The following is a rush transcript of the June 7, 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: With General Motors filing for bankruptcy and the federal government taking a 60 percent ownership stake, we want to address at length today how much government intervention is too much.

We brought in top leaders from the public and private sectors — Republican Senator Richard Shelby, presidential economic adviser Austan Goolsbee, investment banker Fred Malek, and from Mountain View, California, the chairman and CEO of Google, Eric Schmidt.

Before we get to our discussion of government's role in the private sector, Mr. Goolsbee, I want to ask you about the latest jobs numbers — 9.4 percent unemployment, 345,000 more layoffs in May.

A couple months ago, the White House projected unemployment was going to top out in September at no more than 8 percent. Are we now headed for double-digit unemployment, more than 10 percent?

AUSTAN GOOLSBEE, PRESIDENTIAL ECONOMIC ADVISER: I hope not, but you are right. The economy has clearly gotten substantially worse from the initial predictions that were being made not just by the White House but by all of the private sector.

In this report, minus 345,000 is a terrible number, but it's a substantial improvement from what the job losses have been. That's the smallest job loss since September of last year. So it's encouraging, but really bad.

WALLACE: What's your latest projection on how high unemployment will go and when it will peak?

GOOLSBEE: I try to stay out of the forecasting game. There are official forecasts, and the next update of those forecasts, I believe, are coming out in August. They matter for the — forecasting what the budget deficit is going to be, obviously.

I don't think there's any question it's going to be a rough patch not just in the immediate term, but for a little bit of time, because you've got to turn the economy around, and jobs and job growth tend to come after you turn the economy around, so it's likely going to be a little higher.

Now, one thing to note is the unemployment rate rose, despite the job loss figure coming well down and being well lower than expectations, and that is because there were a number of people who had dropped out of the labor force because they were discouraged workers.

When you start to see a little bit of possibility that you can get a job, you're going to see a bunch of people enter the labor force looking for work. The unemployment rate's going to go up a little more.

WALLACE: All right. Let's get to our main topic, "Government Motors," big financial stakes, big bailouts for all the financial companies, a public health plan.

Senator Shelby, you say that the Obama administration is taking us down the road to socialism. Explain.

SEN. RICHARD SHELBY, R-ALA.: Well, obviously, so they interviewed last fall in the bank crisis. No one has ever done it on that scale before. Now the automobile crisis — now, Bush — you have to go back to the Bush administration. They started it.

Now you're talking about a massive health care plan while we're trying to right our economic ship. I believe that there's no doubt that we're going down to government intervention everywhere, government ownership, unprecedented in this country.

And it's the wrong road and it's a road — and it's a slippery slope.

WALLACE: Let me bring in Fred Malek, though.

The president says that he has no interest in running businesses. He's just trying to save them from collapse and then get out. Let's watch what he said:


PRESIDENT BARACK OBAMA: I don't want to run auto companies. I don't want to run banks. I've got two wars I've got to run already. I've got more than enough to do. So the sooner we can get out of that business, the better off we're going to be.


WALLACE: Fred Malek, in the middle of a financial crisis, in the middle of a terrible recession, could the president really let General Motors and Chrysler, AIG and Citibank go under?

FRED MALEK, INVESTMENT BANKER: I think you have two different situations here. Look, at a time of peril like we had in the War on Terror, abandoning our principles and torturing is wrong.

At a time of economic peril, abandoning the principles that have made us the greatest economic engine in the history of the world is equally wrong.

And I think what you have here is you have two different situations. I would label the injection of capital into the financial institutions, to stabilizing the financial system — that's a war of necessity. You had to do that.

But giving it to General Motors, saving General Motors and then taking them into bankruptcy — that's a war of choices, the wrong choice, and I think you're going to have political involvement in General Motors going forward.

It's going to decrease the competitiveness rather than increase it, and I think it's going to hurt the American people.

WALLACE: Eric Schmidt, I want to put something up on the screen that you said just last week. Let's take a look. "The last thing you want is the government in your boardroom telling you what to do."

But let's take a look at what has happened with General Motors. The government is telling General Motors not to import small cars from China but to make them here. We had the spectacle this week of senators bringing in the heads of General Motors and Chrysler and haranguing them not to close dealerships.

For all the talk about not micromanaging, isn't that exactly what the government is doing?

ERIC SCHMIDT, CHAIRMAN AND CEO OF GOOGLE: Well, it depends on what they actually do. At the moment it's all just posturing. It seems to me that what choice did we have except try to save General Motors, given the roughly million jobs that were related at a time of incredible pain and job loss. So think about it. The choice was bankruptcy, the supply chain goes away, the loss of the American automobile industry, or a Band-aid. It needs to be a Band-aid, and it needs to be something which we get out of.

Private capital is the — is the source of jobs in our country. And I can't imagine that we want to own these companies very long.

WALLACE: But, Mr. Schmidt, it isn't just a question of making speeches. I mean, you had Barney Frank, the head of the Financial Services Committee, call General Motors this week and save a G.M. warehouse in his district in Massachusetts.

As part of the deal, the — General Motors agreed, and the government pushed them, that they're not going to continue to make some small cars in China. They're going to make them here to protect jobs for the UAW. So this is, forgive me, industrial policy.

SCHMIDT: Well, again, in the first place, these are highly regulated industries, as we know, and so this is just another example of the kind of regulation people are doing.

At the end of the day, this will hurt their competitiveness and they're going to have to stop it. They're going to have to run as a private company. They're going to have to shed the dealers, unfortunately, and all these painful steps that they should have done 10 years ago, which is what got them into this situation in the first place.

WALLACE: Mr. Goolsbee, I'd like you to follow up and join this conversation, but I also want you to talk about the clash between policy and profits.

The government wants General Motors to make small cars, fuel- efficient cars, while all the indications are that, according to the market, the cars that they make the most profit on are SUVs and pickup trucks.

So which takes precedence, profits for the taxpayer shareholders or environmental policy?

GOOLSBEE: Look, the president made totally clear in his remarks — and he specifically said, "We are not going to be in the business of telling General Motors or anybody else what kind of cars to make, where they should open their plants or anything of the sort."

The president made clear we want to get out of this as quickly as possible. We are only in this situation because somebody else kicked the can down the road, and that's really an understatement.

They shook up the can. They opened the can and handed to us in our laps — Senator Shelby knows that to be true. When George Bush put money into General Motors, almost explicitly with the purpose — how many dollars do they need to stay alive until January 20th, 2009, there was no commitment to restructuring, to making these viable enterprises of any kind. They made none of the serious sacrifices. And Republicans in the Senate attached a list of conditions. They opposed George Bush's intervention because they said the unions had not made the following sacrifices.

In the Obama plan, it asks more and received more from the unions and from the other stakeholders than the people that objected to the bailout last November asked for. So we have finally put them on that path.

WALLACE: Let me bring Senator Shelby into this.

SHELBY: First of all, I advocated last fall that General Motors' and Chrysler's best bet would go to Chapter 11 then. It would have saved a lot of money — not a political restructuring, like what's happened, where the bondholders have been sacrificed. The unions have carried the day.

You've got a combination now, the unions and government, government ownership in General Motors — the majority — and the — and the unions. I don't see a good model to make money for these companies to survive down the road.

WALLACE: Fred Malek, you're in the business world. Do you see micromanaging going on here by not only the White House but also by 535 senators and Congressmen?

MALEK: Well, I think — I think by the White House, certainly. I agree with Senator Shelby. Look, we've had — for decades we've had a bankruptcy system in this country that has worked well and has fueled the free enterprise system in a positive way. It is impervious to politics because it's run by the federal courts.

Now what have you done? You've taken it out of the judicial and you've turned it over to the executive, and I think you've injected politics into it.

Senator Shelby is right. There was no sense in putting billions of dollars in and then declaring Chapter 11 afterwards. They should have gone in — let them go into bankruptcy and let the courts work it through.

What this amounts to is a bailout for the unions at the expense of secured creditors, and it's broken contracts with secured creditors. It's treated the unions more favorably. And I think — let's watch.

Let's listen carefully to what Austan said. I respect his judgment. But let's watch what they do and not what they say. And what they do is going to be...

WALLACE: Let me — let me — let me just ask, Mr. Goolsbee, if at some point either the Bush administration back in the fall or you guys when you took over had just said, "Go into Chapter 11, we're not going to take an ownership stake, we're not going to give you $50 billion," what would have happened?

GOOLSBEE: At that time or now? They're going into bankruptcy. With Chrysler, they're going through bankruptcy.

WALLACE: I understand, but...

GOOLSBEE: The issue is...

WALLACE: ... if you'd done that before you gave them 50 billion...

GOOLSBEE: ... if you had tried to put them in bankruptcy — look, Senator Shelby may be correct. I don't know why the Bush administration simply handed them money and shoved the problem on to the next guy.

But in the circumstance that the president faced, the — if the alternative is immediate liquidation of these companies in the midst of the worst recession since 1929, it does seem that that is something we ought to take into account.

In Chapter 11, where you're trying to do restructuring — that is precisely the form that this restructuring is taking. I completely disagree. If you look at the facts, this is not a circumstance where they've handed everything to the union. All the stakeholders have made sacrifices.

The unions and workers have made major cuts. They — they're facing tremendous additional layoffs. They had wages cut, benefits cut. They had restructuring of their pension and health obligations, and they made more sacrifices than, as a comparison, in the steel industry, where there was no government involvement.

WALLACE: Let me — let me bring — let me bring in Eric Schmidt out in California.

Mr. Schmidt, as a businessman, when you see the bankruptcy deal that the government worked out where the union ended up with, I believe, 17 percent of the company, and the bondholders, who had $30 billion in debt, end up with much less, as a private investor what message would that send you?

SCHMIDT: Well, the question here is whether they're going to be able to raise money in the capital markets in the future, and I don't really know.

I worry about any one group having too much influence over this outcome — politicians, the unions, the employees, what have you. This needs to be a competitive global business.

My concern about General Motors was that the costs needed to be pared a long time ago, and they were paying the penalty now. Both the Bush administration and now the Obama administration — actions were late relative to what should have been done by the private sector.

It was a failure of the private sector that got into this. We need to get back to getting people who want to run a business and make money. The sooner we do that, the better.

WALLACE: Senator Shelby, let's turn to another aspect of that, and that is financial bailouts. You don't like them. You voted against TARP. But I want to put up some numbers that are very current.

The Dow Jones closed on Friday at 8,763. That's up 34 percent from the low in March. And the Obama administration is expected to announce this week that some of the major banks may be able to repay up to $50 billion of that TARP money.

So when you used to say not so long ago, "Let's let some of these big banks fail," were you wrong?

SHELBY: No, I was not wrong. I think some of the banks could have failed, not without pain. Failure is always painful.

But you take Citicorp — Citicorp's been a sick institution a long time. This is about the third time they've been in trouble. They keep downsizing. They're going to have to downsize more. They're under fire right now.

Would the world have come to an end if they closed one of these banks or two? No, it wouldn't. We would have been better off...

WALLACE: Even Citicorp, with all of its...

SHELBY: Absolutely. We would have...

WALLACE: ... its connections all over the world?

SHELBY: I bet you we would have saved money of the taxpayers big time and sent a message to management that nobody's too big to fail.

Dr. Volcker's told us in the Banking Committee, testifying, a lot of institutions, financial institutions — probably too big to exist.

WALLACE: Do you — do you agree with that, Fred Malek?

MALEK: No, I don't. I think that you'd have a domino effect. Look, the Lehman — the Lehman bankruptcy started a kind of a domino effect. We had AIG. We had Fannie. We had Freddie.

I think if we let Citicorp fail, and all due respect to Senator Shelby, who I greatly respect, I think you could have had a domino effect that could have eroded confidence in the United States financial system, and you could be facing even a greater crisis today.

So that — as I said earlier, that was something that you had to do. It's not like these other things that you don't have to do.

WALLACE: Mr. Goolsbee, the latest news is that the administration is about to name a pay czar to ensure that companies that receive federal bailouts meet what are going to be new executive pay guidelines. In fact, there's even talk that the administration wants to set up a — new rules, new regulations, for the entire industry that would ban pay plans that are seen as rewarding risky behavior. True?

GOOLSBEE: Look, the — everyone knows that we've got into a situation in the run-up to this financial crisis where — and Senator Shelby, to his credit, identified it early. There were a number of leaders that identified it, and Senator — then-Senator Obama was out front — that too much of the mentality was, "I want to get my pay even if that means doing something that's going to undermine the company, doing something that's going to undermine the financial system."

And we want to get away from that mentality, that pay should be tied to long-term performance and that pay should be based on...

WALLACE: But why should government be telling — I mean, because you're saying...

GOOLSBEE: In this case, the government...

WALLACE: If I may, you're saying...

GOOLSBEE: ... is laying out...

WALLACE: ... you're saying — Mr. Goolsbee, you're saying not only a company that's accepting federal money, but even one that isn't — that the government is going to set pay guidelines and you're going to have a pay czar ruling on what's an appropriate pay structure or not?

GOOLSBEE: Well, I think you may be mixing a few things. One, it's totally clear that if the government is saving your bacon and giving you money that they have some input on whether you're wasting the money or what you're doing with the operation. I don't think anybody disputes that.

The purpose is to set up clear rules ahead of time so that we don't get into situations where people say you're changing rules after the fact.

On broader pay issues, the president has always been in favor of things like "say on pay" legislation so shareholders could have a say on the pay that the executives at their companies are behaving in, and there are a series of principles, best practices, that I think it's perfectly appropriate to put forward.

WALLACE: Okay. I know we could talk about that at great length, but we've got one other big subject to talk about, and it's going to be the big subject this coming week and for weeks to come in Washington. That's health care reform.

The president wants a public health option. Despite his opposition during the campaign, he now says that he's willing to consider mandates on individuals to get health insurance, on employers to pay for health insurance, as long as there's a hardship waiver. Senator Shelby, what's wrong with that?

SHELBY: Two things. One, we don't know how much it's going to cost and who's going to pay for it. Secondly, it will be the first steps in the — destroying the best health care system the world has ever known.

WALLACE: Why is that?

SHELBY: Because government — when the government's involved more and more in the details, and you start the one pay deal, and you've got the government competing with private enterprise, with all the incentives government has and the power, they will destroy the marketplace for health care, and it will be a mistake, and the American people better be careful in what they want.

WALLACE: I want to ask you two aspects of this, Mr. Goolsbee. First of all, the question of whether the public health insurance plan drives out all the private health insurers, and also the question about how you pay for it.

During the campaign, candidate Obama attacked John McCain for the idea of taxing health care benefits. Let's watch:


NARRATOR: McCain would make you pay income tax on your health insurance benefits, taxing health benefits for the first time ever.


WALLACE: But now the president tells Democratic senators he's willing to consider the idea of either taxing people who make a certain amount of money or taxing health care plans that are of a certain value. Isn't that a complete 180-degree policy flip?

GOOLSBEE: Well, let me say two things about that. Number one, that - - what the health care exclusion, as they call it — that was not in the president's plan.

Now, the president has committed that he's going to work with Congress, and — so they have put forward a whole series of ideas that he's willing to look at to do an achievable health care cost reduction and health care expansion for people who are uninsured.

But that's not the president's plan, so I think it's a little unfair to attribute to the president things that he did not put forward.

And the second is in...

WALLACE: But he's willing to accept it.

GOOLSBEE: He's willing to look at all sorts of ideas. That is not in his plan. It is not the president's plan that he put forward. The second is in the campaign, the McCain proposal, as you describe in that ad, moved from are the companies going to be paying taxes on the insurance to then shifting to let's have the individuals pay tax on their health insurance. And the president — I don't think it's a secret that the president has been and will remain highly concerned about how ordinary Americans are able to foot the bills on their — foot their tax bills.

That's why they put in a tax cut for 95 percent of workers in the recovery package. So he's clearly going to be mindful about that in health care.

WALLACE: Fred Malek, your thoughts about the benefits versus the dangers of a public health insurance component as one of the choices, and also what seems to be if not a flop, in the sense that he's offering it, he's willing to consider this idea of taxing benefits.

MALEK: Well, I think — I think there are two major problems beyond that, Chris, that I'd like to just address fairly briefly. One is the timing and two is the cost.

We should be focusing like a laser on this economic recovery in creating jobs. This health care bill does not do that. We should not be focusing on that. Plus, the health care bill, by their own estimates, adds over a trillion dollars of costs over the next 10 years.

At a time when we are mounting deficits and mounting debt that's greater than the total debt accumulated in the history of our country, this could only lead to inflation. It's going to have a bad ending. And we should put this off for a couple of years until the economy gets stabilized.

WALLACE: I want to get to debt as our last subject.

But, Mr. Schmidt, I just want to bring you into this debate about health care, because the president is talking about trying to get a health care plan on his desk to sign by October. We're talking about 18 percent of the economy.

There are some proposals floating around. The president has given us nothing more than principles. Is it realistic to do that kind of massive undertaking on such a short timetable?

SCHMIDT: Well, I hope so. And the reason is that businesses have a lot of trouble with the cost of health care, and health care costs will continue to rise. And if we delay for a couple of years, as has been discussed, the problem is the cost structure just gets worse.

The only way to really address this is to address the combination of coverage and cost. So anything that the Congress and the president does has to do that. And from my perspective, the sooner the better.

You won't fundamentally solve the problems in business until you solve the problem of spiraling health care costs, which is driving everybody crazy.

WALLACE: Finally, let's talk about the deficit and the economy.

As you mentioned, Mr. Malek, Fed Chairman Bernanke raised the concern this week that long-term deficits could choke off any kind of economic recovery and be very damaging to the economy.

Senator Shelby, how serious a problem are these trillion dollar deficits as far as the eye can see?

SHELBY: Very, very serious, the most serious that we've ever seen in America. And I'm glad to see the Fed chairman, after printing so much money, talk about deficits and so forth.

But I can tell you if we get to a $20 trillion debt, this country — and we're headed down that road — our ability to pay and service that debt is going to be questioned all over the world.

Just like some of the rating agencies have already begun to question the British for the first time, they will surely question ours, because we're the largest debtor in the world and growing by leaps and bounds.

WALLACE: Mr. Goolsbee, the national debt was 41 percent of the economy last year. Under the Obama budget plans, it would rise up to 82 percent — the national debt — 82 percent of the total economy in 2019. That's not sustainable.

GOOLSBEE: I will say two things about that. Number one, we know that in the short run, in the midst of the deepest recession since 1929, you don't try to tighten the belt at that moment.

We're talking about the longer run. In the longer run, the two major things that have happened in the forecasting of the budget are, number one, the economy's deterioration means that they're forecasting substantially lower revenues.

And importantly, number two, the Obama budget removed all of the budget and accounting gimmicks and put forward — here is the actual fiscal state that we face.

Now, compared to the actual policies that George Bush had in place, what they call the current policy baseline, Obama is cutting the deficit more than $2 trillion over the 10 years compared with what he was inheriting.

The only sense in which his budget is expanding the deficit is compared to the accounting gimmicks and things that nobody actually believed were going to take place, like the expiring of the tax cuts.

WALLACE: We've got less than a minute left.

Fred Malek, I'm going to give you the final word. Do you believe that?

MALEK: I don't. Look, this budget — this spending over the next four years counts on borrowing 46 cents out of every dollar the government spends. We got into trouble in this country as a nation by over leveraging in the private sector and amongst individuals.

So you're telling me the answer is to leverage the entire country by borrowing 46 cents on the dollar, 25 percent of which, as Senator Shelby points out, comes from China?

WALLACE: We're going to have to leave it there. Fred Malek, Austan Goolsbee, Senator Shelby, Eric Schmidt out in California, we want to thank you all so much for joining us today and participating in what I think we all agree is an important debate. Thank you, gentlemen.

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