Rep. Thornberry on why ISIS is a dangerous threat; Rep. Issa discusses visit to Mideast

This is a rush transcript from "Sunday Morning Futures," August 24, 2014. This copy may not be in its final form and may be updated.

MARIA BARTIROMO, HOST: Good morning. Expanding the fight against ISIS. I'm Maria Bartiromo. This is "Sunday Morning Futures." Hi, everybody.

Comments by members of the Obama administration suggesting this is becoming more than a limited military mission, including taking the battle to Syria. The vice chairman of the House Armed Services Committee is joining us this morning, live.

Plus, Ukraine's leader ratcheting up his military budget. Ahead of a meeting with Vladimir Putin and members of the E.U., is there any way to end this crisis?

And then after a string of contradictory stories about Lois Lerner's e-mails, will we finally get to the truth in the IRS investigation? The chairman of the House Oversight Committee, Darrell Issa, on that and a lot more, as we look ahead this morning on "Sunday Morning Futures."

Welcome back. The chairman of the Joint Chiefs, General Martin Dempsey stating quite clearly, ISIS, a terror organization that resides in Syria, cannot be defeated merely with air strikes in Iraq. General Dempsey laid out using a, quote, "variety of instruments, diplomatic, economic, information and military, to defeat the Islamic state terror group."

Let's talk about this. Mac Thornberry is with me. He is the vice chairman of the House Armed Services Committee, joining us right now.

Good to have you on the program, Congressman. Thanks so much for joining us.


BARTIROMO: Well, we're getting new information this morning, Western sources saying that now the London rapper Abdel-Majed Abdel Bary is, in fact, the suspect, in terms of the specific person doing the beheading of James Foley. What is the U.S. supposed to do at this point in response to these horrific acts?

THORNBERRY: Well, you've got to keep in mind, first, that this is a different kind of threat than we faced before from Al Qaida. This is the best-financed, best-equipped, best-trained terrorist organization. And the other way it's different is they have more Western passports, making it easier to get to Europe and back, easier to get to the United States and back than Al Qaida ever did. So that's part of the reason this is such a unique and dangerous threat to us and why we've got to take it seriously. A few bombs, you know, here and there is not going to make the difference.

BARTIROMO: Well, you know, I really want to get to the bottom of why it is that ISIS is the best-financed and why it is that ISIS has the best equipment. I recognize the U.S. left all of that artillery in Iraq when we took our troops out.

But stay with us, Congressman. I want you to hit on those two points. But first, let's get to the bottom of this and find out really what exactly did this terror group come from -- how did they grow so strong, so quickly?

Fox News senior correspondent, Eric Shawn, with that angle. Over to you, Eric.


And good morning, everyone. In the span of seven months, ISIS went from being called the "JV" by the president of the United States to an imminent threat to our country by the secretary of defense. What happened so fast?


REAR ADMIRAL JOHN KIRBY, DEFENSE DEPARTMENT SPOKESPERSON: There's no divergence. This is August. You're talking about comments that were made in January. ISIS -- and we have been watching this for months -- they have grown in capability.


SHAWN: That growth has been stunning and shocking since President Obama in that January New Yorker magazine interview likened the radical Islamic barbarians to a high school basketball team in terms of their capability.

Well, since then, in a matter of days, ISIS captured a huge swath of Syria and Iraq, declaring it "the Islamic state." And now it threatens to behead a second American journalist, Steve Sotloff, who has written for Time and Foreign Policy magazine.

SECRETARY OF DEFENSE CHUCK HAGEL: Marry ideology, a sophistication of strategic and tactical military prowess. They are tremendously well-funded. Oh, this is beyond anything that we've seen. So we must prepare for -- for everything.

SHAWN: Well, that everything, some fear, could include terror attacks here at home, like the 2005 London subway and bus bombings. Some 500 ISIS members are believed to have British passports, like James Foley's suspended killer, and reports put the number of Americans who are members of ISIS at about one dozen.

Some cite the president's long refusal to help arm the Syrian rebels for helping to create the conditions for ISIS to flourish and say the U.S. is now playing catchup, warning air strikes will not be enough.

FRED FLEITZ, FORMER CIA SENIOR ANALYST: To defeat ISIS in Syria, we're either going to have to send in troops or we're going to have to work with the Syrian army. We are not going to defeat ISIS just with air strikes in Syria.

SHAWN: We now face a new and potentially lengthy battle with an underestimated adversary. And for a president who said he was elected to end wars, not stop them, a cold realization of what it could take to protect his nation. Maria?

BARTIROMO: All right, Eric. Thanks very much.

And we are back now with Congressman Mac Thornberry.

Congressman, what about that? This group has become so strong in such a small period of time. Who is funding them?

THORNBERRY: Well, they're funding themselves. And that's why they're so dangerous. They do get some money from other Sunnis around the Middle East and elsewhere. But they have taken over banks and they have their own oil resources, which they sell on the black market. So they can fund themselves, and that's part of what makes them so dangerous. Squeezing their financing is not going to be enough to stop them.

BARTIROMO: I've got some numbers in front of us. And apparently, ISIS is controlling only about 40,000 barrels a day at this point with what they're controlling in the north, the northern part of Iraq. Because we know that, in the south, we've got much more oil production.

But that is estimating bringing them $1 million a day by selling that oil on the black market. What should the U.S. be doing?

THORNBERRY: Well, I'd say two or three things. One is, quit telling them what we're not going to do. Every time the president takes options off the table, it simplifies their planning.

Secondly, I think we've got a lot of reassuring to do. As the report just emphasized, we can't do this alone, and we can't do this just from the air. We have to have allies in the region, and they have real doubts about the United States, our leadership and especially whether we will stick with something.

So the president is going to have to reassure other countries, including the Iraqis, that if we get into this, we're in it to stay; we're not going to cut and run like we have before.

I think that reassurance mission is really the key to defeating ISIS, because then others will step up and they will join our coalition. If they don't, then -- then they're not willing to -- to take that risk.

BARTIROMO: How big of a mistake was it to leave our equipment in Iraq? I mean, when we took our troops out of Iraq, we left this high-tech armament, American innovation in terms of weaponry, there, and now it's in ISIS's hands.

THORNBERRY: Yeah. It was a big mistake when we did not leave behind advisers and trainers to help them to continue to develop as a military force. So that was the idea. We were going to keep a few thousand folks there to help the Iraqi military develop and use it and be an effective fighting force. We left. They fell apart. And it all got into the hands of ISIS.

BARTIROMO: Well, this is a major mistake.

THORNBERRY: Of course it is. And, you know, I think it is important to go back and look at the mistakes we made so that we don't make them again. But where we are now is we have a huge, festering problem, partly of our making, partly of the Iraqis' making, partly of Syria's making. You know, it's a combination effort. And it's going to take a combination effort to push them back.

BARTIROMO: Let me ask you about dealing with the enemy of my enemy. I mean, does expanding the fight against ISIS to Syria put the United States in the dubious position of having to ally ourselves with Assad?

THORNBERRY: Well, there's no doubt that we have -- to defeat ISIS, we have to attack them in Syria. When we attack them in Syria, that helps Assad. That's just the facts of the dilemma we have been placed in.

Now, at the same time, if we are also pumping up our support of the more moderate Syria -- Syrian opposition, as well as pumping up our support of the Kurds, which the administration is late in doing, then we can help that balance of power.

But there is no doubt that, when we hit ISIS, then, in some ways, that does help Assad.

BARTIROMO: Congressman, good to have you on the program. We'll be watching how this develops. Thanks so much for your time today.

THORNBERRY: Thank you.

BARTIROMO: Congressman Mac Thornberry, joining us.

Meanwhile, the Ukraine government showing no signs of backing down in the face of the Russian aggression on its eastern border. What it means for the possibility of peace in the worst conflict between East and West since the fall of the Soviet Union. We will tell you about it next. You can follow us on Twitter @mariabartiromo @sundayfutures. Tell us what you'd like to hear from our upcoming interviews. Stay with us as we look ahead on "Sunday Morning Futures."


BARTIROMO: Welcome back. Tough talk from Ukraine President Petro Poroshenko today. He is vowing to up his military budget by $3 billion over the next three years, this as he and Vladimir Putin plan to sit down with E.U. leaders on Tuesday of this week.

Angela Stent is the author of "The Limits of Partnership: U.S.-Russian Relations in the 21st Century." And she joins us right now. She served as an adviser on Russia under Bill Clinton and George W. Bush. She's currently the director of the Center for Eurasian, Russian and East European Studies at Georgetown University.

Angela, good to have you on the program. Welcome.

We're -- we're going to go right now and take a short break, fix her audio.

We, in fact, have a new round of air strikes in Gaza over the weekend. But we first want to bring you the latest on the IRS scandal.

Hampering Egypt's call for an open-ended cease-fire as it urges Israel and Hamas to return to peace negotiations, this, even as leaders in the Middle East turn their attention to a new terror threat, ISIS.

And joining us right now to talk more about it is Representative Darrell Issa.

Congressman, good to have you on the program.

REP. DARRELL ISSA, R-CALIF.: Well, thanks for covering this, Maria. It's certainly timely in American lives and our future is at stake.

BARTIROMO: Absolutely. You are just back from a trip. You spent time directly with a number of leaders in Egypt, as well as Jordan and Israel, of course.

Can you tell us what you've learned?

ISSA: Well, I think, whether it's Egypt, Lebanon, Jordan or Israel, the leaders' number one concern there is ISIS. The -- the expansion of this Sunni terrorist organization and the impact it's having on the entire region was first and foremost with, particularly in Jordan and in Israel, a recognition that the United States is reacting but reacting too little, too slow, and that it's going to take a real surge if we're going to eliminate the threat of ISIS before it multiplies and spreads.

BARTIROMO: Well, it's pretty extraordinary, when you see so many countries in the region recognizing the danger of ISIS. Let me ask you, do you see ISIS as a direct threat to the United States?

ISSA: I do. I do, simply because, if they solidify this nation, if you will, that's being formed in parts of Iraq and Syria, and then begin expanding from there, they'll have the base in which to launch terrorist attacks. And, very clearly, they have a willingness to kill and to kill en masse, and not to obey any of the rules of war.

BARTIROMO: When -- when you spoke with the president of Egypt, as well as King Abdullah in Jordan and Prime Minister Netanyahu, what did they say in terms of what they would like the United States to do?

ISSA: Well, they need a combination. They're willing to fight. They're willing to use their assets, but there are many things they need from the United States, including, obviously, the ability to spot targets and help them with it.

And given that, the Arab world is willing to be in the fight in every real sense.

BARTIROMO: Let -- let me move on to the Iron Dome, Congressman. Because I know you spent time there in Israel. Of course, the U.S. a major funder of the Iron Dome. How effective is it? What can you tell us about it?

ISSA: Well, it's an amazing system. It's built on many of the technologies that we developed, the Patriot and others. And it's able, with one missile, to intercept, about 90 percent of the time, a rocket fired from Gaza. They typically fire two, which gets them to the 99 percent. But it also does something amazing, which is it calculates when not to intercept a rocket.

More than two-thirds of the time, they'll -- they'll look at the trajectory and know that a rocket's going to fall harmlessly. They let it do so. So it's both frugal in not being fired when it isn't needed and very effective when -- when fired.

It's expensive, but it saves lives. And, Maria, it saves lives on both sides. Because it saves lives of Israelis, but it also keeps Israel from being forced to retaliate like for like into Gaza. And, in fact, in many cases, they simply intercept the rocket and do no retaliation. And that means that, as terrible as things are in Gaza, as many people who have lost their lives, without Iron Dome, many more would have died.

BARTIROMO: Very interesting. Congressman, let me move on to the IRS. Of course, you issued a subpoena to get those e-mails many, many months ago. What are you going to do about this now, Congressman?

I mean, is there any chance you can get Lois Lerner back on the stand? And what happens then? Would she plead the fifth again?

ISSA: Lois Lerner is a partisan political activist who, for most of her decades of service, obviously took that bent into her work, first at the Federal Election Commission and then at the IRS.

It's part of exactly what we have to root out of government, is people who put their party and their political beliefs ahead of just doing the job they're paid to do.

So I don't think we're going to get much more out of Lois Lerner. She did what she did. She clearly did it deliberately. The question is, will we, first of all, get some changes in government agencies to prevent this in the future?

And second of all, and I think the more important one, do the American people understand from our investigations how frustrating it is when this president will say he's transparent. Well, in fact, it takes court order after court order to get what little we get.

And I'm going to be partisan for a moment. This is for the voters to decide in November. Do they want to have the status quo or do they want to have a little more teeth in our ability to get discovery to hold this administration and its bureaucracy accountable?

BARTIROMO: Well, you said that they have a pattern of only holding email six months. Why? Why do you think that is?

ISSA: Well, it turns out the Federal Trade Commission and others in some cases have similar. It's very good to not be accountable. Rather than a few hundred dollars in backup cartridges in case somebody wants them, to simply say, well, we're giving you what we have, but we don't have them, is very convenient.

BARTIROMO: So no accountability.

ISSA: Very, very little. And I want to remind people, I'm concerned about this administration, because they're not transparent. I'm also concerned because they're not willing to go after political activists within the government. And that's equally concerning.

I want a bureaucracy that doesn't have some of these bad apples, because most people that work for the government try to keep their politics out of doing their daily job. That's part of what our committee is trying to do.

Obviously, the president and his people obstructing our ability to get to the truth should be concerning to all Americans.

BARTIROMO: Absolutely.


BARTIROMO: Welcome back. And we go back to the crisis in Ukraine, ahead of an important meeting with E.U. leaders this week and Vladimir Putin and the head of Ukraine. Angela Stent is with me. She's the author of "The Limits of Partnership: U.S.-Russian Relations in the 21st Century."

Angela, good to have you. Can you hear me now?

ANGELA STENT, AUTHOR, "THE LIMITS OF PARTNERSHIP": Yes, great to be on your show.

BARTIROMO: OK. Great. We tried to talk with you earlier, but your audio wasn't right. So we apologize to our audience.

Angela, let me get your take, right off the bat, of what to expect from that meeting in this upcoming week on Tuesday between E.U. leaders, Putin, and Ukraine. What do you think will be the highlights?

STENT: Well, I think they will agree in principle that there has to be a cease-fire. Everyone is going to say that the war has to ramp down, there has to be a cease-fire. The problem is going to be that from the Ukrainian government's point of view, they can't accept a cease-fire if it freezes the status quo.

That is, if the rebels remain in control in some of these key cities, Donetsk and Luhansk. And they will want a cease-fire where the Russians will agree to withdraw their men and all the military equipment back to Russia.

And I think that will be the sticking point. But I would think in the beginning, at least, people will try in good faith to see whether they can implement a cease-fire.

BARTIROMO: What is your sense of this convoy that, in fact, has crossed the border in Ukraine, the Russian convoy of trucks? Ukraine said it was an invasion. The Russians say, no, it was humanitarian aid. What do you think it was?

STENT: Well, from the Russian point of view, it was very clever. Because it was humanitarian aid, as far as we can see, at least it went in. And it also, again, implemented a cease-fire.

Because the Ukrainian government agreed not to shoot while you have the humanitarian assistance there.

These trucks have now left, or most of them have left Ukraine. The Ukrainians are now saying that they have taken out military equipment from some of the factories in Luhansk that manufacture parts for Russian military for their arsenal.

We don't really know that. But I think it was a clever move on the part of the Russians. And I think trying to show that they are willing at least to contemplate a cease-fire.

But, again, we have had too many times when the Russians have agreed to do this, and then they haven't done what they promised to do. So I think we have to wait and be quite skeptical about how much it will be possible to implement such a cease-fire.

BARTIROMO: Now, you have said you think we are at a potential turning point in the Ukraine-Russia conflict. Why is that?

STENT: Well, I think, on the one hand, the Russians are very worried, because they see that the Ukrainians are making military gains, obviously, and that they are taking back a lot of the territories.

From Putin's point of view, he has 87 percent popularity, and that's based on the fact that he has promised to defend these Russian speakers, these pro-Russian people from what the Russians call a fascist junta in Kiev.

So Putin, in a way, is going to have to make a choice, how does he get out of this? How does he ramp down the military fight there without losing face? So that's why I say it's a potential turning point, but it may not work out that way.

BARTIROMO: You've advised President Bill Clinton, President George W. Bush, in terms of Russia relations. How do you compare how those two handled Russia to what we're seeing now with President Obama?

STENT: Well, the U.S.-Russian relationship is much worse now than it has been since really at any time since Mikhail Gorbachev came to power in 1985. I think part of it is personality.

I think that, well, President Clinton and President Yeltsin had a good relationship, and President Bush and President Putin did for a certain time. President Obama had a pretty good relationship with President Medvedev.

But the problem has been since Putin has come back to power, Russia has taken actions like giving Edward Snowden asylum that have really made the -- caused a great deterioration in relations.

So it's worse now than it was -- it has been really since any time since before 1985.

BARTIROMO: All right. Angela, thanks so much for joining us today. We so appreciate your insights.

STENT: Thank you.

BARTIROMO: We'll be watching that meeting on Tuesday, Angela Stent.

Even more dangerous than al Qaeda was before 9/11, that is what Defense Secretary Chuck Hagel is saying about ISIS today. So how does the U.S. and allies stop them? Our panel will start there, as we're looking ahead on "Sunday Morning Futures."


SHAWN: From "America's News Headquarters," I'm Eric Shawn. Authorities at this hour surveying the significant destruction after that massive magnitude 6.0 earthquake hit northern California in the darkness before dawn this morning, injuring at least 70 people.

A local hospital says the injuries include concussions and other injuries. So far, though, thankfully, there are no deaths reported. The quake struck just south of Napa in the heart of our country's wine country, just before 3:30 this morning.

Little more than two hours after that, a shallow magnitude 3.6 tremor was also reported. The local power company is reporting about 70,000 people remain without power. And there are reports of buildings destroyed or heavily damaged. A fire at a mobile home park sent four homes up in flames. There are also numerous gas leaks and downed power lines reported.

The California Highway Patrol is cautioning drivers to stay off several highways, saying there are huge cracks in the pavements. Officials also surveying area bridges for any more possible damage. This is the largest earthquake to shake the Bay area since 1989. That's when a 6.9 magnitude quake struck and killed 62 people. Some initial reports say this quake was felt as far north as Sacramento and as far south as Santa Cruz. That also felt moderate tremors.

Right now, authorities are warning even more quakes reaching at least a magnitude of 5 or higher are still possible, and they are also warning that there could be many more small aftershocks to come in the coming weeks.

You can keep it right here on the Fox News channel for the very latest. We'll keep you updated throughout the day on the Napa earthquake. I'm Eric Shawn. For now, let's go back to "Sunday Morning Futures" with Maria.

BARTIROMO: Thanks, Eric. Defense Secretary Hagel saying ISIS is beyond any terrorist group we have ever seen, in terms of its funding and its sophistication. So how does this change our policies moving forward?

I want to bring in our panel now, kick it off there. Hank Smith is chief investment officer and director for the Haverford Trust Company. Judith Miller is the adjunct fellow at the Manhattan Institute for Policy Research. She's a Pulitzer-Prize-winning author and journalist and a Fox News contributor. Tony Sayegh is former press aide to Jack Kemp when Kemp was the GOP vice presidential nominee. Tony is now president of Talk Radio News Service and a Fox News contributor.

Good to see everybody. Thanks so much for joining us.

Judy, let's talk about what Hagel said about ISIS. How is it possible that this group is more sophisticated, better funded than any other terrorist group we have seen, and it has happened in such a short period of time?

JUDITH MILLER, MANHATTAN INSTITUTE FOR POLICY RESEARCH: Well, I don't think it's happened, Maria, in such a short period of time. I think this has been a gathering storm that the administration has consistently refused to ignore.

BARTIROMO: Refused to acknowledge?

MILLER: Acknowledge. We have a group that is still between 10,000 and 20,000 hard-core fighters. That is not the former Soviet Union. And I think the administration's awakening to this threat is actually a little exaggerated at this point. With some sustained attention and counterterrorism work, you can take care of this. What you shouldn't do is panic, scare the bejesus out of the American people. We can handle this. But because we didn't for so long, that's why ISIS is where it is today.

BARTIROMO: You know, what really gets me is -- and I just think this is so extraordinary, that we take all of our troops out of Iraq, but we leave this high-tech American armament. We leave our equipment, its innovation in terms of weaponry, and now ISIS is using it against us. Tony?

TONY SAYEGH, TALK RADIO NEWS SERVICE: Yeah, and it is the vacuum caused by our departing Iraq, our failure to negotiate a status-of-forces agreement with Maliki at the time that created the opportunity. But Judith is absolutely right. It is this kind of failed policy of ignoring the fact that terrorism existed after killing Osama bin Laden. And the political narrative espoused by this administration, unfortunately, have got us to a point now where it's well out of our control.

And the international community, as you saw this week, is finally beginning to realize that the only way you deal with ISIS is to create partnerships with each other. They are our common foe. Even Iran, a big foe of ours, realizes the threat of ISIS, which is why they allowed Maliki to go. I think that was a big development in the last couple weeks in Iraq. And now we need to continue these sustained air strikes, expand them into Syria, continue now the armament started by the French of the Kurds, maybe others in Syria, the Free Syria Army, and show that America's resolve is to eradicate, not contain, as the president said, ISIS.

BARTIROMO: You bring in the subject of Syria. I asked Congressman Thornberry about that at the top of the show. I mean, you know, dealing with the enemy of our enemy, what should we do in terms of fighting this battle in Syria?

MILLER: There are no good options now. But what we must do is continue the air strikes and, yes, extend them into Syria. And as the congressman said, this is going to help Assad. I am not in favor of joining with Assad to kill ISIS. I think that the enemy of your enemy is not your friend...



MILLER: But we did work with them, for example, on the failed rescue mission of Jim Foley. I mean, clearly, the Syrian government had to be involved. I think it's going to be a difficult road for the administration to walk, especially because they have been all over the place in terms of tactics and strategy.

BARTIROMO: After 9/11, Hank, obviously the markets reacted in a big way. So far, this conflict has not gotten under the skin of investors and - - and had a real economic impact. Why is that and do you think, as we learn more about how dangerous this group is, it will?

HANK SMITH, HAVERFORD TRUST COMPANY: Well, there is a great expression that bull markets climb walls of worry. And, boy, that's been proven this year, as one event after another that creates very draconian headlines but has very little impact on the markets, very little impact on the economy. And I think that's what it comes down to. So there's still confidence in the markets that our economy is improving and corporate profits are strong.

BARTIROMO: Yeah. Look, I want to get your take on this 6.0 earthquake in the Napa region in California and the economic impact there, in terms of its damage -- worst earthquake since 1989.

But stay with us, the panel. We've got a lot to talk about -- also, the GDP out next week, as well.

But let's get a look at what's coming up on "Media buzz." That's at the top of the hour. Howie Kurtz with us right now. Howie, what are you working on?

KURTZ: Hi, Maria. We're going to do a deep dive on the media's role in Ferguson. I've got Greta van Susteren talking about legal analysts rushing to judgment on the killing of Michael Brown. One photographer who was arrested at the protest, another who left in disgust at the media's conduct. And I wrote a column for Fox this week, saying, just theoretically floating the idea, what if all the journalists in this Missouri town just packed up the equipment and left? Would that have had an impact on the violence? A lot of people have responded and said yes.

BARTIROMO: All right, Howie, we'll be there in 20 minutes. We'll catch you on "Media Buzz." Thank you so much, Howie Kurtz.

Meanwhile, Congress headed back from break on the heels of a turbulent summer overseas. Could it change the focus of the midterm elections? We'll turn our attention back to domestic issues with our panel as we look ahead on "Sunday Morning Futures." Back in a moment.


BARTIROMO: We're back with our panel, Hank Smith, Judy Miller, Tony Sayegh. Let's talk about the midterm elections, what this all means in terms of the foreign policy, economic story that we have been talking about, and how that maybe changes things come November.

Tony, what do you think?

SAYEGH: Well, look, it's growing apparently very clear that President Obama's approval is the albatross that is going to prevent the Senate Democrats from being able to hold that majority.

If Harry Reid goes, if he's no longer the leader of the Senate, I think you have a completely new paradigm in Washington in which congressional and Senate Republicans negotiate directly with the president.

Right now, the president has effectively used Harry Reid as his buffer. So everything that Republicans believe are going to help the economy, help our foreign policy, help job creation, health care changes, dies in the United States Senate.

That changes and then you're going to have this tete-a-tete dynamic, and the president can no longer hide behind Harry Reid's failed leadership in the Senate.

BARTIROMO: And he will have to veto if he wants to.

SAYEGH: Correct.

BARTIROMO: He has not had to be forced to veto because of Harry Reid.

SAYEGH: That's right. And the American people then get to see the real story, and that, of course, sets the context to 2016. And that's going to be the more significant, obviously, election. Because who ever the president is gets to make these decisions much more ably than controlling one house or both houses of Congress.

BARTIROMO: Economic or market impact as a result of the midterms, Hank, how do you see it?

SMITH: I don't see much economic impact, really. Still have a split government. And as you said, the president will be forced to veto to keep his agenda in place. With respect to the markets, I wouldn't be surprised that it's one of these buy on the rumors sell on the news that if Republicans do take over the Senate, expand their lead in the House, that that's already priced into the market.

You might have a little sell-off after that. But you do have a very favorable period of time in the markets, November and December are very good periods typically for the markets.

BARTIROMO: So you still like stocks here.

SMITH: Absolutely.

BARTIROMO: Yes, you want to invest in equities.

Judy, at a time that we are learning more and more about ISIS and how dangerous this group is, we're cutting military budgets.

MILLER: Absolutely. And that makes no sense whatsoever. And, Maria, if you couple on top of that the sequestration cuts, we're going to wind up with, as you have talked about on this show, one of the smallest militaries since World War II, at a time when we're supposedly fighting this grave terrorist threat. It just doesn't make any sense at all.

BARTIROMO: So how does that play out? What's your sense of the midterm?

MILLER: I think that the Republicans and the Democrats are going to continue to go at one another and we're going to see continued paralysis. And that's not good for the country, and it's not good for any of us.

BARTIROMO: You know, I wonder if that's the case if the Republicans take the Senate, Tony. If, in fact, we were to see nothing gets done, or like you said, the president is going to have to be forced to take a stand, not hide behind Harry Reid, and maybe actually things do get done?

SAYEGH: Well, let's take an issue that your viewers I think care about, and that we know there is consensus on in Washington: eliminating the -- or at least reducing the corporate tax rate.

President Obama, for as much as he has played this populist card, and we saw this very recently with what they did with Bank of America and taking that $800 billion from them in -- extorting, I would say, in penalties, this is a president who actually does believe that our corporate taxes are too high.

You have a Congress that does believe our corporate taxes are too high. They agree, yet after six years we have seen nothing done.

This is one of those low-hanging fruit issues that I do believe the president can no longer suggest that he's not going to support, if it passes through a Republican-controlled Congress.

BARTIROMO: Well, you mentioned, you know, the fines. I mean, last week, Bank of America agreed to, you know, $17 billion in fines over its mortgage selling of securities.

The regulatory environment, does it continue to be this onerous, or does it change? What do you think the markets think about what Tony is saying in terms of tax policy?

SMITH: Look, the regulatory environment has become cancerous and is a big reason why there hasn't been hiring going on.

I will say one thing with respect to gridlock. That gridlock is better than bad legislation. So with gridlock you know you're not going to have Dodd-Frank, Obamacare, and any host of other poor legislation.

BARTIROMO: It's an odd way of looking at it, but there are so many regulations and so many things in the way of businesses hiring, whether it be EPA, Dodd-Frank, ACA, that maybe the gridlock is better.

SMITH: And yet in terms of regulatory environment, we are wonderful compared to Europe.

BARTIROMO: Yes. True. All right. Let's take a short break. Reports this morning that the earthquake in California could have done hundreds of millions of dollars in damage. The economic impact across the United States as we look ahead on "Sunday Morning Futures." Latest on the earthquake, next.


BARTIROMO: Welcome back the our panel today: Hank Smith, Judy Miller, Tony Sayegh joining us.

OK. We have a pretty horrendous situation happening in California this morning. A 6.0 earthquake this morning hitting the Napa region. This is the worst earthquake since 1989, on a 6.0 Richter scale level. We don't -- there are no fatalities.

I mean, this is the Napa region. So there's more product, grapes, wine, than there are people. There's about 77,000 people living in that region.

We want to show you a picture of a crack in the highway, which is what we're going to show you momentarily.

The damage is real, Hank, in terms of -- in terms of stuff. We have two major injuries, but no fatalities.

SMITH: Right. And while there might not be fatalities, there's damage, homes, dreams crushed, and you can't diminish that or make light of it.

BARTIROMO: Well, officials were saying it could be anywhere from hundreds of millions of dollars in damage up to $1 billion. We're obviously still getting our arms around the economic cost of this.

SMITH: Right. There is an economic cost up front, loss of productivity. But there's rebuilding that goes on after every natural disaster, whether it's a hurricane, certainly this region experienced that a couple of years ago with Sandy, that is very invigorating for the economy, that rebuilding effort. And that will happen in the Napa Valley...


BARTIROMO: Well, what's the timing on that, though? I mean, of course, right now we're all looking to just protect and clean up and get out of this over the near term. But the rebuilding effort can go on a long time.

SMITH: Oh, several years. But, fortunately, we're a very wealthy country and we can get resources with a stroke of the pen from federal government to those affected areas.

BARTIROMO: All right. Tony, let me look ahead with you in terms of the Detroit bankruptcy hearing. What kind of an impact might that have? That's happening on September 2nd, is that correct?

SAYEGH: Correct. Judge Rhodes, a U.S. bankruptcy judge, will begin hearing the Detroit case, which is the largest Chapter 9 bankruptcy case in American history. And when you consider, Maria, that a third of our 61 largest cities in America today are possibly facing bankruptcy and will go through a similar proceeding, you realize the impact of Judge Rhodes's decision.

Now you have the classic battle lines, the public pensioners, the city, they want to make no cuts. They don't want to have anything happen to the public side of the ledger. The private creditors look, in this dynamic, like the bad guys, and, of course, ultimately they're the ones who could get possibly hurt.

If you do that, you discourage future investment, future issuing of bonds to cities from these private creditors. If this judge gives in to the political pressure, doesn't enforce some cuts on these pensions, and rein in Detroit's terrible spending practices, which they want to seem to continue, then I think he sets a very dangerous precedent for other bankruptcy hearings across the country.

BARTIROMO: And at a time that the economics of so many states are under pressure, so, I mean, you know, we're talking about this earthquake in California. That's one of the states that we're talking about.

SAYEGH: It could be the next bubble. Everybody loves to point out to new bubbles. I mean, the fact of municipal bankruptcies, we have a third of our largest cities in America facing that potential. It's a very important trial to watch.

BARTIROMO: Yes. Judy, circle back for us on the hostages and the Iran situation, because we were talking during the commercial break about ransom and what happens next. What's your take?

MILLER: Right. Yes, I mean, ransom remains one of the single largest sources of financing for ISIS. And this is something that the Americans can do something about, working with our European and our Arab allies to stop individual payments to ISIS, whether through zakat, that is, charity, or through the payment of ransom.

A hundred and twenty-five million dollars has already been paid to this group to free other European people being held.

Now, are we going to change our policy? We hope -- I hope not, even though it's very, very difficult because we have three more Americans whom ISIS is holding. I really pray for them. But we cannot switch gears, we cannot pay ransom.

BARTIROMO: This is an incredible story at a time.

MILLER: It's an amazing story.

BARTIROMO: . that we are watching how powerful and strong ISIS continues to become.

All right. Stay with us. Still to come, the one thing to watch for in the week ahead -- or weeks ahead on "Sunday Morning Futures." Our panel will weigh in. Back in a moment.


BARTIROMO: Back with our panel, the one thing to watch in the week ahead, Tony Sayegh.

SAYEGH: We're a week away from Labor Day, which is the unofficial kick-off of the political season. I'm watching who of the Democratic candidates are going to campaign with Barack Obama. We've seen very little of that lately.

And I wonder if in the home stretch they will give their presidents from face time.

BARTIROMO: That's -- I'll be watching that too.

Judy, what do you think?

MILLER: I'm watching Europe, of course, to see what Putin and the Europeans do. But I'm really looking at how much more wine Putin is going to buy. He has bought a million dollars' worth -- a million bottles' worth of European wine because he wants to make sure that he and his friends have enough to drink if there are more sanctions.

BARTIROMO: Are you kidding me?



BARTIROMO: And there's a meeting on Tuesday.

MILLER: On Tuesday, absolutely.

BARTIROMO: . E.U. leaders.

What are you watching, Hank?

SMITH: We'll hear soon from the Treasury whether they have the tools to prevent inversions and without legislation. I think what we really need is corporate tax reform.

BARTIROMO: All right. We'll be watching that. I'm watching the GDP. I'm wondering if it gets revised downwards.

Thanks for being with us. Have a great Sunday, everybody.

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