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ABC's "This Week with George Stephanopoulos"


Location: Unknown


SEN. MCCASKILL: Thank you.

CARLY FIORINA: Thanks, George.

MR. STEPHANOPOULOS: And Senator McCaskill, let me begin with you. You've had a very harsh reaction to the pick of Sarah Palin. You said you're uncomfortable with anyone in line to be vice president to, quote, "one of the oldest presidents we've ever had" that has never met a world leader. Did the interview change your mind?

SEN. MCCASKILL: No. The interview didn't change my mind. I think what's really important here is that we began to have a real dose of the truth about the presidential candidate and the vice presidential candidate on the Republican side in terms of this image of reform. Sarah Palin has taken more in federal earmarks per person than any governor in the history of the planet. She asked for - while John McCain was making fun of DNA earmarks for bears, she was asking for a DNA earmark for seals, almost at the identical moment.

MR. STEPHANOPOULOS: You know, I want to get to those arguments, but first, is it really fair game to bring in Senator McCain's age like that, saying that he would be one of the oldest presidents we've ever had?

SEN. MCCASKILL: Well, I think what we're talking about is a reality. Other people talk about his melanoma. We're talking about a reality here that we have to face. This is someone who is going to be one heartbeat away from the presidency. All of us know it. I just think that it's the facts, George. And that's something that we need to start focusing on are the facts instead of distortions and lies.

MR. STEPHANOPOULOS: Your response?

MS. FIORINA: Well, I think you need look no further than the op-ed page in the "New York Times" today to realize that the Democratic Party is in full-throated panic over Sarah Palin. You have a column by Maureen Dowd that is mean-spirited in the extreme. You have a column by Frank Rich that is disrespectful to a presidential candidate who is vigorous, who is able to govern for eight years, and who will be - current trajectory - the president of the United States. And you have a column by Tom Friedman, whom I generally love, who is reverting back to the old argument that conservatives are stupid.

MR. STEPHANOPOULOS: How about the arguments that Senator McCaskill - (inaudible)?

MS. FIORINA: Look, Sarah Palin has transformed this race. She has transformed this race by energizing the Republican Party. She has transformed this race by having a whole set of independent and, yes, Democratic women say it is the Republican Party who gets it. It is John McCain who gets it, not the Democratic Party who has taken their view for granted.

MR. STEPHANOPOULOS: But those two arguments Senator McCaskill just made, that we have to face the facts about John McCain's age and that Sarah Palin on the issue of earmarks is - has not walked the walk.

MS. FIORINA: Okay. So let's start with John McCain's age. I frankly find this disrespectful in the extreme. This is ageism. All you need to do is look at the schedule that John McCain has kept for the last two years to realize that he is one of the most vigorous, most energetic campaigners, frankly, in my judgment, out there. So I think this continued resort to he's too old is desperation, frankly, not to mention disrespectful to a very capable commander-in-chief.

In terms of earmarks, Claire McCaskill conveniently forgets the fact that Barack Obama has asked for almost $1 billion worth of earmarks in a very short tenure in the Senate. That's about $1 million a day. She also conveniently ignores the fact that Sarah Palin, as governor, stood up and said, I know earmarks are corrupting. We must ask for less of them -

MR. STEPHANOPOULOS: But she still did request them.

MS. FIORINA: - and vetoed about - as governor, she did not. As governor, she vetoed about $500,000. As mayor -

SEN. MCCASKILL: No. She did. She just requested - this year, George, she requested hundreds of millions of dollars of earmarks for Alaska. She took the money for the bridge to nowhere. She hired lobbyists to get earmarks. This is a woman who has been lobbying for earmarks, has received earmarks, as a mayor, as a governor. This is a good example of what I'm talking about. Honor is talked about a lot in this campaign. Honor comes with honesty. And you've got to be honest about the facts. Sarah Palin has been an earmark queen in Alaska. That's the fact.

MR. STEPHANOPOULOS: Let Carly respond.

MS. FIORINA: The facts are that Sarah Palin rejected the money for the bridge to nowhere. The facts are that Barack Obama has asked for more earmarks in his short tenure than Sarah Palin ever has. So if we want to have an argument about the facts of reform, let's ask whether Barack Obama has ever stood up against his party, has ever took a tough position. Sarah Palin, without question, stood up against the Republican Party, is a reforming governor. Barack Obama without question voted present over 100 times rather than taking a tough position on a tough issue, and he has never stood up against his party. And so if we want to have an argument on the facts of reform, let's have one. Let's not dismiss -

MR. STEPHANOPOULOS: I do want to get your response on Barack Obama, but first -

MS. FIORINA: Let's not dismiss John McCain as the commander-in- chief, and I think the Democratic Party has made a huge mistake in focusing so much attention on Sarah Palin.

MR. STEPHANOPOULOS: Just to clarify one point on the bridge to nowhere. It's true that she stopped the bridge to nowhere project.

MS. FIORINA: Yes. She did stop it.

MR. STEPHANOPOULOS: But she did keep the money.

MS. FIORINA: Sarah Palin has made significant reforms and significant progress in the amount of earmark money that Alaska takes. She stood up as governor and said, we must reform this corrupting process. It is true that as mayor she worked within the system that she was a part of. But it is also true that she stepped forward against her own party and said, enough is enough.

MR. STEPHANOPOULOS: Let me get to another point that was raised in this interview. Sarah Palin was asked by Charlie Gibson about Hillary Clinton. Here's what she had to say.

GOV. SARAH PALIN (R-AK): (From tape.) I think he's regretting not picking her now. I do. What determination, and grit, and even grace through some tough shots that were fired her way. She handled those well.

MR. STEPHANOPOULOS: Even Senator Biden said this week that Hillary might have been a better pick. Did Senator Obama give the McCain campaign an opening by not picking Hillary Clinton?

SEN. MCCASKILL: Well, I think that Joe Biden is going to be a terrific vice president. Joe Biden is fully capable of stepping into the presidency at a moment's notice. I also think it's important, George, once again, this issue is about being honest and forthcoming with the American people. John McCain has not told the truth about Sarah Palin. He has run an ad that is terribly distorted and full of lies about - I mean, you're talking making women mad. When women figure out that John McCain has run an ad saying that when Barack Obama wanted to give education to kindergarteners about how to avoid sexual predators that in fact they ran an ad that said that he wanted to give them sex education? This is the kind of game that's being played on their side.

MR. STEPHANOPOULOS: So no regrets about Hillary Clinton?

SEN. MCCASKILL: And by the way, speaking about honest, Sarah Palin this summer called Hillary Clinton a whiner, and now it's oh, they're being disrespectful to Hillary. I didn't hear her say that when she was asked that before she was the vice presidential pick. And when John McCain was asked a question at a forum - you remember this - someone said, how do we stop the "B," referring to Hillary Clinton, and John McCain laughed. And they had buttons at their convention the hottest VP.

MR. STEPHANOPOULOS: So certainly there are no regrets there. What is your response, Carly Fiorina?

MS. FIORINA: Well, first, let's just remember for the record. It was the Barack Obama campaign that launched the first negative ad. Let's just recall. If we want to talk about honesty, let's recall the spate of ads that said that John McCain was in favor of a 100-year war in Iraq. Please. I mean, this high and mighty attitude that somehow John McCain has stooped to a new level in politics is, A, untrue, and, B, as I recall, Barack Obama promised a campaign of hope and politics of promise, et cetera, et cetera. But having said that, my personal opinion, Barack Obama made a critical strategic error by not choosing Hillary Clinton. There are a whole host of women in the Democratic Party who believe the Democratic Party does not understand what sexism is, routinely underestimates the impact of women, and they are coming in droves to the Republican Party because they think the party and John McCain get it. That's a fact.

MR. STEPHANOPOULOS: It is true that this week we saw a 20-point swing among white women in our ABC News poll.

SEN. MCCASKILL: Let me say I think Sarah Palin has an incredibly winning personality. She's a very skilled politician. And I understand a post-convention bump. And she's a great role model for working women. I'm talking as a woman who took my breast pump to work for all three of my children. So it's terrific. But if women of America are going to kick the tires the next 55 days, George, and they're going to find out that this is a ticket that wants to put women in prison for having an abortion after they had been raped, this is a ticket that is opposed to equal pay for equal work, this is a ticket that does not embrace early childhood education, this a ticket that is not good.

MR. STEPHANOPOULOS: Let me stop you at those three because Carly Fiorina is shaking her head there.

MS. FIORINA: Those are ridiculous charge, point one. But I think the important point here is that this is what the Democratic Party has done for years. It has tried to hold women hostage by frightening them on issues such as reproductive rights, Roe v. Wade. American women in this country will not be held hostage by the politics of fear on Roe v. Wade anymore. I know many, many pro-choice women who are pro-McCain. And if we want to talk about equal pay for equal work, I think this, once again, is an example of John McCain walks the walk and Barack Obama talks the talk. And all you have to do is look inside their two Senate offices and assess how are women paid relative to men. In John McCain's office, women are paid more. In Barack Obama's office, women are paid less. That's a fact.

SEN. MCCASKILL: This is a great example. John McCain proudly states he wants to overturn Roe v. Wade. That's a fact, George. Carly can't get around that fact. And by the way, equal for equal work, John McCain is opposed to that legislation. He said so. He didn't show up to vote on it, but he said if I would have been there -

MR. STEPHANOPOULOS: This is the Lilly Ledbetter legislation.

SEN. MCCASKILL: This is just a few months ago. He said, I'm opposed to it. And by the way, women have been voted on our side of the ticket because they pay attention to the policies that matter, on education, on healthcare, on how they take care of their children and their mothers. This is what they care about. And they're going to pay attention this election, and I'll make a prediction that the women of America will vote for Barack Obama by a healthy majority.

MR. STEPHANOPOULOS: How about the equal pay legislation?

MS. FIORINA: You know, here's one thing that - this always happens, Claire and I battle it out, but we find something to agree on. I absolutely agree with Senator McCaskill. Women care about healthcare, education, national security, the economy, whether we're going to create jobs here in America or overseas. And that is why they will vote for John McCain. Not all of them, but enough of them that he's going to win. Because wherever they come out on Roe v. Wade, most women are not single-issue voters. They are, like men, caring about all the issues that matter to this country.


MS. FIORINA: So we're going to win. We're going to win on the substance on the issues, as I've said all along.

MR. STEPHANOPOULOS: We're going to end on that point of agreement. Thank you both. I hope to have you back. It was a spirited debate.

And now, we are going to turn to the economy, and what some are calling a death spiral in our financial markets. All weekend long, Wall Street's top executives have been holding emergency meetings with government officials and New York's Federal Reserve trying to come up with a plan to save yet another battered investment bank. Lehman Brothers has not found a white knight yet, and despite earlier government action to salvage Bear Stearns and take over mortgage giants Fannie Mae and Freddie Mac, Treasury Secretary Hank Paulson is signaling that the government is reluctant to step in again.

And so for more on this, we are now joined by the man who knows more about these problems than just about anyone in the country, the former Chairman of the Federal Reserve Alan Greenspan.

Welcome back.

ALAN GREENSPAN: Thank you very much. Good morning.

MR. STEPHANOPOULOS: Should the government step in and help Lehman Brothers the way they helped Bear Stearns?

MR. GREENSPAN: They're trying to do it in a different manner, and the reason is obvious from seeing the effect of the bailout of Bear Stearns.

When Bear Stearns was bailed out, it drew a line under that level of firm implying that anything that was larger than that firm was capable of getting federal assistance. Now, if you generalize that, it is very clear that that is an unsustainable situation in the financial markets and in the markets for saving the - (inaudible).

MR. STEPHANOPOULOS: The government can't put a floor underneath these firms.

MR. GREENSPAN: They cannot do that. And so what they are trying to do now with respect to Lehman is to find a way in which there is no government money involved in this particular set of negotiations.

MR. STEPHANOPOULOS: And what if they can't?

MR. GREENSPAN: Well, if they can't, they have to make a very key decision as to whether or not they allow it to liquidate or they support it, and those are very difficult decisions.

MR. STEPHANOPOULOS: What would you recommend?

MR. GREENSPAN: I don't know enough of what is going on. I would have to have very detailed information of what's on the Lehman Brothers balance sheet, whom they are counterparties to, and what the repercussions would be with any particular solution.

MR. STEPHANOPOULOS: But I guess the question is where do you draw the line? You over the course of your career have been an advocate of free markets, but in the last year, we've seen the government step in to help Bear Stearns, the government takeover Fannie Mae and Freddie Mac. And I guess I have two questions: one, where do you draw the line in government intervention; and two, and perhaps more important, how much worse is this going to get?

MR. GREENSPAN: First of all, let's recognize that this is a once in a half century, probably once in a century type of event.

MR. STEPHANOPOULOS: Is it the worst you've ever seen in your career?

MR. GREENSPAN: Oh, by far. There's no question that this is in the process of outstripping anything I've seen, and it still is not resolved, and it still has a way to go. And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes. That will induce a series of events around the globe which will stabilize this.

MR. STEPHANOPOULOS: And you think that will happen early next year?

MR. GREENSPAN: That's my best guess in the sense of that I've always argued that with this excess level of single family vacant homes for sale, that excess does not have to be completely removed to get prices to stabilize, but you have to get the rate of liquidation of those inventories at a pace which causes the market structure to stabilize. And once that happens, then the equity of homes in the United States becomes clear, which of course is the ultimate collateral for the mortgage-backed securities issued from the United States that have spread around the world.

MR. STEPHANOPOULOS: In the meantime, though, we see this trouble with Lehman Brothers right now. Washington Mutual, the country's largest savings and loan seems to be on the ropes as well. American International Group faced tremendous trouble this week. Even Merrill Lynch is facing trouble. Are we going to see more of these major financial institutions fail?

MR. GREENSPAN: I suspect we will. But in and of itself that does not need to be a problem. It depends on how it's handled and how the liquidations take place. And indeed, we shouldn't try to protect every single institution. The ordinarily course of financial change has winners and losers.

MR. STEPHANOPOULOS: It seems like everyone that's come along, at least recently, the government has said we have to come in and save it.

MR. GREENSPAN: That's basically because we have never seen the degree of interconnectedness on a global scale that has occurred in the last decade. And so that these are different from what we experienced in earlier years when they were largely localized. I mean, for example, you did get some contagion, for example, from the Russian default or from the long-term capital management default. But they weren't of a global scope that currently exists, largely because the very factors of globalization which have been so extraordinarily beneficial to the world at large and have taken hundreds of millions of people out of poverty has eventually a correction that it must go through. And this is what we are experiencing.

MR. STEPHANOPOULOS: I know there are a number of people on Wall Street who are concerned that you could see a meltdown - further meltdown even this week. And one suggestion that's been made is that the power of short sellers here is really quite pernicious, and some have said that perhaps the government should step in and suspend the short selling in these financial institutions until the market can stabilize. Is that a good idea?

MR. GREENSPAN: A very bad idea, because what the short sellers add to the system is a more realistic view of pricing, because remember, short sellers by their nature are not those with investments in a particular company. And if you only have those with investments in a particular company and those who are sympathetic to it in the market, you will get distortions which will ultimately create far more problems than allowing short sellers in, which improves the liquidity of the system, enables the adjustments to take place, enables prices to be finally determined, because it's only when you get clarity in prices that markets stabilize.

MR. STEPHANOPOULOS: So at this point that was clearly a bad idea, you say. Stepping in to help Lehman Brothers may be necessary. You don't know enough right now. How about - at the same time we're seeing the auto industry saying they need $25 billion in loans from Washington in order to meet the mandates that Washington set. Is that a good idea?

MR. GREENSPAN: I cannot think of a list which is longer than those who would have similar such desires and justifications for government help. To the extent that you do that, to the extent that bailouts, which are the use basically of federal funds, are draws on our scarce savings supply, you undermine the growth of the economy. And ultimately, if it's on a wide scale basis, you get stagnation. And economic stagnation is a very dangerous thing for a democratic society.

MR. STEPHANOPOULOS: To try to make this simple for a lot of viewers at home, I can imagine an auto worker in Michigan or an auto executive in Detroit, saying, well, wait a second. You think it's okay to come in and help Bear Sterns? And these financial markets always get the help they need when they're in trouble, but we get nothing.

MR. GREENSPAN: I think the argument has got to be that there are certain types of institutions which are so fundamental to the functioning of the movement of savings into real investment in an economy that on very rare occasions - and this is one of them - it's desirable to prevent them from liquidating in a sharply disruptive manner because that's of assistance to the economy as a whole, and those auto workers have got just as much - they're just as much involved in how the economy as a whole runs as everybody else. It's a different type of bailout. It's not assistance. It's stabilization.

MR. STEPHANOPOULOS: When you were on the program last December, you said the chances of a recession were about 50 percent. So far that has not occurred. We have not seen a recession this year. I know you think the housing market will start to turn around early next year. What are the chances that the U.S. will escape a recession over the next year?

MR. GREENSPAN: Well, if you had pressed me the last time I was here, I would say, very unlikely. The remarkable thing is how well the non-financial part of the economy has done. And the reason, as I've said on many occasions, is that we've gone through a period of long-term interest rates being very low, and that enabled the corporate sector and business generally to take short-term liabilities and fund them into longer-term liabilities at low interest rates, which meant they didn't need to go into the market for money all the time. And the result has been that even though there's been a severe credit crisis, it's not really impacted the borrowing needs of the non-financial sector because they don't need very much to borrow.

What has essentially happened here is a situation where the credit squeeze is beginning to affect the revenues of these companies, and we're beginning to see the American economy sag along with the rest of the world. And actually the United States is doing somewhat better than the rest of the world - (inaudible).

MR. STEPHANOPOULOS: So the chances of escaping a recession now, greater than 50 percent?

MR. GREENSPAN: No. I think it's less than 50 percent. I can't believe we could have a once in a century type of financial crisis without a significant impact on the real economy globally. And I think that indeed is what is in the process of occurring. There are positives: the decline in the price of oil, the decline in the price of food, inflation coming down at least in the short run, may be enough to stabilize us. I'd be delighted if it were to happen. I wouldn't put my money on it.

MR. STEPHANOPOULOS: So the message today, the bad news is not over. A sobering message, but thank you for your honest views. Mr. Greenspan, hope to see you again soon.

MR. GREENSPAN: Thank you very much. It was a pleasure being with you.

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