'Special Report' Panel Discusses Treasury Secretary Paulson's Strategy Change to Fixing the Ailing U.S. Financial System

This is a rush transcript of "Special Report With Brit Hume" from November 12, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

HENRY PAULSON, TREASURY SECRETARY: When we went to congress, illiquid assets looked like the way to go. As the situation worsened, the facts changed.

I will never apologize for changing an approach or strategy when the facts change. I think the apology should come the other way, if someone doesn't change when the facts change.

(END VIDEO CLIP)

BRIT HUME, HOST: And what he is saying is that the facts changed sufficiently from the time that he conceived this legislation to bail out financial institutions and buy up the distressed assets to do it, so much in a couple of weeks that by the time the bill was actually signed, Henry Paulson decided that buying up those bad mortgages and trying to take them off the books of banks across the country was not the way to go, and the better idea was to pump money in the form of stock purchases into the banks themselves and let them work it out.

So, what about this? Thoughts on it from Fred Barnes, Executive Editor of The Weekly Standard, Mara Liasson, National Political Correspondent of National Public Radio, and Mort Kondracke, executive editor of Roll Call, all are FOX News contributors.

Mort, there was some consternation in Congress — there is always consternation in Congress — about this decision.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: That's what they do in congress.

HUME: That's right. They get consternated.

But there was some good news as well. He basically said that the U.S. financial system was back from the brink. What about this change of approach by Paulson? Right move, smart move, what?

KONDRACKE: I think it was the right move because it was so complicated and so time consuming to try to value these assets and try to figure out how to stage an auction or a reverse auction to try to buy them that it was just not going to work.

But it's been pretty clear for a while that that's not what he was going to do, but, rather, that he was going to, as you say, buy stock in these companies —

HUME: He has been doing that, but I didn't know that the program to do that had been called off. Did you?

KONDRACKE: No, I didn't know that it had been called off, but it was pretty obvious that he wasn't doing that.

The problem here is that he told Congress one thing. He got authority to do it with their understanding that he was going to buy these troubles assets —

HUME: But didn't he also get authority to do what he is doing?

KONDRACKE: He is entirely within his job. But John Boehner, among other people, was complained that he was somehow misled.

HUME: Bait and switch.

KONDRACKE: Yes.

I thought, actually, that part of the news today was that they were going to invest now in credit card companies and auto loan companies and student loan companies, and that this is an ever-expanding program.

And, actually, helping auto loan companies will presumably help the auto industry, even though he said $700 billion is off limits to the auto industries directly.

HUME: He didn't say it was off-limits. He said it wasn't designed for that. He sounded chilly to the idea. Of course, on the hill-

KONDRACKE: They're probably going to change the law next week.

HUME: Mara?

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: I think the fact that he changed tactics is a good sign. This idea of buying stock in these companies was talked about from the beginning. And as it turns out, even though Congress was aghast that he was given broad, unspecified authority, it probably was helpful.

HUME: Yes, they gave him authority.

KONDRACKE: Yes, they gave him the authority to this however he sees fit.

It turns out the financial sector is a lot bigger and more complicated than we thought it was and includes all these other entities.

But the other thing that's happening is I think that the credit — whatever we're calling it, clog, stall, or freeze, seems to have been loosened and credit abated, and credit is actually moving now.

I think the big question is that there is so much more of this financial crisis to be unfolded. I mean, there might be tremendous personal bankruptcies, credit card problems. Unemployment has yet to reach where it's going to go. It is already heading upwards to eight percent and above.

And that's what the Congress is also going to have to deal with.

But as far as Henry Paulson changing his tact, that's a good thing.

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: I hope so. The market didn't like it. And remember, the market is always the bet on the future. It is not a final verdict by any means.

HUME: There was other bad news today.

BARNES: I know. Look, this announcement by Paulson didn't change it. The market didn't say, well, that's bad news, but this is great news, and shoot up. That didn't happen. But, as I say, that's hardly a final verdict.

What the law I thought gave him authority to do was to purchase and to make and fund commitments to purchase troubled assets from any financial institution. Well, this isn't that.

He's not purchasing these assets, which made sense, the original idea. This is what Japanese banks didn't do - the Japanese government didn't do in the 1990's, and they had a decade more of stagnation.

What he is doing now makes sense, there is no question about that. But it is an abrupt change, and I understand why John Boehner said wait a minute, this is not —

HUME: But does it strike you that what he has done here is looked at the practicability of quickly accomplishing the kind of large scale asset purchases, and he can do this faster and then let the banks work it out with the loan holders, right?

BARNES: I understand that, but it is a rather abrupt change.

HUME: I know it's abrupt. That's why we're talking about it. Was it the right thing to do or wrong thing to do in your view?

BARNES: I'm not sure whether it's the right thing to do or not.

And, look, I think this, by doing this switch, makes it harder to say no money for Detroit, which is what he ought to say. And if Congress changes this law next week, I hope the president vetoes that change. He certainly should.

KONDRACKE: What Paulson said is that an auto company is not a bank, is not a financial institution. This was designed for financial institutions. Therefore no —

HUME: He is talking about the credit agencies for the automobile companies.

BARNES: There is a huge difference between giving capital to banks and lending institutions rather than buying bad mortgages. There is a big difference.

HUME: So what is really going on in the Minnesota Senate vote count? The panel will discuss that next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PAWLENTI: Minnesota has a great reputation for high voter turnout and electoral integrity. But there are some strange things that have occurred, or at least concerning things, that need to be looked at. The one that you mentioned about the ballots in the trunk of the car would be a leading example.

MARK ELIAS, FRANKEN CAMPAIGN ATTORNEY: The Coleman campaign can dress this up any which way, but the fact is at the end of the day, what they did was go to court to try to disenfranchise 32 Minnesotans. And I think that's wrong, and I think Al Franken and his campaign think it's wrong.

(END VIDEO CLIP)

HUME: Who were those 32 Minnesotans? They were those whose ballots were discovered well after the election in the backseat of an election official's car. Oops.

And Norm Coleman, the incumbent senator out there, went to court to try to keep those votes from being counted. He lost because the judge didn't say it was a good thing. She said that she didn't have any jurisdictions to block it.

So in the meantime, the Coleman lead, which was 700 and some votes, has dwindled to just a handful. What is going on, Fred?

BARNES: Look, every Republican I have talked to thinks they're going to steal it in Minnesota. It's the Democrats who are going to be doing this.

The secretary of state is the guy who is in charge who has connections to ACORN. We know all about that.

And, look, that Franken guy, he wouldn't be saying that if those 32 votes, it was plus 11 for Franken. He picked up 11 votes in that. If it had been Coleman who picked them up, he would be, oh, that's terrible. You can't count these votes!

HUME: You would think there would be some chain of custody issues there.

BARNES: I would think so.

But what a horrible situation. And it shows you that Barack Obama has not — he may have brought the rest of the country together, but he hasn't brought Minnesota together.

LIASSON: Of all places, which is known for its good governance and clean elections.

Look, close elections show that there are no principles, there are only partisan interests. And in this case, I think you will see that on full display.

Now, we're not even talking about a recount yet. They're just still counting the votes. But there is going to have to be a recount.

And the problem is that in these kinds of close elections, neither side — you can never have a close election that is adjudicated or recounted and have both sides think it was fair. And I think that's what we're heading for here.

KONDRACKE: It reminds you of what happens after a fumble in the NFL. Everybody piles on and lord knows what is going on under there. It is pretty ugly, but somebody comes out with the ball.

HUME: And then the rest award it to the other guy.

KONDRACKE: In this case, there will be a hand recount of all the ballots that were cast, and —

HUME: Including the ones discovered in trunks of cars?

KONDRACKE: Yes, but there were some others. The Franken campaign in Minneapolis tried to get reauthorized, you know, after they had been thrown out, and the election officials said no, you can't do that.

So it's true. It looks like hanky-panky. The count is dwindling down for Franken's lead, down to 200. And there is one county where they changed their mind about — or one precinct, I guess it was, that changed its mind by 200 votes. That looks a little suspicious.

HUME: But, Mort, is it suspicious?

KONDRACKE: Very suspicious.

But there will be the hand recount.

HUME: So you think it is all going to be-

KONDRACKE: No. There will be disputes about it.

(INAUDIBLE)

BARNES: Who is in charge of the hand recount? Who is the main guy? It is the secretary of state.

KONDRACKE: That's my point. The Republican National Committee is saying that this guy Mark Ritchie, the secretary of state, is the left wing version of Katherine Harris of Florida fame. Now, is that the Republican National Committee implication saying Katherine Harris stole the 2000 election for George Bush? That's the implication of it.

BARNES: Who cares what they say. We know who this guy is, so don't apologize for him. That's ridiculous. This is the guy who will be in charge. Why would any Republican have a good feeling about this guy?

HUME: And it's worth noting, by the way, that we are receiving information now that indicates that Senator Stevens in Alaska, the Republican incumbent, his lead has been declining ever since the Election Day. He is now down to a handful of votes after being ahead by a few thousand.

(CROSSTALK)

BARNES: The situations are not quite the same.

HUME: So who do you think will end up winning out there?

KONDRACKE: My guess is that Franken will win.

HUME: And Mara?

(CROSSTALK)

LIASSON: They usually end up just exacerbating whatever trend there was.

BARNES: No. There are lots of car trunks and drawers and things that were left aside. And there will turn out to be enough ballots for Franken.

HUME: That's it for the panel.

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