This is a rush transcript from "Hannity & Colmes," November 21, 2008. This copy may not be in its final form and may be updated.
ALAN COLMES, CO-HOST: After a volatile week on Wall Street, the Dow surged almost 500 today. The market making its surge as news came down that Obama picked Timothy Geithner for treasury secretary and Hilary Clinton for Secretary of State. But while the week ends on a positive note, the new administration will inherit mounting economic troubles, including financial troubles for banking giant CitiGroup and looming prospect for bankruptcy for the three automakers, the big three. Joining us now, editor and chief of "Forbes" magazine, Steve Forbes. Steve welcome back to the show.
STEVE FORBES, EDITOR IN CHIEF, FORBES MAGAZINE: Good to be with you.
COLMES: So what's the idea on Geithner? Good idea or bad idea?
FORBES: A good idea. He is a free trader. We know that. He knows how to negotiate; he knows how to deal with crises. Two big questions that he has to answer. One is what is his attitude on the dollar -stabilizing the dollar? And most immediately, this mark to market accounting rule which has devastated the banking industry, is now destroying the insurance industry as we speak.
COLMES: All right so how do you solve that problem? What does he have to do?
FORBES: What he has to say he is going to have it suspended and have the S.C.C. suspend the rule. And by golly, you would start to see a real rally in the market not just a one day wonder.
COLMES: And will other economic team members come into play? Are there other people he should be adding? Other people you think should be players here? Who would be good choices?
FORBES: I was hoping he would pick Paul Volcker for a key role. He would be replacing head of the Federal Reserve. But Richardson in commerce. Richardson is a free trader.
COLMES: Free trader? So that's good.
FORBES: Yes, we need reinforcements on that front.
COLMES: So the when the market goes up 500, how much is that attributable to what happened at the end of the day today? Is all of that because of Obama's pick?
FORBES: I think the market was looking for a reason to go up. It had been hammered. The key thing is what's going to happen next week? Each week we have a day or two that might be good and then pound, pound.
COLMES: I keep hearing conservatives blame Obama and uncertainty and what's he going to in raising capital gains and that's why the economic collapse but isn't the market down because of retail numbers? Isn't it down because of job losses?
FORBES: The market already knows the economy is in bad shape. It's already reflected that. We know the fourth quarters going to be tough. First quarter next year is going to be very tough. It's this destruction, systematic destruction. First the banks and now companies like Hartford and others just being pounded by this crazy accounting rule that the SEC refuses to back off on. The Europeans have backed off on this thing.
COLMES: So how do businesses start getting credit again? Once the businesses can get credit, money can flow, then we're back in business. What steps between here and there have to happen?
FORBES: Well, key, get rid of that mark to market. Stop destroying capital. Once you do that, the banks will start lending again. Their balance sheet s are starting to be repaired. They know they can lend to one another again. That's starting to thaw. The big unknown of the mark to market which is now -- it's destroying insurance companies.
If you're destroying big financial institutions like that, the market is not going to work.
MICHAEL STEELE, GUEST CO-HOST: Welcome. Good to see you there Steve. To see your point conservatives say what they say about this whole financial bailout and everything else that we have seen on the economy in the last few weeks and months because Obama has made it very clear where he wants to take this economy. How did the tax policies of this administration factor in? Because everything you're saying sounds good. But sitting in the wings there is the capital gains tax increase, some income tax increases. How do you encourage those who create wealth to incentivize them enough t o continue to do that given where this market could potentially go?
FORBES: Well, given the fact the market even after today is about where it was 10, 11 years ago, in fact a lost decade in terms of equity value creation. Part of that is worry about what President-elect Obama will do when he gets into office? Will he say we're not going to do anything until the economy gets better? That would be very good. Maybe Geithner will push him in that direction. But the most immediate thing is this ongoing, systematic destruction of major financial institutions. Michael, even in the great depression, we lost a lot of banks, but most of the major financial institutions survived. Most of the major insurance companies survived. Now they are the ones that are being destroyed.
STEELE: But see, what's the root cause of that? I mean, look you go back a year, go back 18 months, we were just kind of humming along. So you are you saying the rot existed back then?
FORBES: No, no, no. This rot was created by an artificial accounting rule. Which said you have to take assets and mark them to markets. And not what (inaudible) knew especially with an insurance company. You hold an asset for long term. You hold it as reserves.
STEELE: But what triggered that?
FORBES: What triggered it, was the accounting profession has been toying with this thing for years. A little over a year ago, the accounting board, the FASB which makes these rules formerly said you have to have this new rule on a mark to market. If you had that rule in the 1990's, most major commercial banks would have gone down when we last had a banking crisis.
STEELE: So how much free hand will President Obama allow his secretary Geithner to use in creating the market that we need in order to grow jobs, grow prosperity just so they can be taxed?
FORBES: Well, I think in terms of -- for the mark to market, I think he would give him a free hand. That doesn't touch any political constituencies except a few accountants. In terms of a strong dollar, I don't think he would object to it since John Kennedy and Bill Clinton have pedigrees on that, too. Where you're going to have a real battle though, is what's going to be done on tax policy. If president-elect Obama announced that there is going to be no increase on taxes on capitol at least for two years until we get the economy going, boy, that would really -- markets would say oh, thank goodness, and you would see a real rally that goes beyond just one day.
STEELE: Well, we're looking for that oh, thank goodness moment. Because I don't see it coming yet, not with this...
FORBES: January 20th.
STEELE: Yes, right January 20th. Then it's oh my God.
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