'The Journal Editorial Report,' April 18, 2009
This is a rush transcript from "The Journal Editorial Report," April 18, 2009. This copy may not be in its final form and may be updated.
STUART VARNEY, FOX GUEST HOST: Up next on "The Journal Editorial Report," take it back, please. Banks are lining up to repay the government's bail-out money and escape federal bondage. But will Treasury let them?
And anarchy on the high seas. What can be done to stop Somali pirates? And what should be done with the ones we capture?
And a closer look at President Obama's change of course on Cuba.
"The Journal Editorial Report" begins right now.
Welcome to "The Journal Editorial Report." I'm Stuart Varney, in for Paul Gigot.
First up this week, top recipients for Treasury, take back the money, please, calling the funds received through the Trouble Asset Relieved Program a scarlet letter, JPMorgan Chief Jamie Dimon said this week that his firm could repay the rescue funds tomorrow, and he's awaiting guidance from the Treasury. Such a move, of course, would free the bank from compensation restrictions and other regulatory strings attached to the bail-out money. Goldman Sachs said earlier in week that it's eager to repay the $10 billion it took from the government as well.
Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Mary Anastasia O'Grady; editorial features editor, Robert Pollock. And we're joined by Jonathan Macy, law professor at Yale University and author of "Corporate Governances, Promises Kept, Promises Broken."
Professor, to you, first. You have written forcefully that the administration wants to socialize American finance, really get a grip on and control the banks. What would be the motivation to do that?
JONATHAN MACY, LAW PROFESSOR & AUTHOR, YALE UNIVERSITY: Well, there are two things. Number one, the government is not really a hero here. They are coming to the rescue of the banks. But they want political currency. They want to be able to control the banks and they want to be able to use the banks to implement policies that will further the political interest of the politicians associated with the bail-out. Basically, they are using it as a political ploy.
VARNEY: How are they going to exercise this control?
MACY: It's simple. There are several ways that the government has given money to the banks. Some of the money the banks want to pay back some of it. They say they want to pay it back, but they don't want to pay it all back by any stretch or even half of it back in the case of Goldman or Citi. The government says before you pay us back, we want to have a few strings and make sure certain loans are made to maybe some of our buddies, that certain accounts are kept in a particular way. So it's a fairly, you know — it's your basic dance of the scorpions where each side is making moves and faking the other side out, saying things that may be true, like we'd like to pay you back, but under many, many conditions. And saying things like maybe we'd like to be paid back, but only if many, many other conditions are met. So...
VARNEY: But you think this is a — you think this is politically motivated? The administration wants to direct the economy via the banks and control the banks?
MACY: Yes. Right. The easiest way to see this is to think about the contrast between this dance and the interactions that would take place in the purely private sector between somebody who loaned money to a creditor, and the creditor would never want to or be allowed to in the ordinary course of business start throwing in additional conditions to a loan. They'd be really happy if the debtor came back, particularly in this economy, and said here, here, here is your $10 billion back. We'd like to pay you back. They'd say great.
The fact that we don't see any interaction resembling what would have occurred in the private sector should lead any reasonable. thoughtful person to say wow, what is going on here? This is not a typical borrower- lender relationship.
VARNEY: Jonathan, stay right there. I want to broaden the discussion out and see what the panel makes of this.
Rob Pollock, what do you think of this?
ROB POLLOCK, EDITORIAL FEATURES EDITOR: To me, it seems less important what the current administration is than the fact that the longer these banks stay in the situation they're in, you're going to have increasing politicization of the financial industry of the allocation of credit in the country. That's not a rescue for a strong recovery.
VARNEY: OK. The banks want to give it back. They are saying to the Treasury, please, take this money back, please. They want to give it back. Will the treasury let them take it back?
POLLOCK: I don't know.
DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: One of the things it's doing is restricting their freedom to operate. Another aspect to this worth knowing in terms of something Professor Macy knows a lot about, corporate governance. The unions have been trying to achieve some of these goals for years through shareholder votes. They want limits. They've put in shareholder proposals to impose limits on compensation. They want a say in picking boards of directors. And they want to sit on the boards of directors as is true in Germany. So there is very much a union agenda here. If you look at what Treasury is doing, what the House is asking for, this is something they've been trying unsuccessfully to accomplish for years.
MARY ANASTASIA O'GRADY, COLUMNIST: But there is another problem here. It's fine to have indignation with government getting involved with the banks but let's remember that these institutions were considered too big to fail. And the government went in with some money and they ended up socializing the risk and privatizing the rewards. Now the banks are paying for that by having the government tell them what to do. I don't think that we say give back the money and we start over. When we still have the too big to fail problem sitting there and we don't know whether the banks might get in trouble again.
VARNEY: Jonathan, that is an important point. It's taxpayer money in the banks. Do we not, as taxpayers, have a right to exercise some control over the banks?
MACY: Let me come in particularly with respect to the point that was just made about too big to fail. Something that I think is critical in analyzing the situation is recognize that nobody thought that Bear Stearns or Merrill Lynch or Goldman Sachs or Morgan Stanley were too big to fail until the money was actually put in there. There was a completely different regulatory infrastructure instead of economic expectations relative to investment banks on the one hand and commercial banks on the other, that the notion was that these institutions would be allowed to manage themselves to take whatever level of risk they wanted, provide whatever levels of compensation they wanted. If things worked out great, they'd go home rich, which they did for many years. Boom, one day we had a bad year. And these institutions found themselves undercapitalized and in financial distress. The idea is for a decade, it's hedge, the institutions win and then, this year, it's tails, the American taxpayer lose.
So to say that we had too big to fail is extremely important to say when did we think the too-big-to-fail concept was going to apply to Goldman Sachs? When was it going to apply to Bear Stearns? It had been a surprise to most people that outside of the realm of the Bank Holding Company Act, outside of the realm of the Banking Act of 1933, outside the realm of the FDIC insurance programs, which is where these institutions operated that the government was still providing these hidden guarantees, absolutely non non-transparent.
So it's the taxpayer's money, but it came as a huge surprise to most taxpayers, including this one, that we were on the hook for all of this until it happened.
VARNEY: Yes, indeed. Jonathan Macy, thank you very much indeed.
When we come back, anarchy on the high seas. What can be done to stop the Somali pirates? And what should be done with the ones we capture? There is a debate just ahead.
(FOX NEWS BREAK)
(BEGIN VIDEO CLIP)
HILLARY CLINTON, SECRETARY OF STATE: These pirates are criminals. They are armed gangs on the sea. And those plotting attacks must be stopped and those who have carried them out must be brought to justice.
(END VIDEO CLIP)
VARNEY: And at least one of them will be brought to justice, right here in the United States. The Somali pirate captured in the dramatic rescue of an American freighter captain last weekend is expected to stand trial in federal court in New York. The government had been weighing whether to bring him to trial in the U.S. or hand him over to the authorities in Kenya, which has an international agreement to prosecute criminals. No, he's coming here.
Dan, what do you make of that? A pirate captured on trial in New York.
HENNINGER: Setting aside the inevitable media circus that will ensue, it's a start, all right? If we bring one of these pirates in the legal system and put him on trial, it's a start. I believe the French have four captured and they're going to do the same thing.
What comes after that? Secretary Clinton, as President Obama, said exactly the right thing, people should be held accountable for their crimes. The question is will the world follow up and do something to repress this pirate activity in the Gulf of Aden and the Pacific. Because they say the right things when they're talking about North Korea's nuclear program. They say the right thing about Iran. The great powers have been saying the right thing about the world's problems for years. But they never quite get the job done. If you can't solve Somalia, you can't solve any of the other problems.
POLLOCK: I think the larger point here is that law enforcement can't be our primary anti-piracy tool. We have plenty of evidence against this guy. But we want to stop most pirates before they, you know, do what they want to do.
VARNEY: So we come down to a mix, don't we? Military action to start with, mop-up the action in the courts.
O'GRADY: No. But, Stuart, beyond that, I don't think the government can be seen as the solution. The reason why these ships are attacked is they're unarmed. You could start to fix the problem tomorrow if these ships had private security that went with them and met the pirates with weapons. Right now, they know they're completely unarm and they can approach a ship and have no repercussions.
The second thing is the U.S. has to be willing to go after their bases. This is not to go to Somalia and nation-build. That is go to Somalia, take care of the problem out and come home. I don't think we're willing to do that. We think every time we go into a country like that, we have to fix the country and we're there for years and years.
VARNEY: Rob, should we do that? Should we go in and fix Somalia?
POLLOCK: I think we definitely have to take the fight to the pirate havens. That's the way pirates have always been...
VARNEY: But that's the other side of the coin. What is going to be argued is we should get in there and rebuild Somalia as — it's a failed state. Rebuild it.
POLLOCK: Look, we have seen with the places like Afghanistan that having failed states around isn't good for the world at large. They become breeding grounds for lawlessness at best and mass terrorism at worst. So maybe we do have to do something like that.
HENNINGER: You know, but there are even lesser operational things one could do now that the world is focused on this problem. We had an article on the Wall Street Journal's op-ed page this week by Robert Zimmerman, former U.S. congressional staffer, suggesting about 100 ships a day go through, individually. So they're vulnerable. Why not break them to two convoys of 50 that go in with armed ships alongside? Make the shipping companies do that on schedule. Or why not, as you do with the New York taxis and the police, put decoy ships full of soldiers going through randomly, so that if the pirates can not figure out if they're going to attack an unarmed ship or a ship they'll get killed, they have to think twice. But there are steps that could be taken now that we're focused on the problem.
VARNEY: So you think we'll simply move up the steps, that's what we'll do? Falling way short of any attack on pirate havens?
O'GRADY: The point is these guys are operating like this because they have impunity. They don't really — the odds of them coming up against a ship that's not armed, and that — where they're not going to meet resistance are very high. That's why they've continued and the problem has gotten worse. There has to be a reaction.
VARNEY: What do you think is the reaction, the response when we bring a pirate to New York City, we put him on trial, and in my opinion, eventually, the guy gets a green card?
What is the world going to say about that down the road?
HENNINGER: It allows us to have an argument we have all the time. There will be factions that say he has to be accorded his full rights, our values, and our system insists that he does. We will come and tell his sob story about his sad tale in Somalia. Once again, it raises the question are you going to be serious about stopping lawlessness down there or are you going to pretend it's a police problem as Rob suggested?
VARNEY: I still say he gets a green card eventually.
HENNINGER: I wouldn't be surprised.
POLLOCK: Probably so.
VARNEY: Still ahead, changing course on Cuba. President Obama eases restrictions on Cuban Americans with families left behind on the communist island. A good thing? Our panel weighs in when we come back.
VARNEY: The White House, this week, relaxed restrictions on Cuban- Americans' ability to visit and send money to family members on the communist island. Under a new executive order, they will be able to visit Cuba as often as they like and send as much money as they want to, to any Cuban who is not a senior government or Communist Party official. President Obama also rescinded a ban preventing U.S. telecommunication firms seeking business there.
Mary, there seems to be a real change in this relationship going on here. My question is what do they really want?
O'GRADY: First of all, I wouldn't overstate that there is a real change here. Lifting the travel ban for Cuban Americans just allows people to go back and visit their family members and to send them more money.
The telecom change is really a change on our part, but Cuban hasn't responded yet. What Cuba wants is money. You'll notice in the response that they've given so far, they want the restoration of diplomatic relations, which means normalizing relations. What that entails is being able to borrow money, get money from the World Bank, the International Monetary Fund, the Inter-America Development Bank, all the wells of cash that are in the multi-national system. They also want credit from the U.S. They can buy as much as they want as agricultural goods and medicine from the U.S. but they can't buy it on credit.
They have defaulted on loans from the Soviet Union, the European Union, all of Latin America. No one will lend to them anymore. They don't have any source of credit. The one place they don't have bad credit is with the U.S. because they haven't been able to borrow for the last 50 years. They want to start borrowing again.
VARNEY: Dan, do you think it's a major shift in the relationship or not?
HENNINGER: It's absolutely a major shift. The question is whether we, from our side, will broaden the discussion into directions where it should go, one of which is political rights for Cubans.
You know what, Stuart? Cuba is basically East Germany with sunshine. East Germany under communism was a very repressive state in which people who disagreed with the state would be arrested and put in prison. Cuba holds hundreds of political prisoners in its prisons. And they are not nice places. Why isn't more being said, both in the United States and the international community, which certainly never stopped complaining about political rights in Chile or South Africa, why has Cuba been given an exception here? Let's broaden the discussion, not just to economics, but also to political rights down there.
VARNEY: Do you think it could be the essence of a deal down the road? You get the money, you get the credit, but release political prisoners and you have some kind of a democracy. Is that the making of a deal?
O'GRADY: The point is that they're not going to deal at all if they don't have pressure, which has been the argument for the — one of the arguments for the embargo all along. I think that one thing that could give us progress is, as Dan says, for the international community to unite and say we're not going to stand by and watch while you continue with this world-class — really world-class repression. And to put some pressure on them the way the international community put pressure on South Africa and Chile.
VARNEY: OK, Rob?
POLLOCK: I think it's pretty clear that neither our embargo nor the rest of the world's engagement with Cuba has, so far, been a success in dislodging the Castros. And I agree with Dan. The next step has to be pushing the world to overcome the amazing moral blindness about the regime there.
O'GRADY: But the other thing is people say lift the embargo because somehow it will engage the world with Cuba. The whole world has been doing business with Cuba for 50 years. They have tourists from Europe and Latin America going in and out of the country all the time. Nothing changes. The idea that American tourists going there will somehow change the way the Castro regime operates is — I think is fantasy.
VARNEY: But there is a plus for Obama. There is no serious kickback from the Cuban-American population.
VARNEY: And he has a better response out of Havana than he did out of going to Tehran or to Pyongyang.
O'GRADY: Stuart, Havana is playing the same game over and over again, yes, we'll talk to you but it has to be on equal terms. That's code for fork over money and maybe we can make a deal.
The fact of the matter is they have absolutely no interest in letting go of the power because there is responsibility that they have for the human rights violations for 50 years. They're worried about that. They're not going to just all of a sudden open up because Obama offered to let Cuban-Americans come to Cuba every year.
VARNEY: When we come back — we have to take one more break. And when we do come back, our "Hits and Misses" of the week.
VARNEY: Winners and loser, picks and pans, "Hits and Misses," it's our way of calling attention to the best and the worst of the week.
Dan, you first.
HENNINGER: As we head made clear in the beginning of the program, the financial rescue is rather precarious. So out in San Francisco this week, House Speaker Nancy Pelosi proposed just what we need. She is asking for a congressional commission, with broad investigative powers to get to the bottom of what happened on Wall Street. Isn't this great? Just what we're asking, all of these people to work overtime with limits on compensation to rescue the financial industry. They'll now go off and hire lawyers to protect them from the mob in Washington.
VARNEY: Let's beat them up some more. Why not?
O'GRADY: This is a miss for the port authority of New York. This week, a study found that the World Trade Center will not be fully rebuilt and re-occupied until 2037, 36 years after the terrorist attacks. The Freedom Tower will not be full until 2019. Number Two tower will be finished in 2014, but won't be full until 2026, and the Third Tower going all the way out to 2037. Now the spokesperson for the development agency said, well, this is just a very pessimistic outlook about New York City.
VARNEY: Yes, it is.
O'GRADY: But I wonder where she's getting that idea.
VARNEY: I wonder.
POLLOCK: A hit to Spain's attorney general, Candido Conde-Pumpido, who this week said that he didn't think it would be a good idea if the prosecution of six former Bush administration officials went ahead. A famous judge, Baltasar Garzon, wanted to prosecute them for giving bad advice about interrogation methods.
VARNEY: And that's it.
All right. It's all over. Thank you, Rob.
That's it for this week's edition of "The Journal Editorial Report." Paul Gigot rejoins you again next weekend. We hope to see you then.
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