The following is a partial transcript of the Jan. 27, 2008, edition of "FOX News Sunday With Chris Wallace":
"FOX NEWS SUNDAY" HOST CHRIS WALLACE: And hello again from Fox News in Washington. Well, the Bush administration and the House have come to terms on a $150 billion deal to boost the economy. But the checks to more than 100 million Americans are not yet in the mail.
Joining us now is the president's chief negotiator with Congress, Treasury Secretary Henry Paulson.
And, Mr. Secretary, welcome to "FOX News Sunday."
PAULSON: Chris, it's good to be here.
WALLACE: As we said, you've got a deal with the House, $150 billion in tax cuts to businesses as well as individuals, but now you've got to get it through the Senate. And there, both Senate Republicans and Democrats want to make some changes.
Take a look at a list of those changes. They're talking about adding on extended unemployment benefits, more for food stamps, money for heating assistance, more aid to the states for Medicaid, some infrastructure projects and some other ideas as well.
Mr. Secretary, is there anything on that list you just saw that's a deal breaker?
PAULSON: Well, Chris, the way I look at it is the American people have got to be pleased by the bipartisanship that was exhibited this last week. It was on display.
And they've got to be pleased that we reached an agreement quickly. I don't think the Senate is going to want to derail that deal. And I don't think the American public is going to have much patience for anything that slows down this process of getting money into our economy.
WALLACE: Are there some ideas that we saw in that list that would derail the deal?
PAULSON: Chris, the key here is keeping the deal simple, keeping this simple. Complexity is our enemy right here. Once you start adding things, it's a slippery slope, and the process could quickly bog down and screech to a stop here.
WALLACE: Let me ask you about this in a political sense, though.
WALLACE: Given the political momentum behind the deal, everybody wants this package to pass.
WALLACE: Won't the president have to sign whatever comes out of the Senate? Wouldn't a veto be politically impossible?
PAULSON: Listen, I don't want to cast a shadow on this rare bipartisan moment here, but I'm going to look at it the other way.
I'm going to look at it and say, "We've got something that has got support on both sides, a bipartisan agreement, an agreement that will get money into our economy quickly."
And I believe that the House leaders were very decisive at keeping it simple, and I believe and I'm optimistic that the Senate leaders will be so — do the same.
WALLACE: But are there some lines? In other words, if you put any spending in the bill, does that gum up the works?
PAULSON: As I said, I don't want to cast a shadow on this bipartisan moment. I really don't. But remember, this is a slippery slope here.
This deal has got balance. It was able to get the support of both sides of the aisle in the House. And trust me, I looked at that list you put up on the screen of all these ideas. Those are not new ideas.
They're the same ideas we saw in the Senate — excuse me, in the House — the same ideas. And some of them have got virtue. Some of them have got some merit to them.
But I will tell you, this was a carefully crafted agreement. And once you start adding to it and making it look like a Christmas tree, it's going to slow down the process, and it's going to slow down what the American people want, something that's going to work quickly.
WALLACE: Let me ask you about another aspect, not those specifics, but just overall. The package that you agreed to with Congress is $150 billion. The Senate clearly wants more.
Is there an upper limit? Is there a point at which you would say that this package is too big and too inflationary?
PAULSON: Well, I think we've got an optimum size here, because we've got a package that's big enough to make a difference in our economy this year, and it's not so big that it flies in the face of some of the longer-term priorities and very important long-term priority of balancing the budget.
This is a fiscally responsible package, but the one that will make a difference this year in the economy.
WALLACE: Now, one part of the deal that you admit that you don't like, even though you agreed to it, is allowing government-backed mortgage finance operations like Fannie Mae and Freddie Mac to make loans, bigger loans on bigger mortgages, without reforming the way that they do business.
Let's take a look at what you said about that.
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PAULSON: I got run down by a bipartisan steamroller. I mean, Republicans and Democrats were united on this.
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WALLACE: Question: Isn't there a danger that with this reform, with allowing Fannie Mae and Freddie Mac to take on bigger mortgages, that U.S. taxpayers could end up having to bail out and foot the bill if some of these mortgages go into default?
PAULSON: Chris, that's why it's very important that we get reform of Fannie and Freddie, and one of the things...
WALLACE: But there's no reform in this package.
PAULSON: No, there's no reform. Remember, this package is short term, and this is something that's stimulus.
But I will say Barney Frank is very committed, as is Chris Dodd, in the Senate to getting GOC (ph) reform. My concern was that if you took out the temporary increase in the loan limit, which — for the viewers, just to explain, what this does is would allow Fannie and Freddie to securitize mortgages above conforming mortgages, $417,000.
Now, that is inconsistent with their mission, which is aimed at affordable housing, and that's high-end housing. But I...
WALLACE: They're now going to be able to go all the way up to $700,000.
PAULSON: Yes. And I don't question that there is an advantage to doing that right now, because that market is not performing as normal. So this would be a temporary increase, only until December 31.
But my concern was that if you took that out of the reform process, we might not get reform. Now, I was encouraged because, you know, Barney Frank and the House already have legislation...
WALLACE: Head of House Banking.
PAULSON: Yes, House Banking, that would — legislation that will work, and the — you know, the Senate Banking Committee, I think, has been very constructive recently, and Chris Dodd assured me last week that he's going to work toward reform there.
But you're right. The risk you cited is a risk.
WALLACE: The risk that the U.S. taxpayer could end up having to...
PAULSON: The risk that if we separate raising the loan limit, even for a temporary period, from reform, we may not get the reform, and that reform is essential, I believe, to protect the U.S. taxpayer.
WALLACE: Let's take a bigger look, beyond the package, at the state of the economy. Martin Feldstein, who is one of the Republican gurus on the economy, said this week — and let's put it up — "I believe that the probability of a recession in 2008 now exceeds 50 percent. If it occurs, it could be deeper and longer than recessions of the recent past."
Is Professor Feldstein overstating the situation?
PAULSON: Listen, I've got a high regard for Marty Feldstein. What I've said is that the U.S. economy has slowed down rather significantly at year-end. It grew, as you know, at 5 percent in the third quarter.
I believe that the rate of growth is going to be much slower, but I believe the economy is going to continue to grow.
But again, rather than debating this, we all acknowledge the risks are to the downside, and the cost of doing nothing is too great. That is why it is so important that the Senate move very quickly to pass this bipartisan agreement.
WALLACE: If you get this package, if it goes through and is signed by the president by March 1st, what impact do you think it will have on the economy in terms of growth, in terms of jobs and, going back to your former life, the effect on the stock market?
PAULSON: Well, let me start off and say I hope it's passed by the Presidents' Day recess. That's a goal that Senator Reid has set.
But again, if it's passed very quickly by the Senate, I think we're going to be able to move quickly and get the money out into the economy by May, and I think that's going to make a very big difference.
Starting in May, a lot of this — the checks available to people by midyear — and I think that will boost jobs, boost GDP growth, make a difference in the economy this year.
And what I think will be important to the markets will be to see one in a row, you know, to see everyone coming together working quickly to get something done in Washington.
Bipartisan agreement implemented, I think, will show the American people that Republicans and Democrats are putting the economic security of the American people ahead of their own political interests.
WALLACE: The conservative editorial page of the Wall Street Journal dismissed the stimulus package on Friday in an editorial called "Re-election Stimulus."
And I want to put up at some length what the Wall Street Journal editorial said. "We doubt it will help the economy much, if at all, but then the real point of this exercise is to stimulate voters into absolving the political class of any blame for a recession."
The editorial goes on, "The most this temporary tax cut will do is goose consumer spending for a quarter or two this year. Since the IRS is saying it won't be able to cut the checks until midyear, any recession might well be over if it even begins. The money to pay for these rebates has to come from somewhere, which means from other taxpayers or from bondholders who lend money to the treasury."
Mr. Secretary, other than that, the Wall Street Journal loved the plan.
PAULSON: Right. Well, I'd like to respond in a couple ways here. First of all, this is temporary. We're dealing with making a difference this year, helping and supporting the economy this year.
If the Senate passes a program quickly, we will be able to do something that will make a difference this year. And it will add to jobs this year. It will add to confidence this year in the markets.
Now, I understand that the Wall Street Journal and many conservative economists — and I agree with them — believe that the most important thing we can do, intermediate and long term, are keeping taxes low, doing things that make a fundamental long-term difference.
You know, I came to Washington hoping to have a chance to really make progress on some major structural issues — Social Security reform, Medicare reform. Those are all very, very important — doing things that are going to increase the savings rate of Americans.
But what we're talking about here is something that's very different. It's something that's on a separate track. And it's something that can make a difference this year to our economy and help cushion the impact of the housing downturn in our economy, high oil prices on our economy, keep the economy growing and create jobs.
WALLACE: The Bush administration is also getting hit for being late in dealing with this problem in the first place. Here's what you said starting just four months ago. Let's watch.
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PAULSON: U.S. economic fundamentals are healthy, unemployment is low, wages are rising, and core inflation is contained.
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(BEGIN VIDEO CLIP)
PAULSON: I have said repeatedly that I believe that this economy is going to continue to grow.
(END VIDEO CLIP)
WALLACE: Mr. Secretary, weren't you slow to realize that — just how much of a drag the subprime situation and the credit crunch would have on the economy?
PAULSON: Chris, I don't mean to sound offensive here, but I still believe the economy is going to continue to grow. That sound bite you played was very accurate.
I think this administration has been all over this situation, beginning in — quite early this summer with a program that was very proactive in dealing with the housing situation and the drag that puts on the economy.
Matter of fact, when I talk with economists, many of them make exactly the opposite point. They say, "Why are you pushing so hard for a stimulus package when it is not at all clear that this economy is going to stop growing?"
WALLACE: Well, that's a good question.
PAULSON: We don't have the evidence.
WALLACE: Why are you?
PAULSON: I'm saying because we see the risk to the downside and we're trying to do something that is unprecedented, which is move quickly to get ahead of this situation.
Fiscal stimulus is not a precise tool, and so what we're doing is doing everything we can to minimize the risk.
WALLACE: Finally, and I know this predates your time in Treasury, but shouldn't Washington — and I'm not just saying the White House; the White House, the regulatory agencies, Congress — shouldn't they have stepped in years ago when the housing bubble started to restrain the sale of risky mortgages to people who didn't understand them?
PAULSON: Chris, hindsight is 20/20. What I want to do is leave history to the historians and look forward. And my focus is on two things.
First of all, when we look at housing and we look at what's going on in the capital markets right now, do things that are going to minimize the spillover to the real economy and protect Americans from as much of the downside as possible.
And then we need to be thinking about how to put policy actions in place, regulations in place, that minimize the likelihood of that happening again.
And I will tell you I'm working very hard on this right now with the President's Working Group on Financial Markets, looking at the mortgage origination process and how to change that, looking at the process that determines how mortgages are securitized and figuring out how to change that, looking at issues involving the rating agencies.
WALLACE: I didn't mean to cut you off.
PAULSON: That's OK.
WALLACE: But I want to thank you so much for coming in today, telling us where things stand. And as this continues, please come back, sir.
PAULSON: I look forward to it. Thanks.