WASHINGTON – The following is a rush transcript of the Feb. 15, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.
CHRIS WALLACE, HOST: Now that the huge stimulus package is about to become law, how effective will it be? For answers, we turn to two leading voices in the world of business — from Miami, Eric Schmidt, chairman and CEO of Google, and from Philadelphia, Mark Zandi, chief economist at Moody's Economy.com.
Mr. Zandi, you are already saying that the $787 billion economic stimulus package likely is not enough, not big enough, and that the president is going to have to come back to Congress and ask for even more money down the line. Explain.
ZANDI: Yeah, that's right. I think it will — it will make a difference. It's a good plan, and I think it will help the economy.
By my estimate, it will add 2 to 2.5 million jobs, more than would be the case without stimulus, by the end of 2010. That translates into a lower unemployment rate of about a point to a point and a half.
So it is meaningful, but I don't think it's enough. I think the economy is in very difficult situation. The difficulties require a larger package. And I think a year from now we probably will be talking about stimulus again, yes.
WALLACE: Mr. Zandi, let me put up some figures, because you're talking about a big growth, but not as big as the White House. The White House projects 3.5 million jobs created by the end of next year. You say just 2.2 million.
Where, in your view, Mr. Zandi, is the White House overestimating? And in your forecast, where do you see the unemployment rate at the end of 2010?
ZANDI: Well, I think it's three things, three differences between my estimates and the White House. First, it's the spend out rate on the infrastructure spending. I think it's going to take a bit longer than they're assuming. Second, it's the — it's related to the patch to the Alternative Minimum Tax. That $70 billion of that $800 billion package — that was going to happen with or without stimulus. So I don't view that as being stimulatory.
And then third, with regard to how much of the tax cut's going to spent for individuals, the White House, I think, is assuming that people are going to behave as if that tax cut is permanent, and I doubt that will be the case.
So those three things, I think, explain the difference between their 3.5 million and my estimate of between 2 and 2.5 million.
Now, in terms of unemployment, I do think by the end of 2010 the unemployment rate should be somewhere around 9 percent. Right now it's 7.6 percent. It is going to rise to 9.5 to 10 percent by the peak. But by the end of 2010, with a little bit of luck and some more good policy making beyond stimulus, we'll get down to 9 percent.
WALLACE: Mr. Schmidt, are you — do you have the same view as Mr. Zandi, that this is a good package but not big enough to actually do the job?
SCHMIDT: I do. And I think it's much better if we simply get this thing done, get it passed, get it flowing, and check and see if it actually works or not.
The business community wants action now. Customers don't feel comfortable. People are worried about their jobs. Somehow the government has to fix the foreclosure problem. They have to fix the credit problem.
And then they have to be the sort of thunder of last resort to get this thing going again. And then the private sector can take over.
WALLACE: Let's turn — and Mr. Schmidt brought up the point that I wanted to get to — to the financial bailout and the effort to get the credit flowing again.
Mr. Schmidt, are you surprised that almost three months after he was appointed, that secretary — Treasury Secretary Geithner still doesn't have much of a plan for actually bailing out Wall Street?
SCHMIDT: It's about where I expected it to be. They've done three or four — the previous administration did three or four attempts trying to deal with this toxic asset problem. No one knows how to value them, for example.
So they need to get regulations that will actually work. The numbers are so large, I'd rather have them get it right. From my perspective, people cannot get their jobs, they cannot buy things and so forth, without credit.
So this needs to be their highest priority for the next few weeks, and let's hope it is.
WALLACE: Mr. Zandi, how disheartening to the markets was it this week when Geithner unveiled his plan and didn't answer some of these essential questions that Eric Schmidt is just talking about, like what are they going to do with the toxic assets and how do they value them?
ZANDI: Yeah, it was disheartening and it was because of the lack of detail, because people are concerned that there really isn't a plan, that it's going to take a while for the White House to get it together and to roll it out.
Now, the White House can get beyond this quickly if, in fact, they do start giving us some more information, some more details about how this is going to work, because conceptually, what the secretary of treasury rolled out was quite good.
I mean, the problem we have in the banking system is we don't have enough capital. Capital is the cushion that financial institutions need to remain going concerns.
The way to fix that problem is to give them more capital or take the bad assets, the troubled assets, the assets that aren't performing well, off their balance sheet. He said that that's what they're going to do.
We just need to know a little bit more about how he's going to do that, and we need to know that relatively soon. If, in fact, they come out over the next couple — four weeks and give us more information, I think the markets will be fine.
If they don't, then the markets are going to be more upset, and the job of the treasury secretary is going to become more difficult.
WALLACE: Mr. Zandi, one of the other...
SCHMIDT: Well, I do point out that...
WALLACE: ... points that Eric — go ahead, Mr. Schmidt.
SCHMIDT: What I was going to say is that it doesn't actually matter what everybody thinks in the short term. What matters is whether credit actually gets started or not. We can measure that. We can actually see when the banks start lending again.
So far, all of these previous attempts have not given them enough capital, as Mark points out, to really get going again. They need to rebuild trust, they need to get credit flowing again, and it has to occur quickly over the next few months. We can't wait six months.
WALLACE: Let's pick up on another part of this equation, and some would say it's the root of the problem, which is the housing market.
As I discussed with David Axelrod a moment ago, the president is going to announce his — at least the beginnings of his home foreclosure plan in Phoenix the middle of this week.
Starting with you, Mr. Schmidt, but then you, Mr. Zandi, what do you want to see him announce in that regard?
SCHMIDT: I don't know the details, obviously. It seems to me that you've got a problem where the homeowner has lost a lot of capital, the bank has lost a lot of capital, and people are having trouble holding their homes.
There needs to be some form of temporary delay in how people — getting foreclosed and so forth. The president has asked for that so far. That's a good first start. It needs to be longer so that people can work it out.
The worst possible scenario is somebody loses their home and, as a result, the whole neighborhood gets blighted and everything collapses.
Ultimately, this problem is going to be solved by people's job — job creation and confidence in sort of the ability that they're not going to lose their jobs, that they can continue to qualify for mortgages and getting capital flowing again. You've got to get them all done at the same time.
WALLACE: Well, Mr. Zandi, I think Mr. Schmidt set out what everybody would agree are the goals. How do you get that done?
ZANDI: Right. Well, you know, I think the administration's probably going to come forward with a plan that will involve reducing the mortgage payment that distressed homeowners have to pay.
That can either be done by lowering the interest rate on their loan or extending the term of their loan, and that will make the monthly payment more affordable. That's a reasonable thing to do. But it's, in my view, not enough.
I think if we're really going to keep these folks from losing their homes, we're going to need a plan that also involves principal write-down.
That means reducing the amount of debt they owe, because they are so far underwater, meaning that the value of their home is so far below the mortgage debt that they owe, if anything goes wrong in their financial life or if — you know, even if they spring a leak in their roof and have to put five to $10,000 more into the home, they're just not going to do it.
So we need a plan, I think, that also involves principal write- down. I'm afraid we're not going to get that. And if we don't, then this isn't going to work as fast as it — as it needs to be. So we have to watch that, and hopefully that will be what we hear on Wednesday.
WALLACE: Mr. Zandi, some — and let's take a bigger look at this whole problem. Some critics say that the Obama administration is repeating some of the mistakes that Japan made during the so-called lost decade of the '90s when they had their own severe economic downturn. They say the stimulus should be much bigger, much faster and that the government should nationalize the banks and sort out winners from losers, because that's in the end what you're going to have to do. Do they have a point there?
ZANDI: Well, I think that's an overstatement. I mean, I think the Japanese took a decade to clean up their banking system, and now we're a year and a half into this crisis and I think we are making progress, and we will make very significant progress over the next six, 12, 18 months. I think we are going to respond much more quickly.
With respect to stimulus, for example, the Japanese focused solely on infrastructure, traditional infrastructure — bridges and roads and water systems. And they spent that money out over an entire decade.
We're going to do this very quickly over the next couple, two and a half years. So I think — I think that it's reasonable to take lessons from what the Japanese did and not do them, but I think we have taken those lessons. We are acting quickly.
Hopefully, we act even more aggressively, and I think we won't get trapped in a lost decade like the Japanese did.
WALLACE: If I can just pick up on that, Mr. Zandi, what about the second half of my question, the idea that the government should get much more involved in the banks and decide who survives and who doesn't?
ZANDI: Well, and that's what they're going to do. Now, they're going to — the treasury secretary is going to go into each bank. They're going to conduct what they call a stress test, meaning they're going to figure out how much capital they have and whether it's adequate. If it's not adequate, you can do several things.
You can put them into receivership. That means you wipe out all the creditors, the shareholders, the debt holders. You can put them into conservatorship, where you just wipe out the shareholders and not the debt holders.
Or you can give them, if they're not too bad — in bad shape, you can give them more equity and take some of the bad assets off their books.
So they're going to do all three of those things. It just really depends on the situation that they find the banks in. And that's bank by bank. And that's what I think they're going to do over the course of the next 12, 18, 24 months.
WALLACE: Mr. Schmidt, what about the criticism one hears from conservatives that fiscal stimulus often doesn't work; in fact, has a poor record of turning economies around, and that what you're basically doing is taking the money out of the private sector?
SCHMIDT: At the moment, we need this stimulus — and it's not perfect, by the way. There's a bunch of stuff in there that probably shouldn't be in there. They took some of the really bad stuff out.
About a third of the package is taxes, tax credits, and another third is roughly aid to states for Medicare and Medicaid and various infrastructure, and the states really, really need this — need this money now, because they're all basically in big, big trouble.
So the combination of those two, I think, reflect, I think, a lot of the sort of conservative criticism.
Longer term, who would do this if it were not the federal government? How would we jump-start this? The markets would resolve. I mean, eventually, it would work itself out. The credit market would work out. We would deal with the debt. But it would take a decade or two.
And all of the lessons of global finance say that the government acts quickly, from our perspective, the quicker the better, and we'll see. Let's iterate. Let's get into this. Let's get a couple months into it and measure it and see how — one of the things that this bill has is a strong commitment about transparency so that you can track it.
You can figure out did they really spend the money where they said they were going — or did it go to the other program. And people will watch that and they will learn from that.
WALLACE: We have a little bit over a minute left, and I'd like you to split it evenly.
And I'll start with you, Mr. Schmidt. How bad is the economy now? How long and deep, given what you see the response from the Obama administration is — how long and deep will this recession be, and when will we begin to see things turning around?
Mr. Schmidt, you start.
SCHMIDT: It's clear that the next couple quarters are going to be tough for American business — the March quarter, the June quarter. You're going to see increases in unemployment. You're going to see all the issues of housing and credit because it's going to take at least some months.
The earliest that you're going to see an improvement will be the summer. Many people believe it's a second half recovery, and the jobless issue does not really recover until some time in 2010. That's a way of thinking about it. Things get better toward the end of the year and, really, the jobless situation — it's a year.
WALLACE: Mr. Zandi?
ZANDI: It's bad. It's about as bad as I've ever seen it. I mean, I've been a professional economist for 25 years, and the economy has unraveled in an incredible way, something I could not have even imagined six to 12 months ago.
But I think it's important to realize that every crisis that we faced as a nation, you know, whether it's a terrorist attack, whether it's a natural disaster, whether it's a financial calamity — and we've been through a few in our history — it's when government responds aggressively and in a consistent way, that marks the end of the crisis.
And I think if we can take any optimism from what's been happening over the course of the last four weeks, it's that government is now acting aggressively.
WALLACE: Mr. Zandi, Mr. Schmidt, we want to thank you both for sharing your insights with us. I thought this was fascinating. We'd like to have you both back.
ZANDI: Thank you.
SCHMIDT: Thank you.
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