This is a rush transcript from "Hannity & Colmes," October 10, 2008. This copy may not be in its final form and may be updated.
ALAN COLMES, CO-HOST: Another volatile day in Wall Street as the Dow suffered its worst weekly point drop in history, that's 40 percent down from this time last year.
Earlier today President Bush tried to ease fears that we're headed for another great depression, and the president will meet with world financial leaders this weekend.
And breaking news late this evening Treasury Secretary Hank Paulson has announced that the federal government will buy stock in American banks for the first time since the depression.
Joining us now, editor in chief of "Forbes" magazine, former presidential candidate, Steve Forbes.
Let's talk about the breaking news first and this idea of buying pieces of these banks on the part of the government. Good idea or bad?
STEVE FORBES, MCCAIN SUPPORTER: Actually, it's a very good idea. Buying preferred stock means they're going to get new equity which means they can start making loans again, and if the equity is not priced at an onerous prices they did with AIG, then the banks will have the capital they need to start getting get credit flowing.
OLMES: And so — now what has to happen this weekend to at least reverse the trend of the stock market, get the credit markets going? What has to take place?
FORBES: I think they got to flush out on Sunday before the markets open in Asia that indeed the U.S. is going to make a very concerted effort to supply that credit, that preferred stock, buy that preferred stock for the banks, and if Paulson increases that in terms of also guaranteeing, at least for a short period of time, when banks lend to one another, so banks won't feel that they have to clutch their cash and hoard their cash.
That's what we got to get around.
COLMES: Isn't there a sense — these are the guys that got us into this mess, and these are the guys that are now saying they're going to fix it, and there's a lack of confidence of the very people who helped us get here are going to solve the problem.
FORBES: Well, what made the crisis worse was a government rule on what they call mark-to-market which is artificially marked down the value of these assets, and when those assets are marked down, banks can't lend.
So what they should do is suspend that. That was a government decision, and it was also a government mistake made by the Federal Reserve printing too much money that allowed this thing to reach the size that it did.
COLMES: Are you for the bailout? The $700 billion bailout? You're for or against that?
FORBES: It had to be done. A lot of.
COLMES: It had to be done.
FORBES: Had to be done.
COLMES: Where does the money come from?
FORBES: The money comes from borrowing from the public. The assets — what's amazing about this is the money is there, there's plenty of liquidity in the world. It's like the reservoir is full, but the pipes are clogged.
COLMES: All right, but do we go to China? Do we go to Germany? Do we go to Japan? Do we go to other countries to get the cash in order to make this happen?
FORBES: When the treasury has a bond now, everyone wants treasuries, so the money comes everywhere, and what we have to do is get money from the treasuries back into this banks and back flowing to businesses and to consumers.
COLMES: Have we hit the bottom?
FORBES: I think what they do right this weekend and do what I think they're going to do, yes, the bottom will have been reached, however, the economy has been so damaged, it's going to take six months or so for it to get back on its feet.
MICHAEL STEELE, GUEST CO-HOST: Steve, thanks so much for being here. It's a real pleasure to see you upclose and personal.
FORBES: Nice to see you, Governor.
STEELE: Certainly with all this going on. But I have to tell you, I'm a little bit concerned at watching the federal government insert itself so actively in this process and not really given the market to do what markets tend to do, and that is work themselves out.
I agree with Alan, a lot of the bad actors here who are supposedly fixing this problem are the ones who created the problem, so you know, how is the average person out there who's sitting watching us tonight who just got that notice or will get that notice on their 401(k) and other assets that they think they own, to react to what is now the government nationalizing the financial system our country?
FORBES: Well, the government is taking preferred stock, which means they don't have voting stock. That's what's nice about this. They're not going to (INAUDIBLE) the shareholders.
We want share prices of banks to go up, so they will start to lend again. And so what the government, having helped create the problem, now has to take emergency steps to solve the problem.
If they — especially with this mark-to-market where banks just hoarded, clutch their cash, if nothing is done, the whole system collapses, like what happens when the blood doesn't flow in the body.
FORBES: You could be otherwise very healthy, but you've got a real problem. So we want to get that money flowing again, and so it's sort of a defibrillator, getting the heart moving again.
STEELE: But I kind of want to go back a little bit before that, on the preventive side, because I'm a big fan of preventive medicine. So the idea is, three or four years ago when President Bush went to the Congress, when John McCain said to the United States Senate that, you know, Freddie and Fannie are a problem, we need to begin to fix this issue dealing with this part of our housing economy.
Was that the first warning shot here? Was Freddie and Fannie at the precipice of this thing beginning or.
FORBES: Yes, Freddie and Fannie were part of the villains of this thing. They really hyped the subprime mortgage market, trying to rehabilitate themselves from the accounting scandals in the early part of the decade.
So on that both the Bush administrations and McCain get high marks. However, a couple of other big mistakes were made. The Federal Reserve created too much money which allowed this thing to — get to a great bubble size, and then at the same time this mark-to-market.
If they had that kind of thing in, Michael, in the early '90s every major bank in the country would have gone under and we would have been in a great depression in the early '90s. So government created the excess money.
STEELE: And then.
FORBES: Created the counting thing, created Fannie and Freddie so now.
STEELE: And now they'll get us out.
FORBES: So I — we have to hope they get us back to life again.
STEELE: You got it. Thank you very much.
FORBES: Thank you.
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