The following is a rush transcript of the March 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: We want to continue our discussion about the state of the economy with three key players. From Boston, Democratic Congressman Barney Frank, chair of the House Financial Services Committee.
From Chattanooga, Tennessee, Republican Senator Bob Corker, a member of the Senate Banking Committee.
And from Philadelphia, Mark Zandi, chief economist at Moody's Economy.com, who has advised both the White House and Congress during the current crisis.
Congressman Frank, as the head of Financial Services, let me start with you and this AIG story today that this company that has received $170 billion in taxpayers' money says that it is today going to pay out $165 million in bonuses. One, is it wrong? Two, is there anything you can do about it?
REP. BARNEY FRANK, D-MASS.: Yes, it is wrong, Chris. And I would go back to your conversation with Mr. Goolsbee. This is an example of people at the commanding heights of the economy misbehaving, abusing the system.
This goes back now — people should understand the AIG intervention really predates the rescue plan voted by Congress. The AIG intervention was initiated on its own by the Federal Reserve.
They came to us a in September of last year and said, "We're going to give them the 80 billion." There's been some TARP involvement since, but it's primarily been the Fed.
And clearly there was a mistake at the beginning. These people who are receiving — they should have been given much stricter rules at the — at the beginning.
What we need to do now, and I — I think you do see, frankly, a difference between the way the Bush administration approached this and the way the Obama administration is approaching it. Things have gotten tougher under the Obama administration.
In fact, I was reading an article in the New York Times the other day that the banks are complaining that we're being too tough on them. And one of the things that — that we worked on and put into the economic recovery bill was a change in the law. So any bank that thinks we're being too tough on compensation, or trying to get foreclosures reduced, or stopping some of the lavish entertaining, they can give the money back. We made that easy.
With AIG, I would just say we need to find out, one, are they legally recoverable. We can't just violate law — legal obligations. I understand that. But I do want to find out at what point these illegal obligations were incurred, who said, and at what point, we're going to give these bonuses no matter what.
And I do think it's inappropriate for those people to stay in power at that company.
WALLACE: Senator Corker, your reaction to the AIG bonuses, and is there anything that you think that Congress and the government can do about it?
SEN. BOB CORKER, R-TENN.: Well, I do think it's important to know whether these are commission payments for products that brokers have sold, or whether this is, in fact, a bonus. And I think those are two very different things.
I think what Congressman Frank said, knowing whether these were contractually obligated to or not, is important. So I think I will withhold until I see what it is these are being paid for.
I do think, though, that these entities that are receiving government money, unfortunately receiving government money, our money — I do think they have to play by a different set of rules, and hopefully that will cause institutions across this country not to want to take government money and quickly move away from us because of us getting under the hood like this.
WALLACE: Mr. Zandi, as I mentioned in talking with Mr. Goolsbee in the last segment, you have raised what you call the probability of the need for a second stimulus package.
What is it that you're seeing in the economy? And what do you worry will happen if there isn't a second stimulus?
MARK ZANDI, CHIEF ECONOMIST AT MOODY'S ECONOMY.COM: Well, I think it's fair to say that we've misjudged the severity of this crisis all the way along. It began over two years ago, and each step of the way we've missed it. And nearly all of us have missed it, including policymakers.
And I — and I think it's fair to — to think that we're still misjudging it. The severity of this crisis will be very significant going forward, and that while the policy steps that we've taken are quite good, they won't be enough, and we should prepare for the possibility that, in fact, we will need more stimulus.
Now, having said that, I think Mr. Goolsbee is correct. We should wait and see whether the stimulus package — which was quite large and quite well designed, I thought — will work. And we won't know that until later this summer and the fall later this year. But having said that, I think the odds are quite high that we will have to come back and revisit, and another stimulus package seems probable.
WALLACE: Let's move on to the — to this issue of the effort to stabilize the financial markets.
Congressman Frank, what are you hearing from the White House about this idea of public-private partnerships, getting hedge funds, getting private equity firms, involved along with the government and with some government guarantees against losses to buy some of these toxic assets? And how much are you hearing it's going to cost?
FRANK: I'm not hearing anything that the public doesn't hear, and I think that's appropriate. I know they're working on it. I will say this. They had a very big job when they came into office.
The first thing that Secretary Geithner and his team worked on, the economic team, was a Senate proposal to reduce foreclosures, which is important, by the way, not just as a matter of social policy, but if you do not reduce foreclosures, you do not get at the current problem, because the cascade downward of housing prices with foreclosures is a part of the overall economic problem.
I thought they came up with an excellent plan. So I am encouraged that people jumped on them. "Where is it?" You know, "You've been there an hour and a half and nothing's happened." I thought the plan was a very good one. They are now giving similar thought and care to this plan.
I agree with their effort, which is, as Mr. Goolsbee said, to try and maximize a private-public intervention here, to reduce the public risk but also getting the private firms in there can help you set what would be a reasonable price.
And I think, as I said, they are well along in this. If they wait a week or two more, no one ought to get all in a twitter about that. It's very important to do it right.
WALLACE: Senator Corker, you have said that we ought to — and I'm going to use your expression — we ought to take our medicine and let some banks fail.
Does that mean that you would oppose, let's say — and Mr. Goolsbee wasn't willing to tell us, and perhaps he doesn't know — another trillion dollars, which is one number that's been thrown out there, as a part of a financial rescue plan?
CORKER: No, I want to see, certainly, what's presented, but I do want to say that I had some of the country's leading bankers in our office this week. They have no idea how this public-private partnership is going to yet work.
We have the TALF program, which I think most people believe is very important. We're still fumbling along trying to figure out how the TALF program is going to work. And I know there weren't enough takers this week to actually have the first portion of it let.
WALLACE: And let me just explain...
CORKER: And I do think the most important...
WALLACE: Because — Senator, let's just quickly explain, if you can, in a sentence what TALF is to people who don't know the acronyms.
CORKER: OK. TALF is a program that's been set up through the Fed with Treasury, our taxpayers going in to put up collateral to buy all kinds of assets — auto loans, other kinds of asset-backed securities — to help stimulate lending in our country.
Still, the major issue in our country is credit, and it's very difficult for me to believe that we're even considering talking about another so-called stimulus package when, in fact, we still have not dealt seriously with the credit issue. That is absolutely incredible to me.
I read today where the Germans agree with us 100 percent. It's still the credit issue. And this administration, while they still are listening to Barney Frank and listening to Goolsbee, they're still campaigning. They're still running against President Bush.
The fact is they still have not laid out a coherent way of dealing with this credit crisis, and that is page one. That's what our focus needs to be.
Small businesses around this country are still having great difficulty getting credit. And until we solve that, piling government spending on top of that is not going to solve it.
So the next critical step is looking at these stress tests. And when you talk about taking medicine, we can either do a soft stress test and certainly we'll be waiting till mid-April to find out whether it's soft or whether it's hard.
But I'm thinking it needs to be a difficult stress test so that the public knows where these institutions are, so they know whether they're sound or not. And I think that is a very important thing.
So I hope that Tim Geithner will come back. Let's get focused on solving this credit issue, and let's move this stimulus issue to the side, way to the side, until we deal with this.
WALLACE: Mr. Zandi, as someone who works closely with the markets, do you think that big private investors will be willing to partner up with the government to buy these toxic assets?
ZANDI: Yeah, sure, if it's — if it's profitable enough, and it sounds like the way this is being set up, it certainly will be.
In a sense, the — the government is going to lend money to private investors, and the interest rate's going to be quite low, and also the government's going to shelter the investors from any downside risk. So if it is organized well enough, I think, yeah, you'll get a lot of private investors. I mean, I know out of the ashes of Lehman Brothers, and Bear Stearns, and Merrill lynch, a lot of companies have been formed, hedge funds and other investor groups have been formed.
They're waiting to understand what this program is all about and — and how it works, and — and once they do, they will come in and they will buy.
And in fact, I do think Senator Corker is right. I don't think stimulus by itself is the answer. In fact, the most important thing is shoring up the banking system, the financial system. And the TALF that he mentioned is very important. It's already begun. It seems to be working reasonably well.
And the private-public bank, the idea that the Treasury has, is also a reasonably good idea. Now, there's a lot of details. We don't know a lot about how this is going to work yet, but at least in theory, it's quite an elegant plan, and I think there will be investors, yes.
WALLACE: Gentlemen, I want to move on...
FRANK: Chris, Chris, excuse me, but can I respond to Bob Corker's partisan attack in the name of partisanship? Because the fact is nobody in the administration or on our side in Congress is focusing on the second stimulus. We only answer that when we are asked about it.
As far as being partisan, I was asked about the AIG bonuses. The fact is that these are commitments that were apparently made during the Bush years. There is a difference between the way the Bush and Obama administrations have imposed conditions. That's just a fact.
But this notion that, "Oh, stop focusing on the stimulus," we're not. My committee, the committee that I chair — we are focusing on the credit issue. Mr. Geithner is.
WALLACE: Hey, Congressman?
FRANK: Here's the kind of Catch-22.
WALLACE: Congressman, can we — can we turn to the — because I know you always like to talk substance. Let's talk about the budget.
FRANK: Well, I do want to rebut a false charge that we have somehow focused on the stimulus and not credit. That simply is inaccurate.
WALLACE: Well, the problem with that — you know, now I can — I can give — I can give Senator Corker — I was trying to stay on substance. Let's...
FRANK: Well, Chris, if you want to, then don't let political attacks go...
WALLACE: Well, you know, I can't...
FRANK: ... because they're simply misleading.
WALLACE: You know what? Go ahead, Senator Corker.
If you'd rather get into a food fight, Senator — Congressman Frank, let's go ahead.
Go ahead, Senator Corker. Do you want to talk about the budget or do you want to get in a food fight?
CORKER: I'd love to talk about the budget. And I would go back to what Mr. Goolsbee said earlier, talking about health care. There is a $600 billion gap that the administration has pointed out.
No doubt they're very open to taxing benefits of Americans on health care because that's how they're going to fill the gap. So I'd love to talk about the budget.
WALLACE: All right. Let me ask — let me — let...
CORKER: And the fact — and let me just say this. On the budget, I would like to say that I think it's interesting when a lender — when your lender starts being concerned about where you are — I know this from years in business — you better be very careful.
Our biggest lender, China, is very concerned about this budget, very concerned about where it's taking our country, very...
WALLACE: Senator, I'm going to get to that...
CORKER: ... concerned about our ability to pay it — pay it back.
WALLACE: I'm going to get to that in a second.
WALLACE: I want to — I'm really going to do a lightning round and get you to give me quick answers, you and Congressman Frank.
This idea of taxing health — employee health benefits — Congressman Frank, you like the idea or not?
FRANK: No, I don't. I'm for a single payer health care system like Medicare.
I would say this. If we have an adequate health care system in place and it covers people's needs, if some separate group of people want to make some separate arrangement for luxury benefits, that might be something you look at.
But no, that's not what I would like to see and that's not what I'm for. I'm for a general health plan that's — looks like the Medicare plan for everybody.
WALLACE: Senator Corker, health care benefit taxes?
CORKER: Look, I — I — I want to see what's proposed. I — I want to see a private system that gives people affordable, quality health care and choice, and I'm just watching as this evolves.
I've developed my own plans in the past which give people that ability. I — I'm watching and certainly seeing what Max Baucus presents on the Senate side.
And finally, Mr. Zandi — and we've got only — I can only give you 30 seconds. I'd like you to respond to Senator Corker on this issue. The Chinese have raised concerns about the safety of their investment, and they own about a quarter of all U.S. Treasury debt. How worried should we be about that? Thirty seconds.
ZANDI: Well, we — we should be worried. Half of all our Treasury debt is purchased by foreign investors. Chinese are a big part of that. I think, though, that this is — their concern is in the long run.
I think in the very near term, we have to be aggressive and use government resources to shore up the economy in the next two, three years, but then immediately turn to reducing the size of our long-term budget deficits, because if we don't, investors like the Chinese will turn away, and we will face measurably higher interest rates and a much weaker economy.
WALLACE: Congressman Frank, Senator Corker, Mr. Zandi, I want to thank you all so much for helping us sort through where things stand with the economy. Thank you, gentlemen.
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