanism in place now for three years now that the opposite is an 150 billion -- one point eight trillion everything that President Obama has gone over the last three months everything from the stimulus bill that the bailouts that that children's health plan. Hundreds of billions of dollars of spending has all been in violation of the pay as you go rule all right."

" We're going to have to keep following that Steve but there is one place the stimulus does seem to be working Washington DC that's right the economy is booming in the nation's capital where the area's unemployment rate dropped for the second consecutive month. To five point 6% in April the national unemployment rate will remind you hit nine point 4% in the you stimulus projects and investments in green tech in particular look like a jackpot. For the beltway as former venture capitalists and now democratic senator Mark Warner of neighboring Virginia put it. It helps to be aware of them money is or at least where everyone else's money he has. When we come back banks begin a check out of the hotel Geithner ten of them were given the green light this week to repay their -- but. One big one was missing from the list should Citigroup. He allowed. To fail."

" The treasury and the Federal Reserve this week gave ten -- approval to repay the billions they got from the Troubled Asset Relief Program last October big names like JPMorgan Chase Goldman Sachs Capital One and American Express all got the green light and -- a combined 68 billion dollars to the government's coffers. One name missing from the list Citigroup which this brings stress test revealed to have a 63 billion dollar hole. In its biology but -- city. Still be considered too big to fail Richard Breeden is the former chairman of the SEC and he joins me now. Richard -- good to see thanks -- All right so far in this crisis some thirty more than thirty small and medium sized banks have been failed and been rolled up. But some of the biggest banks including Citigroup Bank of America have been propped up. By the government is this too big to fail doctrine sound. Policy and what do you do."

" A -- of all it's one of the most serious problems and although. World of regulations one of the toughest problems to deal with and it's easy to say nobody should be too big fell by governments can't stand back and -- financial markets collapse or. World be unworkable and there is today. There is always a fear of the unknown what do you do if you let what will happen if you let one of the biggest institutions -- So to me the safest -- news has always been the philosophy that if someone is too big to -- you need to put in program put in place a program to make it small."

" To make the institution itself small -- so we made a mistake in letting these banks like Citigroup become these big financial supermarkets -- all of these different arms is that what you're saying."

" Now I'm not against competition and so if people want to be in every business in every part of the world than they need to be prodigious sleep good at raising capital and to managing risk. And if that what I'm saying is if you get an individual institution. That gets itself in to trouble him persistently stays in trouble over a period of years. Then regulators at some point have to put a program in place that that shrinks. The problem until you can resolve."

" Are when you're right the SEC in the early 1990 you're faced with a with a big investment -- sober. That you had to make a decision whether it should be allowed to die or not you made the decision that it should be allowed to fail. Now that was very different than what happened in 2008 with Bear Stearns. With the government stepped in and if comparable firm both investment banks were roughly the same size back right -- not typically invest big thing not typically considered to have systemic systemwide. -- ramifications if they fail. Tell us about that decision on whether or not that would have been the better route to follow with Bear Stearns."

" Well the -- First of all it was an easier time for me. Because we were dealing with problem Drexel but we didn't have this global financial crisis -- so. The system's ability to absorb Drexel was was -- And the system's ability to absorb problems here and and that's just a difference of history. I was very concerned of the time that we had never extended the federal safety net deposit insurance access to the Fed window all the things that. Properly support the banking system. The big banks like Citi and JPMorgan and the little asset -- depositors know that their deposits will be covered and so would never extended that system. Across the river into the investment banking world and if we had bailed out Drexel it would have said. That there was first -- it would give ran on bargain for fall windfall to creditors of Drexel. Second it -- said now we think -- too big effect on and that would erode market discipline it's so we thought we did was we. Move the broker dealer the regulated subsidiary we sold out overnight to PaineWebber. So we got the public customers out of the way all protected all they're all protected. Hundreds of dollars and then we said for the sophisticated creditors that had been dealing with Drexel is unregulated holding company said the Bankruptcy Courts that way."

" what you think you're saying you're seeing is still a judgment call by a regulator based on how they view the system and in that case where you made the Japanese are we can we the system can take this failure and and Bear Stearns they said no. But there's a lot of people who think that that failure to -- Bear Stearns. Fail led to a cascade of people believing there's no way anybody else will fail and that created the problem a year later."

" Well that I -- one of the big issues in this area is when you're dealing with unwritten law. And you're creating every -- a regulator -- you have to remember you're creating expectations so. One the bear. Rescue happened it sent a message to the market that Lehman and Merrill would also be. Be rescued -- a similar way and they were rescued in the sense the equity got wiped out but they're that was protected right so what was most shocking. In Lehman wasn't an investment bank was allowed to fail. But it was that the debt wasn't protected when it had been protected and Bear Stearns and that surprise this is the kind of -- shocks market -- it."

" For a lot of people -- there. You wonder why -- bankruptcy an option. For some of these big ex wife for examples of management at Citigroup still in place why -- the shareholders and they've been hurt because -- share price has fallen. But they have not been wiped out like cotton Illinois and other banks over time have -- when they fail or I have become insolvent."

" When the banking system is all always had its own. Process for. In effect bankruptcy. Through the FDIC and because it -- deposits people understand that's how the failure of -- bank will be handled. What concerns me a great deal is that Washington is now talking about extending that system to non banks and Stan -- the FDIC. Should become name. Department of too big to fail and -- roam around the country finding companies that appear to be too big to fell and then impose a different set of standards presumably than the bankruptcy code which covers every other company. Other than -- In all these failures so -- WorldCcom few years back in the first thing we did was to -- every single member of the board. Who had been there when those problems were created and we remove the CEO and you put new people in place rather than allowing the ones. Who created the problem to continue to sit there and this we have a pretty big deficit -- personal accountability. --"

" We're going to follow this more because that's a big problems too big guard Richard great thanks for being here. It's still ahead two American journalists are the latest bargaining chips and increasingly tense standoff with North Korea how should. The Obama administration responded to the UN -- sanctions. Have any --"

" US intelligence officials are warning the Obama administration that North Korea may be preparing to -- a third nuclear cast. In response did this week's UN Security Council resolution. Condemning the Communist country for its recent nuclear and ballistic missile activities the resolution comes the same week. -- to American journalists were sentenced to twelve years of hard labor for allegedly entering North Korean territory we're back with Dan -- her. And Mary O'Grady and also joining us is Wall Street Journal deputy editor Melanie Kirkpatrick Melanie. President Bob promised a new era of diplomacy with our adversaries. Why has it gone so sour -- North Korea so fast."

" didn't get the message he can he how -- he saw the new administration's an opportunity to sell the storm a third time you know he's. He blackmailed the Clinton administration he blackmailed the Bush Administration in its second term and here's the third opportunity."

" Now the conventional wisdom has it North Korea has wanted to bargain that's north its nuclear weapons capability and -- more money. But now there's a developing view that says well maybe they actually want to stay. A nuclear power do you agree with that it what implications would that have."

" I think they do want to stay -- nuclear power it's their only -- to be a major have a major influence or get the world's attention their economy is in shambles they have nothing else to offer. And they have a new generation of -- leader coming up."

" Luckily they lost their nuclear power in large part because of what the -- nuclear technology proliferation is the biggest threat that's emerging from this North Korea problem. And if it isn't -- you've got countries like Saudi Arabia Egypt and Syria they're going to want to get in the game and they'll be buying it from north scenarios on the."

" Only -- the UN which comes and went on another resolution which says we're going we we condemn this we want to stop this and they're gonna put in new sanctions including maybe. Maybe interdicting North Korean ships to address the problem that Dan talks about a proliferation. Are these better resolutions."

" is it is it's deja Vu all over again the resolution that they passed after the first nuclear test in 2006. Is essentially the same as the resolution. That is -- now. And to the problem is they don't enforce the resolution and they don't put any military. Action and behind the and resolutions --"

" And this one is not binding either right it's it's they call upon states to coop that's like and in that sense it's even weaker than the previous -- resolution which cents which was Morton has more forceful language. Now what about these two American journalist is -- terrible story I mean they were on the border nobody knows it really inside north career inside China but either way they're being held unjustly. What is North Korea up to because in the past you know they've held Americans for a very long time in Japanese for a very long time."

" I think they're trying to use them as a bargaining chip in the nuclear program. -- the administration Obama administration is quite properly trying to separate the two but North -- having none of it. Eventually what probably will happen is -- that. And an Obama administration we'll make some concession that will draw a North Korea back to the six party talks. And if we're lucky the two journalists will be released as part of that."

" What you're saying is that -- they're going to be. Do you do exactly what the Bush Administration the Clinton administration did before them has basically get the north Koreans what they want this in youth and you really think that that is going to happen look okay you you do think that's what's going to -- Is there a better way."

" Yes there's a better. There's several things the administration could do first is put more pressure on China -- China is being touted as being this hugely helpful and productive. Member of the six party talks. By four spot for providing space for meetings well. You know China provides 90% of North Korea's energy it could cut it off it could act more toughly. Second the United States could depression United Nations to enforce the resolutions. And another thing -- could do is reintroduce the financial sanctions that -- introduced in the first half the Bush Administration of which were effective in cutting North Korea off from the international banking system. And last and certainly not least we should. Improve our missile defense system so that we can defend ourselves against North Korean threat."

" commander in chief advantage and aren't we have to take one more break when we come back our hits and misses of the week."

" Time now for our hits and misses of the week Dan. Well as a whole world knows who Democrats in New York State senate join -- Republicans this week in a coup the Democrats went -- they turn the lights out the doors have been locked the New York Post has been sending guys up there -- clown outfits and it's all very quiet but I don't know what nothing's going to change as a matter fact. We were just talking about the stimulus and congressman 800 billion dollars California's legislature is hit the wall now this these legislatures are beginning to. Treat taxpayers' money like sand in a sandbox and up to got to tell you I think there's going to be a backlash eventually against this public disgust is really rising. And -- right thing. You know the old --"

" And and an irishman walks into a bar well at the punchline to this is and he filed a lawsuit. In this case a woman in 2005. Walks -- two bar in New York City. The danced on the bar. -- fell and then filed a lawsuit filed a lawsuit. The and so I'm giving a hit to the chamber of commerce the United States chamber of commerce whose legal reform institute had a poll which I deemed -- the most ridiculous lawsuit of the month. It took four years but fortunately in New York City judged just."

" Just but there. This is -- for congress has -- another one. This week they passed something they call cash for conquers. -- This is your big chance to trade in your car to get a new car and get a 4000 dollar top tax credit. This will cost four billion dollars and the idea it was supposed to be that that you would trade in a gas guzzler and get something that was very efficient. But it looks like you're just gonna be able to get a subsidy of 4000."

" Polyps all right thank you Steve done. The tiny island of poll how will get 200 million dollars in development assistance from the Obama administration why it. Because they're taking fifteen gitmo detainees. I did the -- all this comes out to twelve million dollars current detainee. It would be cheaper to put these people up at the -- all my it most makes me long for the days of the bridges to nowhere when you see the Obama administration. Waste money like thanks Steve thanks to a -- panel and all of you we hope to see -- right here. Next week."