This is a rush transcript from "On the Record," November 8, 2011. This copy may not be in its final form and may be updated.
GRETA VAN SUSTEREN, FOX NEWS HOST: OK, first, you paid in $170 billion in bailout for Fannie Mae and Freddie Mac. The last week Freddie asked you for $6 billion. Next, multimillion dollar bonuses got approved for top executives. And tonight we learn that Fannie Mae is again asking you for more in a bailout, $7.8 billion more. Senator John McCain is so angry he took to the Senate floor to fight back. We spoke with Senator McCain earlier tonight.
VAN SUSTEREN: Senator, nice to see you, sir.
SEN. JOHN MCCAIN, R-ARIZ.: Thank you.
VAN SUSTEREN: I watched the video of you on the Senate floor quite passionate about this 12.9 million dollar bonus to the executives at Freddie Mac and Fannie Mae. Why can't you all just stop this?
MCCAIN: I think we're going to have to. We're just trying to find a vehicle. I'm glad to see that Senator Rockefeller many others, we're all in agreement. It's outrageous.
Greta, the excuse that they're using is that somehow that Fannie Mae has done such a great job. Well, we have other people who serve in government who do great jobs as well, and Fannie and Freddie Mac are owned by the taxpayers today. We paid $190 billion already it's cost the taxpayers, and there's about $50 billion or more to come. So to somehow assume that people can't do their job correctly without millions of dollars in bonuses when every day we have men and women who are serving, some who are putting their lives on the line, they're not getting millions of dollars worth of bonuses. And somehow, the overseer, a man named DeMarco, somehow said this is a good idea. He should be fired.
VAN SUSTEREN: The thing that I didn't get was first of all, one of the executives gets $900,000 a year.
MCCAIN: Which is more than any civil servant or anyone else.
VAN SUSTEREN: There's no question about it. It's a significant sum of money. But what was so stunning is DeMarco said if they don't give bonuses that we're not going to attract so-called good people to the job to replace them, which is bizarre to me at $900,000, but secondly is that you say they're doing a good job or someone does. They've asked for more money in the bailout, I think $5 billion or $6 billion. I have a hard time understanding how if you need more of a bailout, we can say that you're doing such a fabulous job that you should get a bonus.
MCCAIN: They had the exquisite sense of timing to ask for $6 billion at the same time they were announcing these bonuses. By the way, if they're doing such a great job, I wonder why nearly half the homes in my home state of Arizona are still underwater, in other words, worth less than the value of their mortgage if they've been doing such a great job that deserves millions of dollars in bonuses. This is what makes Americans cynical about their government, and I'm sure that Congress gives them plenty of reasons to feel cynical, but this is just beyond it.
VAN SUSTEREN: Who is DeMarco? This man, Mr. Demarco, is appointed by the president. He has had many government jobs in Republican administrations as well. But it's sort of appalling that he has his fingers on the purse strings of such enormous sums to gratuitously grant bonuses. Is there no one who oversees that can simply block it or do you have to go through some procedure?
MCCAIN: Well, I've been told that Treasury Department also had to sign off on it and has signed off as well.
VAN SUSTEREN: So Secretary of Treasury Geithner has in theory signed off on this?
MCCAIN: That's what I was told, the treasury. I don't know if it got to his level or not. He's a busy man.
It's just symptomatic of the reckless behavior. Gretchen Morgenson's book called "Reckless Endangerment," Michael Lewis' book, "The Big Short," they talk about this misbehavior at Fannie and Freddie, especially Fannie, all during the 90s and into 2000, and this guy Johnson made huge millions and millions of dollars in bonuses while they were scamming the American public and the regulators.
I mean, it also is indictment on members of Congress. They were part of this whole deal, and it was just a Ponzi scheme that could not last. In Scottsdale, Arizona people were buying two and three houses, leaving them empty and flipping them a year or two later because it was so easy to get money to make money.
VAN SUSTEREN: What I don't understand. I mean, everyone is appalled at these bonuses. Everyone will tell you, $12.9 million being divvied up among executives, everyone is scandalized when they get these huge salaries to begin with. What I don't understand is if it had to go through layers, DeMarco, why wasn't he scandalized? We managed to find the few people in the United States who had the authority to do this? Why didn't they think it was horrible?
MCCAIN: It's the mindset and the culture. It's the culture. This is the same outfits that gave hundreds of millions of dollars in bonuses that put us in a hole at least $150 billion that we've paid of taxpayers money to try to get us out of the hole that they dug, $6 billion more as we mentioned. Now there's estimates of another $50 billion. The numbers are staggering. If you're talking about that amount of money, what's $10 million or $12 million or so for bonuses because they're doing such great job? I mean, it's --
VAN SUSTEREN: There's just no means to go to this guy, nobody has the authority to say absolutely not? You're not going to do that? Can the president do that? Is there anyone who can just say no or does DeMarco have the authority?
MCCAIN: I think the president could say no, but I am very confident that Congress will act. I really am.
VAN SUSTEREN: Doing what?
MCCAIN: Just saying no.
VAN SUSTEREN: How do you act? What do you do?
MCCAIN: You pass something and say no funds shall be expended to pay these bonuses.
VAN SUSTEREN: The letter went out Friday. I would have done it Thursday or at least Monday or Tuesday. What's the delay?
MCCAIN: I think the next vehicle that's up on the floor of the Senate hopefully we can get it agreed to. But that would require Senator Reid to agree. I'm not sure he would disagree, by the way. I think he would more likely than not agree.
VAN SUSTEREN: Straight ahead, more with Senator McCain and a new threat he says the United States is facing from China. That's coming up.
VAN SUSTEREN: A warning tonight about a dangerous problem with China. Here's more with Senator John McCain.
VAN SUSTEREN: I read that you are, I don't know if the word is "upset," but you're concerned about the fact that the United States defense equipment is being made in China and it's sort of scrap metal and it is counterfeit and false serial numbers. What's the story on that?
MCCAIN: It's mainly computers and chips. And there's a place in China where it really is an industry where they just tear down these computers and they take the chips and they wash them in the river and then they put phony dates on them if necessary.
And through different shell companies they get to our defense department who purchases them, and then they're put into our missiles and airplanes and other pieces of the inventory, parts of the inventory and they're put into them. Of course, they're going to fail earlier if they don't -- even if they're no good to start with, they'll fail earlier. They're unreliable.
And it's a really serious problem. I mean, there are hundreds of thousands of these chips and other computer parts that are -- that find their way into our defense equipment, into our inventory. And it's really -- it really can be harmful and could prevent us in an extreme case for our equipment to be able to work in combat.
VAN SUSTEREN: It seems to me something so important as national security, can't we get parts from people who are on the team? I mean, do we have to go someplace else so that we can do quality assurance? I mean, we really can't build these ourselves so that we know what we're getting and so we make sure that it's good material, that it's not junk? I don't know if you can phony up or sabotage it, whatever it is, but we'll get it from our own team?
MCCAIN: Part of the problem is some of these parts are no longer manufactured by the original manufacturer. The second problem is that we have a program to help, try to help, and it's a good program, try to help small business people.
VAN SUSTEREN: In China?
MCCAIN: No. They have these companies and they buy these chips and then they resell them. And as Senator Levin pointed out, it goes through as many as four or five different companies before it ends up in the company or corporation that actually installs them.
VAN SUSTEREN: Can we ensure quality assurance? I know we want to help small business, I got it. Maybe we can do this instead of going to China to get the parts. There seems to be a better way to do it for something so important as our defense computers.
MCCAIN: There's far better ways of doing it. The first thing is to tell the Chinese to stop. Of course they deny that they're doing it. We tell the Chinese to stop it. But then, of course, we have --
VAN SUSTEREN: That's not going to work. If they did, are you going to believe any foreign national, no matter who it is, is going to say they told us not to do it, so we're not going to?
MCCAIN: Our missile defense agency is now installing more severe checks and requiring higher standards and testing, so I think we can fix it. But god knows how many thousands and thousands and thousands of these are in our aircraft, our computers, our missile defense systems. There's a lot of them washing around.
And the sustainability of the weapons system is very, very expensive. Sometimes it's as much as 60 or 70 percent of the overall cost of the system itself. If parts fail, then, of course, they're not operationally ready, but also then it requires additional spending to get them back up into operational readiness.
VAN SUSTEREN: Senator, thanks very much, sir.
MCCAIN: It's good to see you again.
VAN SUSTEREN: Nice to see you, sir.