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Special Report

Pitfalls of Finance Regulation; Arizona Suit Could Be Problematic for Democrats

The following is a rush transcript of the July 12, 2010, edition of "Special Report With Bret Baier." This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

BRUCE JOSTEN, U .S. CHAMBER OF COMMERCE: What we're talking about is a cascade of new regulations that are resulting from the financial reform bill, the healthcare bill, the pending energy climate change bill. It's going to take years, and that's where you get into the complete uncertainty realm, which is why capital ends up sitting on the sideline.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: I'm happy to compare the environment that business operates in now and the environment that they operated in, say, the end of 2008. I think corporate profits are a pretty good example of an increased business activity.

(END VIDEO CLIP)

BRET BAIER, ANCHOR: The White House says the White House, the administration is pro-business. Some business leaders are questioning that. The president had a business roundtable get-together, and here is what they said about the upcoming regulation coming out in all the bills, financial regulation, healthcare, et cetera --

"We believe the cumulative effect of these proposals will help to defeat the objectives we all share -- reduce unemployment, improving the competitiveness of U.S. companies, and creating an environment that fosters long-term economic growth."

What about that and the politics of the economy? Let's bring in our panel, Bill Kristol, editor of The Weekly Standard, Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer.

Bill, this is just days before the Chamber of Commerce jobs summit. As you heard there, the Chamber of Commerce had lobbyists saying all of these large pieces of legislation are raising uncertainty.

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: They are raising costs. The businessmen have gotten into talking about uncertainty, but there is a lot of certainty out there. The certainty is if Obama has his way, taxes will go up and regulations will be more burdensome. That's the fact and what the businesses small and large are looking at.

I, myself, am not a huge sympathizer with these big business lobbyists who played ball with the Obama administration, who think they can cut deals and then they look up in shock and discover this isn't going to be good for us. They should be more a principled defender of the limited government.

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC

RADIO: That's true. Look at all the industries that made deals on the healthcare bill. Health insurers decided they would happily take a cut in their profit margin if they made it up in volume with the 30 million new customers that universal coverage theoretically promised them. So they made a big deal. So did big Pharma.

I think in terms of the financial reform bill, the banks got off pretty light. They'll going to still be as big as they want to be. They won't be allowed to fail if they're too big.

There is a problem. There is a capital strike. They are still sitting on $1.8 trillion of cash and not investing it, and that's a real problem. I don't think they are doing it to make a point to the Obama administration, but they certainly aren't investing it, and that's a problem for the economic recovery.

BAIER: Charles, the White House is making the point that the economic situation for business is better now than it was in October of 2008. That's when the bottom fell out.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Every question they get on the economy, their answer is "Bush drove us into a ditch." I think they had to wear it on a t-shirt, and in that way they could have an interview and not have to say anything. They could have a sandwich while being interviewed.

It's no answer. It's also no answer to say big business is cynical and unprincipled. That's not news. But what is news is the administration is not just the cause but the uncertainty.

There are three major areas of corporations small or large worries about, healthcare cost, energy cost, and the cost of money. In each of these, the administration has or was planning regulations worth thousands of pages which are going to raise costs as we know but also are going to interact in ways nobody understands and they are going to create uncertainty.

If you are trying to figure out who you are going to hire and how many and no idea if you will afford the extra healthcare costs, you are not going to hire. With energy and cap and trade, you know it will increase the cost of energy and the cost of money.

The financial regulations are not going to check the big bank, but this consumer agency will regulate every lending from auto dealers to shirt makers. So every area, there is an increase in uncertainty and you know it will increase regulation. When you don't know what will happen, you won't investment. And we are having a capital strike.

BAIER: And for those keeping score at home for financial regulation bill, Republican Scott Brown said he will vote for it. We're waiting on Republican Olympia Snowe. Her vote could bring the number for 60 for cloture and move this thing forward, and everyone is thinking it is heading in that direction.

Mara, what about the politics of all of this heading into November? We get the debt commission coming out saying the debt is a cancer and there are all these ideas floating around for possible tax increases. What about that?

LIASSON: I think spending and the debt and deficit is a huge issue now with the public. It's really flipped. In some polls, it's above terrorism as a threat to national security. Even the United States military has come out and said that.

So I think it's a huge issue on the campaign trail. I think after November it's a number one issue in Washington. I think the debt commission is likely to focus first on Social Security. There are a lot of things that need fixing, entitlements in general, but Social security is the easiest thing to solve.

And you do have a kind of interesting consensus between Steny Hoyer, the number two Democrat in the house, and John Boehner, the number one Republican in the House in recent weeks talked about raising the retirement age for Social Security, somehow either means testing or taxing the benefits or reducing the benefits for high income seniors. So you have a place to start.

BAIER: As we were talking there, Republican Olympia Snowe from Maine just came out and said she will in fact support financial regulation reform. This vote right here gives Senator Reid, the Senate majority leader, the 60 votes he needs for cloture. So this will move forward and will be passed. Bill?

KRISTOL: It will be. I don't think it will help. I am very worried about the debt commission and that it will suck Republicans to accepting a tax increase. I'm very worried some Republicans think they should act in a lame duck Congress in December instead of insisting that a new Congress elected by the voters move on these issues.

Social Security reform is fine, but the debt has gone from $200 billion to $1.24 trillion in last three years and Social Security hasn't changed much. It's a trivial contributor to this. Let's deal with what is causing the huge debt, which is --

LIASSON: It's not only Social Security.

KRISTOL: Let's deal with the government spending, not have a phony deal on Social Security which will sucker Republicans in to accepting a tax increase.

LIASSON: But entitlements are the real problem.

KRAUTHAMMER: The big problem is Medicare and Medicaid. However, healthcare reform, Obama-care, which is now the law, locked it up and increases the deficit it causes, and it's no longer avenue of reducing the deficit. Any cuts in Medicare that are going to happen are siphoned off into a new entitlement. That is catastrophic.

BAIER: For those surfing the web while watching the program, go to show notes section on the home page at FoxNews.com/SpecialReport for the latest about the administration's challenge to the Arizona immigration law.

Up next, Democratic governors express grave concerns about that White House strategy.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ERIC HOLDER, U.S. ATTORNEY GENERAL: It is the responsibility of the federal government as opposed to states doing it on a patchwork basis to decide what it is the policy should be with regard to immigration. It is on that basis that we filed the lawsuit.

SEN. JON KYL, R - ARIZ: For the federal government to challenge this law on the basis that it has preempted the area and therefore the state of Arizona needs to butt out I think is wrong. It would be one thing if the federal government had controlled the border already, but it hasn't.

(END VIDEO CLIP)

BAIER: The attorney general this weekend saying if this lawsuit against Arizona doesn't work, that he may file another one based on racial profiling. They are going to take a look at that as well.

Meantime, some Democratic governors are criticizing the administration's effort here. Tennessee's Democratic governor Phil Bredesen says voters want to hear about job creation, and he called this potential political effect toxic. Colorado's Democratic governor Bill Ritter also expressed anxiety about this.

What about the politics of this and the policy? We’re back with the panel. Mara?

LIASSON: Both of the governors are retiring so they are free to say what they think. There is anxiety in Democratic circles about, even though they don't like the Arizona law, they wish the federal government hadn't sued, which inflames the issue.  Inflaming the issue might help, and in some cases should motivate the Hispanic base of the Democratic Party and turnout. 

On the other hand, at least in the mountain west, this law is popular and nationally it's pretty popular. However, the politics of this are more complicated than at first glance. In California, western states, big Hispanic population, you have Meg Whitman, the Republican candidate for governor running Spanish language billboard ads saying "I'm against the Arizona law and it would have been against proposition 187," the famous anti-immigrant or perceived that way, California law.

In Texas, 30 percent Hispanic population, the race for governor between the incumbent Rick Perry and the former mayor of Houston Bill White has closed. Many people think it's a Hispanic backlash. It is a little complicated.

In some places the Democrats are definitely going to be hurt by this. Certainly in Arizona there are three Democratic congressional incumbents that will be hurt, but it's not true across the board.

BAIER: Perry says the Arizona law wouldn't work in Texas. That could be an example of that.

Charles, what about the attorney general's phrasing of this, saying they wanted to challenge it the best way they could, but he might go back at it if and when the law goes into effect, essentially if he loses?

KRAUTHAMMER: Well, it was the first administration explanation of why after weeks of complaining about the law exclusively on the grounds of it being violation of civil rights and perhaps involving invidious racial discrimination, there was not a word of that if the lawsuit. It was all left out.

Holder explains it and he says it's because a stronger case is the one on narrow federal grounds, that it is the exclusive province of the federal government. If that is the strongest case, he has a weak case, because it's very hard to argue that this as he does in the lawsuit that Arizona is weakening the federal government ability to enforce immigration law.

If anything it is adding the state institution as auxiliary of federal government enforcement. So it's a weak case.

I think he knows if he did it on a civil rights basis it would go nowhere. The law explicitly excludes the use of race as a criteria in stopping people. I think he knows he has a weak hand. He did this, as Mara indicates, as a way to strengthen the base in a base election.

But overall I think it will hurt them. The majority of the Americans are against the lawsuit.

BAIER: Bill, do you think the majority of the Democratic candidates think this is a good thing for them or bad thing?

KRISTOL: Candidates can make decisions based on where they're running know it's bad. If you run for federal office, you are citing two gubernatorial races. In my state, I don't think it's necessary. That is what Meg Whitman is saying. It does not hurt Meg Whitman the fact that the Obama administration is suing Arizona. Meg Whitman can take the administration that the Obama administration is bad and California doesn't need this law.

Federal candidates, people running for Congress, House and Senate, are they going to defend the Obama administration swooping down? There are millions of state enforcement and immigration law. On the book, there were laws in Arizona that had had lawsuits filed by the governor.

Doesn't San Francisco refuse to enforce the immigration laws? Where is Eric Holder Justice Department swooping down and saying this is an outrage, you can't have different laws in San Francisco than you have in Orange County.

In most areas of law there is complementary state and local and federal enforcement. The idea that the Justice Department comes down and goes to federal judge to overturn what the voters of Arizona, legislature and governor want in Arizona will not play well.

BAIER: Arizona Governor Jan Brewer says when she talks to other governors across the board, she said they believe that this does, her law does mirror federal law. Mara?

LIASSON: That is how it was written. The whole point of the Arizona law was to say you, the federal government, are not doing your job and we are going to do it for you.

When Jon Kyl says it would be one thing if the federal government controlled the border. Well, according to the administration it is controlling the border. It is controlling the border better than it has in the past. There are more boots on the ground there. Crime is down, and actually illegal immigration is down, too.

That is a matter of debate. But for --

BAIER: Certain types of crime.

KRISTOL: It comes down to the federal government going to a federal court to say to some state that is acting in a perfectly legal and thoughtful way, to say you can't do that. I don't think the voters will like that. I don't think Democratic congressional and Senate candidates will be happy defending the Obama administration on this.