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MR. GREGORY: Our issues this Sunday -- the president issues a dire warning to Congress: Don't delay on the economic stimulus.

PRESIDENT BARACK OBAMA: (From videotape.) Failure to act and act now will turn crisis into a catastrophe.

MR. GREGORY: In the Senate, there is now a deal ensuring enough votes to pass the president's massive recovery plan, but it is far from bipartisan with only a handful of moderate Republicans onboard.

SENATOR JOHN MCCAIN (R-AZx): (From videotape.) We'll hear on the other side about how worthwhile this long, long list of pork barrel projects are, but the fact is they don't create jobs.

MR. GREGORY: The debate now intensifies as the final bill is negotiated between the House and the Senate. Will the plan prevent a deeper recession and provide relief to the 11.6 million Americans out of work? Our panel of key lawmakers weighs in -- chair of the Senate Republican Policy Committee and member of the Finance and Budget Committees, Republican Senator John Ensign of Nevada; chairman of the House Financial Services Committee, Democratic Congressman Barney Frank of Massachusetts; Democratic Senator Claire McCaskill of Missouri; and chairman of the House Republican Conference, Congressman Mike Pence of Indiana.

Then we continue our in-depth look at leadership tests for this new president. This morning -- confronting the ongoing and new challenges in Iraq and Afghanistan -- how long will American troops likely remain on the front lines? How do we now define victory? Insights and analysis from our guest, Tom Ricks, senior Pentagon correspondent for The Washington Post and author of the new book, "The Gamble: General David Petraeus and the American Military Adventure in Iraq 2006-2008."

But first, the economy with our panel of lawmakers here with us -- U.S. Republican Senator John Ensign; Democratic Senator Claire McCaskill; Democratic Congressman Barney Frank; and Republican Congressman Mike Pence. Welcome to all of you. So there is a deal in the Senate. We may get a vote early this week. Let's put the packages up, House and Senate, side-by-side, for comparison.

The overall cost on the Senate side, $827 billion, $820 billion in the House. House massive packages in the Senate; you've got more tax cuts in the House; you have more overall spending. This is not a bipartisan measure in the Senate. There are three Republican moderates who are now prepared to support it, one of them a Republican, Susan Collins, on the floor. This is what she said Friday:

SENATOR SUSAN COLLINS (R-ME): (From videotape.) Is it perfect? No. But this bill is an enormous improvement. The American people don't want to see partisan gridlock. They don't want to see us divided and fighting. They want to see us working together to solve the most important crisis facing our country.

MR. GREGORY: Senator Ensign, there is consensus among economists. It's not about the particulars of the bill but need to act fast and not delay. Is this bill better than no bill at all?

SEN. ENSIGN: I don't believe that it is. Remember, Japan during the 1990s. They acted, they continue to act, and they had six different stimulus bills, none of which brought their economy out of the severe recession that it was in. As a matter of fact, it's called the "lost decade" because they just never grew out of it, and the problem is they didn't get it right. They build all kinds of bridges to nowhere, roads to nowhere. You need to get it right. You don't want to spend these precious taxpayer dollars in the wrong way.

So -- yes, speed is important, but the speed is relative. You know, taking a couple of weeks sitting down with both parties, because Republicans don't have all the right ideas, Democrats don't have all the right ideas. We should have done this from the beginning -- sat down in a bipartisan fashion and bring the best ideas to the table because there are people out there that are really hurting -- losing their jobs, losing their homes, and we should have put the best ideas on the table. This was one-party rule.

MR. GREGORY: But you cite Japan -- critics of what Japan did during that decade, which is they often, with these stimulus plans, raised taxes at the same time, which sort of leveled out the impact of stimulus. So they're not directly comparable.

SEN. ENSIGN: David, taxes are going up in two years. Unless the Bush tax cuts are kept where they are today, taxes are going up, so you're going to see the same kind of effect in the United States.

MR. GREGORY: This issue of spending, Congressman Pence, is something that the president took on head on with regard to how much spending there in the bill, and this is what he said:

PRESIDENT OBAMA: (From videotape.) Well, then you get the argument, "Well, this is not a stimulus bill, this is a spending bill." What do you think a stimulus is? That's the whole point. Seriously, that's the point. Don't come to the table with the same tired argument and worn ideas that helped to create this crisis.

MR. GREGORY: Still on the issue of spending. Conservative economic professor, economist from Harvard, Martin Feldstein, who supported the stimulus originally. This is what he said back in October: "The only way to prevent a deepening recession will be a temporary program of increased government spending." So what's wrong with this approach?

REP. PENCE: Well, Martin Feldstein now says it's an $800 billion mistake, with all due respect to the president of the United States. The ideas, the wornout ideas that the American people are tired of is runaway federal spending. I believe the American people rejected that under Republican control, and I believe that's the reason why support for this stimulus bill is collapsing by the hour.

The American people know we can't borrow and spend and bail our way back to a growing economy. This bill -- the only thing this bill is going to stimulate is more government and more debt. There is a time-honored way to stimulate the economy. John F. Kennedy knew it, Ronald Reagan knew it. When the towers fell in 2001, President George W. Bush knew it, and that is you give the American people more of their hard-earned tax dollars, tax relief for working families and small businesses, and you marry that with, as I'm sure Barney will argue, you marry that with some appropriate investments in infrastructure.

Certainly, make sure unemployment insurance is covered. But the centerpiece of any effective stimulus bill that's ever been passed by Congress in the recent past has been tax relief. The center of this stimulus bill is massive, unaccountable government spending, and the American people are tired of it.

MR. GREGORY: But basic economic theory is if you want to create demand for goods and services in an economy, somebody's got to do it. Businesses aren't spending, consumers aren't spending, so doesn't government have to be the spender of last resort just as it has been engaged in deficit spending with regard to wars in Iraq and Afghanistan?

REP. PENCE: Well, you're exactly right. There needs to be a release of resources into the economy, but the question here is how do you most effectively release those dollars into the American economy? Do you do it by giving working families and small businesses the opportunity to invest in ways that will create jobs? Or do you pull out, which is what the Democrats have done here, and the American people know it -- pull out a tired old wish list of liberal spending priorities and pass a bill that, in one fell swoop, is the size of the entire discretionary budget of the United States of America.

MR. GREGORY: Let's hear from the Democrats on the panel as well. Senator?

SEN. MCCASKILL: Well, first of all, we were compromised -- we did compromise in the Senate. We had a group of Republican senators in a room, and we worked hour after hour and, by the way, that door was open to every Republican in the Senate to come into that room and go through this bill line by line by line. I mean, we should compromise, which is what the American people want.

You know, the building is on fire, and what we typically do in Washington is argue what color of fire truck do we send to the scene? They do not want us arguing about the color of the fire truck. They want something bold, they want something swift, they don't want a series of procedural votes even though you guys know we have the votes on Monday and Tuesday. We could pass this thing on Monday if we would quit playing the political inside-the-beltway games of figure out a way to get a political advantage.

MR. GREGORY: Well, to that point, Senator, will Republicans in the Senate try to delay passage?

SEN. ENSIGN: Sure. First of all, we only got the bill at 11:00 last night, okay? It was so complex -- this is almost $1 trillion. You don't get do-overs with $1 trillion. If you get this thing wrong, $1 trillion isn't like, "Well, we did it wrong, we'll try it again." $1 trillion --

MR. GREGORY: Will they pass -- do you think it will pass this week?

SEN. ENSIGN: It will pass this week, but we want some time to go through it, we want some time for the American people to be able to look at it. Getting it at 11:00 on a Saturday night and just having a day and a half to look at $1 trillion in spending I don't think is adequate.

MR. GREGORY: Congressman?

REP. FRANK: Watch this space, David, because some of the arguments you've been hearing now about how government spending never helps the economy. You can hear the absolute reverse when military spending comes up. We have an airplane, the F-22, that is designed to defeat the Soviet Union in a war, and I think we could save billions -- the Defense budget has gone way up under George Bush, but somehow, to my Republican friends, enormous amounts for the war in Iraq, which I thought was a mistake, hundreds and hundreds and hundreds of billions of dollars for weapons to fight the Cold War, they don't count those.

But you're going to hear an argument about how important military spending is for the economy. So -- (inaudible) --

Secondly, they talk about this wasteful spending. Let me talk about it. I'll be flying out of here this afternoon to go over to New Bedford, Massachusetts, where they are about to lay off cops and firefighters. That's the wasteful spending that my colleagues are talking about -- money to go to the states to stop them from laying off cops and firefighters; money to help keep teachers going. Those are jobs.

There seems to be this notion that if you hire someone to do something useful, that somehow becomes social spending; it doesn't count. In fact, these have dual purposes. If you keep cops and firefighters and teachers from being laid off, you are improving the quality of life, I think, or preventing a deterioration.

Secondly, as to the bipartisanship, again, I want to congratulate my Republican colleagues that they're not too old to learn, because I was in Congress in 2001, '02, '03, '04, '05, '06 when the Republicans controlled the House, the Senate, and the White House, and they pushed things through. There was none of this concern that one-party rule was a bad thing.

Now that they're not the party, they've decided that that's a bad idea, and that's always nice when people know new things, but we had an election last year, which had pretty decisive results in the White House, the Senate, and the House, and it did say that public spending for improved infrastructure to keep bridges from crumbling, to keep cops and firefighters working -- that that's a good thing.

MR. GREGORY: Congressman?

REP. PENCE: Well, less than 5 percent of this bill is for roads and bridge and infrastructure. And let me be clear with Barney. I don't have any problem with some spending on infrastructure and making sure that people's unemployment benefits aren't lapsed. The point is, is what should most of this bill be about? No one is saying that spending by the federal government isn't going to have some benign positive effect on the economy. What would be the most effective --

REP. FRANK: David, excuse me --

REP. PENCE: -- to turn this recession around?

REP. FRANK: -- Mike, you just ignored what I said. I understand one of the big cuts that had to be done, and I think that Senator McCaskill and others were trying, but to get any Republicans at all, you had to adopt a cut that's going to policemen and firemen are going to be laid off. It's not just interest -- cutting off aid to the states, aid to the states, is to prevent this budget crunch from laying off public employees.

MR. GREGORY: We're going to get some of the cuts and whether they're wise in just a moment, but Larry Summers, top economic advisor to the president, said this bill should be timely, targeted, and temporary. This is opposition to that in this bill as voiced by Senator Roberts on the floor of the Senate. Listen:

SENATOR PAT ROBERTS (R-KS): (From videotape.) This bill is not timely. CBO estimates that only 15 percent of this stimulus package will be spent in 2009; 37 percent 2010; remaining part spent in 2011 and beyond -- half the money, less than half the money will be spent by the end of next year. This is not immediate relief that families and businesses desperately need now to help get the economy back on track.

MR. GREGORY: Senator, let's be clear -- the administration says 75 percent of the spending will be paid out in the first 18 months. That does not change the fact that there is significant -- there is a significant amount of money that is paid it the out years of this beyond 2010. That is long-term spending that doesn't necessarily stimulate jobs up front, true?

SEN. MCCASKILL: Well, what it does is it stimulates investment in certain sectors. For example, some of the money that's going to spend out in a little more time in the first two years is some of the investment in new jobs and green technology, you know, retrofitting our old buildings but, more importantly, finding a way to get out from underneath the thumb of foreign oil -- long term. That is an incredibly important investment for our country.

And if you look at this whole bill, that is not correct. A lot of it - the vast majority of this bill will spend out quickly.

It's not going to be enough, David, to keep us from losing jobs in this country, but to do nothing -- do we really think we can sit around here in Washington watching this job loss and just trying another tax cut for really wealthy people like George Bush did? I don't think so.

MR. GREGORY: So why not separate some of the long-term spending, Senator? Separate it for a separate appropriations process.

SEN. ENSIGN: This is what I've been saying all along. There are some things that we need to go quickly on, but there are -- the long- term spending, we should do it carefully, and we should take our time on it. There is not a hurry on that. It's not going to be spent for two years. Let's take that out and let's do it right.

But the other thing, to get back to what Congressman Frank said is that we're going to be laying off teachers and firefighters. You know, that's just fear-mongering. We're not going to be doing that in any of the states. The states have grown in their budgets faster than population growth, faster than inflation for the last several years -- actually, probably, about the last 15 years. Their budgets are bloated, the federal government's budget is bloated. What we should be doing is cutting back -- instead of just spending money, we should eliminate waste for Washington spending and also require the states to have some fiscal discipline.

Here is what this bill does -- it sends the money to the states and not only do we have them not have to make the tough cuts that they should be making, we actually encourage them to spend more because to be able to get the money, they have to spend more. And this just encourages more wasteful spending.

REP. FRANK: Well, first of all, on the bloated spending, this comes from a man whose party controlled the federal government, House, Senate, and White House, for six years. We've had it for two and, in fact, we didn't have the presidency. So the bloated spending, once again, you're getting --

SEN. ENSIGN: I agree with that, Barney, I agree.

REP. FRANK: Well, if you agree, I wish -- I guess it would have been more impressive if you'd done something about it not just agree. You were in power for six years. The spending that we have now was set by six years of Republican spending, excesses in a number of areas, I agree.

Secondly, the notion that we're not laying off policemen, firemen, and teachers is simply factually untrue. And this argument that the states are bloated -- I look at my state of Massachusetts, there are terrible problems in other states as well because of the collapse of the housing market, because of the lack of tax revenues, and I'm very prepared -- let's have that argument.

So the states -- does sending money to the states mean when they don't lay off people that that's a bad thing?

MR. GREGORY: But, Senator, you said about the House bill that, in fact, they did bloat it up with some spending, and they provided ammunition to Republicans to shoot this thing down and take over some of the political argument. Is that still what you believe?

SEN. MCCASKILL: I do think that there was some spending in the bill that was makeup for a starvation diet under the Bush administration. Some important priorities of our party -- frankly, of the American people -- and the question is does it belong in the stimulus bill or does it belong in the appropriations bill? I think some of the money that we cut in the compromise to get the votes that we have, wasn't as -- spending that, more appropriately, should go in an appropriations bill.

MR. GREGORY: Should more be cut in the conference? Do you believe more spending be cut --?

SEN. MCCASKILL: I think we've got a good mix right now, it's 60- 40 -- 40 percent tax cuts, 60 percent spending, give or take one or two percentage points. And, by the way, our bill is 90 percent the same as the House. The 10 percent difference were some of the cuts that we made in some of the things that could be put in an omnibus appropriations bill or an appropriations bill.

REP. PENCE: I've got to jump in here. What you're hearing these two very distinguished colleagues say -- what Nancy Pelosi said on the House floor, what President Obama said Thursday night in that harsh partisan speech, I give them all credit for candor.

Speaker Pelosi goes to the floor and says this is about changing the direction of the federal government. Well, I thought we were trying to create jobs. We've got all year long to have these debates. What we ought to be doing is --

(Cross talk.)

REP. PENCE: What we ought to be doing is you create --

MR. GREGORY: If you spend this amount of money -- where is it going to go. As the columnist put it this week, it's not going down a rabbit's hole. If you create demand for goods and services, doesn't that create jobs?

REP. PENCE: Look, there are an enormous amount of economists who think this is the wrong way to go -- some 300 published a full-page ad this week -- (inaudible) --.

MR. GREGORY: You're not saying that government spending doesn't create jobs?

REP. PENCE: Government spending can, on the margin, create jobs, but let's be clear. John F. Kennedy, Ronald Reagan, and after the towers fell in 2001, prove that the way you jumpstart the economy, the way you jolt a free market economy into action is by giving working families and small businesses more of their dollars. And let me say what the Republicans came forward with, at the president's request -- after Thursday night, it doesn't seem like the president is very interested in other ideas anymore -- but at the president's request, Republicans put together an alternative that was targeted to middle class families, a tax cut this year of up to $3,400 and targeted to small businesses. The whole rhetoric about tax cuts for the rich is a non-starter.

MR. GREGORY: A final thought on this before we turn to banking.

REP. FRANK: Yeah, George Bush's tax cuts were for working families who make $150,000 or more. In fact, Bill Clinton, the most successful economic period we've had recently in America, was after Bill Clinton got many of us to vote to raise taxes on upper income people. In fact, we did that in '93, and no Republicans voted for it. We didn't get any bipartisan help then. We, in fact, had a very successful economy for the rest of his term.

But the last point, though, is that this is spending, and there is a contradiction here. On the one hand, they say things are bloated and have to change; on the other hand, they say the trouble with this bill is it's trying to make change. Yeah, the bill isn't simply putting money into the same hole. It is trying to make some change while you were spending, but I do believe that cops and firefighters getting paid and not getting laid off helps the economy.

MR. GREGORY: I want to turn -- because we're not going to have time -- I want to turn to the very important issue of banking. Either tomorrow or perhaps Tuesday, the Treasury Secretary, Timothy Geithner, is going to lay out a plan to help the banks, and as far as we can tell, there will be some broad outlines that include providing more capital to the banks, which are under-capitalized, trying to do something to help the banks get rid of these rotten assets that are on their books, and perhaps even ensuring some of the losses on the banks.

Congressman Frank, how do they do this? What do you think the best approach is to this problem?

REP. FRANK: Well, there is no very good approach, because, frankly, a philosophy of let the private market do whatever it wants, don't regulate capital, keep the government out of it. Alan Greenspan, the leader with that philosophy, it caused a lot of problems, and we now have to try and fix them, and we have this dilemma. You can't create a whole new credit system from scratch. You have to work with the existing one. That means some incidental help to some of the people who are guilty.

But you have to do a couple of things.

First of all, the most important thing to do, and there is an enormous contrast -- if you're in the Bush administration and the Obama administration is reduce foreclosures. To our great disappointment and in defiance of congressional language, the Bush administration in the first $350 billion refused to do anything with that money to reduce foreclosures, a major part of which you're going to see the Obama administration is an effort to put substantial money to reducing foreclosures both because they are damaging socially but, even more important, there is macroeconomically, until you reduce foreclosures you don't begin to get out of the problem.

MR. GREGORY: Let me pick up on that point, and we're talking at least $50 billion that is apparently going to be appropriated for just some kind of loan modification to mitigate foreclosures. What is in the Senate is a tax credit for first-time homebuyers, and here is my question.

REP. PENCE (?): Republican -- (inaudible) --?


SEN. MCCASKILL: And a great one.

MR. GREGORY: And it has been accepted. But here is the problem with it, it seems, to a lot of people. If I'm going to buy a house, and I'm worried about the value of that house going down; I'm worried about my job, why is a tax credit necessarily going to incentivize me to jump into this very risky market?

SEN. MCCASKILL: Well, I think it will help some, but I think, broadly, on this topic, David, we've got to quit talking about this that we're helping the banks. There is --

MR. GREGORY: But you say it's going to help -- we're talking about %50 billion at least that they want to do for loan modification, and a tax credit that is also very expensive -- is it only going to help some? Because that's a fundamental problem -- that people don't want to get into this --

SEN. MCCASKILL: We've got housing stock, we've got to move. That is essential. We've got to move every way we can to move this housing stock, because if we don't move the housing stock, this whole thing is goingi to be slower and more painful than it needs to be.


SEN. MCCASKILL: But we can't -- we've got to start explaining to the American people that this money that we have put in the banking system is not about helping bankers, it's not about helping big guys on Wall Street. It's about making credit flow in this country. We cannot have this economy recover if we can't figure out a way for these banks to start making more loans. They're beginning to make more loans because of what we did last year, but we've got to have more, and we've got to characterize this not as saving the banks but saving the economy in terms of the credit flows in the country.

MR. GREGORY: But you acknowledge, Senator, that the banks need more capital, they need more money. Capital is defined as like their net assets, like in a household your net worth.

SEN. ENSIGN: Here is the problem, David, is the housing crisis is what has drug the rest of the economy down. That's why the stimulus bill should have been focused, to a great deal, on fixing the housing problem, because if you don't fix that underlying cancer, if you don't treat that, the rest of the economy can't recover, and that's why I had an alternative bill that actually did foreclosure mitigation that had the $15,000 tax credit in to buy a new home but also would lower any American home -- 40 mil American homes would be able to lower their interest rate to about 4.25 percent. That would have --

MR. GREGORY: But that was defeated, that was defeated.

SEN. ENSIGN: But it was, but it was an idea out there that was targeted at the problem.

MR. GREGORY: I want to stay broad on this topic, though. Congressman Frank, this is what you said on Tuesday with regard to U.S. banks. Listen:

REP. FRANK: (From videotape.) People really hate you, and they're starting to hate us because we're hanging out with you, and you have to help us deal with that.

MR. GREGORY: And you're going to try to deal with it. You've got the top CEOs coming down from the U.S. banks that are going to be in front of your committee on Wednesday. What do you want to ask them?

REP. FRANK: Well, the first thing I'm going to ask them is this -- these are these eight very highly paid people, there were nine, they merged -- you get large salaries, you have these great jobs, and you also get a bonus. What is it that you do because you get a bonus that you wouldn't otherwise do? I want to know, like, if they didn't get a bonus, would they knock off early on Wednesday?

MR. GREGORY: But not all of them got bonuses.

REP. FRANK: No, these top eight guys have historically -- (inaudible) --

MR. GREGORY: Yeah, right.

REP. FRANK: But 2006 -- the Democrats on the House Financial Services Committee began to look at this question for executive compensation. The problem with compensation is not just that it's large, but it gives a perverse incentive. They pay themselves in ways that say this: "If I take a risk, and it pays off, I get extra money. But if I take a risk, and it loses money, I break even. Heads I win, tails I break even." It's going to encourage people to flip too many coins, and that's -- one of the things we have to do is that.

Secondly, as Senator McCaskill said, we have to push them to lend more -- not irresponsibly. Look, I -- the Bush administration, the Obama administration, will each have spent $350 billion into this. You're going to see enormous contrast. John Ensign is right, the housing crisis is critical. That's why it was a shame that the Bush administration refused to do anything substantive to deal with it.

MR. GREGORY: But a lot of this discussion seems to get caught up in some of the partisan divide about what you do punitively against the banks, and my question is a little bit different. We know that this economy was bloated, we know that there was a bubble. We know there was much too much lending, much too much credit that was extended. So, Congressman, what is a healthy level of lending in the credit market?

REP. PENCE: Well, and we know that there was a lot of excessive lending because Congress, that now wants to tell the banks how to be run, forced banks farther and farther in the 1990s into making more and more bad loans. I mean, this is really astonishing, I think, to most Americans that Congress, that has -- what have we got now? Like, a $10 trillion national debt -- doubled the national debt in the last eight years, is going to start telling these failing banks how to run their books?

I strongly opposed the banking bailout last fall. I opposed the president of my own party and the leaders of my own party, because I don't believe we can nationalize every bad mortgage in America. I don't believe we can nationalize every failing bank in America. What troubles me about the impending announcements by the Obama administration is it just seems to be more of the same -- more taxpayer dollars being shoveled from Main Street to Wall Street --

MR. GREGORY: But, Congressman --

REP. PENCE: And more micromanagement --

MR. GREGORY: But do you agree that --

REP. PENCE: -- through a capital bail of our financial sector.

MR. GREGORY: Do you agree -- because that argument is made a lot -- do you agree that the banks need more capital if they're going to lend?

REP. PENCE: Absolutely, and there is an enormous --

MR. GREGORY: So how can you say you're just throwing money out there, if they have an actual need?

REP. PENCE: There is an enormous amount of capital in the marketplace. You know, one of the ironic things right now about the proposal is we're hearing rumors that there is going to be an insurance element of this where you ask the banks to actually pay an insurance premium. That's what the Republicans propose instead of a massive bailout put on the backs of taxpayers. We proposed that last October and were told, "Absolutely not. It can't happen, it would never work." Now, apparently, it's going to be a centerpiece of the plan.


REP. PENCE: In terms of capital, though, to your point, and it's the right one, how about we suspend the high taxation on repatriating corporate profits. We can bring a half a trillion dollars back into this economy without --

MR. GREGORY: I want to ask -- (inaudible) -- to really try to educate people here, Congressman, because I think this is so important. One of the issues here is how do you get lending to increase, how do you get the assets off the books? One idea, and we don't know if it's fine, will be for -- essentially, try to get private equity into the secondary market, which is where a lot of these assets are traded, bought and sold, and that Uncle Sam, the Fed, basically said to private investment, "We're going to have your back on this so we can try to get things moving again." Is that a feasible plan?

REP. FRANK: -- (inaudible) -- one point -- repatriation -- what --

REP. PENCE: This is what we proposed.

REP. FRANK: May I make my own case?

REP. PENCE: Certainly.

REP. FRANK: Thank you. Yes, they proposed repatriation. Let's explain what that is. It's letting American companies go overseas with their business, earn profits on the theory that under the law that says when you bring them back there will be taxes saying, "Oh, oh, we changed our mind. You can go overseas, earn your profits, bring them back, and pay virtually no tax." We've done that once. They wanted to do it again. What that would be would be an invitation to American companies to go overseas, earn profits, bring it back and pay virtually no taxes.

(Cross talk.)

REP. FRANK: Yes, you did it once, and it brought back -- and very little spending benefit benefited us. You want to do it again. You're going to institutionalize this -- (inaudible) --

(Cross talk.)

MR. GREGORY: We're not going to resolve this piece. What I'd like to do is provide some daylight here about this plan with regard to getting lending.

REP. FRANK: I don't know exactly what it is, but I will say this: There is a real difference here. There's a split between the Republican Party here and Representative Pence. They believe that nothing should be done, let the market basically do --

REP. PENCE: That's not true.

REP. FRANK: -- (inaudible) -- the interruption, because you guys say things that I disagree with.

(Cross talk.)

REP. FRANK: Excuse me.

MR. GREGORY: Finish your point, and then I want to move on.

REP. FRANK: I'd like to be able to.

SEN. MCCASKILL: Easy, guys, easy.

REP. FRANK: I understand why you don't want to defend -- you don't want me to talk about foreign companies going overseas, making their profits and bringing them back for no taxes for the second time, but the point is the Bush administration said, "Here is the money to the banks. We will put no constraints on you. We'll let you compensate the way you want. We won't tell you to lend, we won't do anything about foreclosure."

What we are talking about is some way of saying to the banks, "Unfortunately, you made mistakes. We have to help you some. We will help you get rid of some of the bad assets. We, the federal government, will take some paper back so that if this works and you become more profitable, we will get compensation, but we will have to share some of the risk if we're going to get private capital back in.

MR. GREGORY: All right, I want to finish here, and there are just a couple of minutes left -- where the administration admits were some self-inflicted wounds this week. I'm talking about the failed nomination of Tom Daschle to run health care policy and run Health and Human Services, that department. He sat down with Brian Williams this week and said this, taking the blame:

PRESIDENT OBAMA: (From videotape.) I am here on television saying I screwed up, and that's part of the error of responsibility is not never making mistakes, it's owning up to them and trying to make sure you don't repeat them, and that's what we intend to do.

MR. GREGORY: Here is what Steve Pearlstein wrote in The Washington Post, a business columnist, about all of this: "Tom Daschle's problems wasn't that he didn't pay his taxes. It was that he, along with those who vetted his nomination as Health and Human Services secretary, and many of his colleagues in the Senate found it perfectly ordinary and acceptable that he would be able to cash in on his time in the Senate by earning more than $5 million over two years as a law firm rainmaker, equity fundraiser, corporate director, and luncheon speaker, all the while being driven around town in a chauffered towncar. Claire McCaskill, has this been a wakeup call for Washington?

SEN. MCCASKILL: Well, I think it's been a wakeup call in many ways, and I think one of the things that's refreshing, and one of the reasons President Obama is going to win the hearts of the American people continually is that he looked in the camera and said, "I screwed up." That doesn't happen very often, and, by the way, this is in the same week that he appointed a very fiscal conservative Republican as secretary of commerce. I don't know when the last time was that happened around Washington.

This is a guy who is going to be very disciplined as president of the United States about reaching out to all points of view and admitting mistakes when he makes them and, frankly, that's just what the doctor ordered.

MR. GREGORY: But he wanted him to fight for his nomination before it got too hot politically.

SEN. MCCASKILL: Well, I think he knew what Tom Daschle was capable of bringing to the table in terms of this area of public policy, and you always weigh the good and the bad, and I think he saw so much of the good that he made a mistake and didn't realize how much the bad was going to drag down the administration when they've got to get this economy going again.

MR. GREGORY: Senator, a larger point here for Washington on what's acceptable?

SEN. ENSIGN: Well, it's not just -- I mean, first of all, we're leaders.

We're supposed to pay our taxes, we're supposed to obey the laws but, also, I think, to your larger point about this almost incestuous nature of Washington, D.C. when people lead the Senate, lead the House, lead the administration, and then make all this money basically -- I mean, he's being paid $2 million by a lobbying firm, and that's not a lobbyist? I mean, there's just something wrong. You can't believe how many relatives of Senators and congressman are lobbyists, and that whole -- on both sides, absolutely. No, there is a lot wrong. The American people need to have more trust in what we do in Washington, D.C., and today there is no wonder that they don't trust us because they see so much of this kind of thing that was brought out with Tom Daschle going on, and it is. It is both sides, and it needs to be cleaned up.

MR. GREGORY: Congressman Frank, how do you see it?

REP. FRANK: For the last chauffered towncar I drove in, David, was this morning when you sent one to pick me up. I don't usually do it, but -- and the week before was when Stephanopoulos sent one.

MR. GREGORY: Yeah, yeah, we had to make sure you got here.

REP. FRANK: -- (inaudible) -- I'm accused of being a -- I don't know what kind of car it was. (Inaudible) --

SEN. ENSIGN: I drove my own car.

MR. GREGORY: But, seriously, how do you change this? Because a lot of people, you know, you've got the president who is out there castigating Wall Street, you brought up the issue of compensation, you've brought up the issue of compensation very strongly, and yet this kind of thing happens in Washington.

REP. FRANK: You change it by the voters being tougher, frankly -- I think that part of the problem is the voters. You know, nobody in the Senate -- well a couple in the Senate but nobody in the House, parachuting in. And the voters have to be tougher. I don't think they hold us to a high enough standard.

MR. GREGORY: Before I let you go, do you think the government will ask for more money -- for additional money for the banks. Will they actually ask Congress for more -- beyond the $350 billion that's in the bailout fund.

REP. FRANK: They probably will. But if they haven't been able to get the banks to lend more, restrict excessive compensation and help deal with foreclosure in a reasonable way, they're not going to get, and I've made that very clear to the Obama administration.

MR. GREGORY: We are going to leave it there. Thank you very much for a spirited debate this morning to all of you.

Coming next -- our Presidential Leadership Series continues. We will look at the challenges the new president will face in both Afghanistan and Iraq. Washington Post senior Pentagon correspondent and author of the new book, "The Gamble," will share his reporting and analysis.


MR. GREGORY: And we're back and joined by Tom Ricks for his first interview on his new book, "The Gamble: General David Petraeus and the American Military Adventure in Iraq 2006-2008." Welcome back to "Meet the Press."

MR. RICKS: Thank you.

MR. GREGORY: This was the first book, "Fiasco," about Iraq, it speaks for itself, and just to hold it up, this is the new book, it is "The Gamble." And here was something striking that you wrote in this book. Looking forward, now, to President Obama and his leadership test: "'2009 could prove to be a particularly difficult year in the war. In many ways, the entire war was a huge gamble, risking America's future power and prestige on a war that, at best, is likely to be inconclusive,' commented Shawn Brimley, a former Canadian infantry officer who became a defense analyst at the Center for a New American Security. He predicted that Bush's gamble will force Obama into a series of his own gambles and tradeoffs between the war and domestic needs, b Iraq and Afghanistan, between his political base and his military. In sum, the first year of Obama's war promises to be tougher for America's leaders and military than was the last year of Bush's war." How so?

MR. RICKS: I think a lot of people back here incorrectly think the war is over. What I say in this book is that we may be only halfway through this thing. In fact, my favorite line in the book is the last line, Ambassador Crocker, a very thoughtful diplomat, says that "The events for which the Iraq War will be remembered have not yet happened."

MR. GREGORY: That is an amazing statement, and a lot of people have to be listening to that thinking, "Well, what's the other shoe to drop then?"

MR. RICKS: There are a whole lot of shoes out there, a whole lot of shoes to be thrown, actually. This year we're in now, '09, is going to be, I think, a surprisingly tough year. You've got a series of elections in Iraq. Meanwhile, you've got American troops declining. General Odierno says in the book that the really dangerous withdrawals come at the end of this year. We are doing easy troop withdrawals now, but down the road, you start taking them out of areas that aren't so secure, that aren't so safe that you're worried about. So they're going to be holding national elections in Iraq just when we have fewer troops there.

And, finally, none of the basic problems that the surge was meant to solve have been solved. All of the basic issues facing Iraq are still there.

MR. GREGORY: You suggest that while the administration has said the surge was successful. Undeniably, violence has gone down. You suggested kick the can down the road. What do you mean?

MR. RICKS: Well, basically, the surge succeeded militarily, failed politically. And that was its purpose -- not just to improve security but to create a political breathing space in which national reconciliation and which major change could occur Iraq that hasn't changed. What General Odierno says in the book, he's the U.S. commander there now -- what Odierno says is that Iraqis, many of them, used the breathing space we created to step backwards, to become more sectarian, they've become more divided.

MR. GREGORY: The issue of troops is what everybody is focused on, certainly, politically when troops come home. This is what President Obama said before he was president on the campaign trail. This is October 2007:

PRESIDENT BARACK OBAMA: (From videotape.) I will promise you this -- that if we have not gotten our troops out by the time I am president, it is the first thing I will do. I will get our troops home, we will bring an end to this war. You can take that to the bank.

MR. GREGORY: And yet by July of 2008 on the campaign trail, he spoke about it somewhat differently:

PRESIDENT BARACK OBAMA: (From videotape.) My 16-month timeline, if you examine everything that I've said, was always premised on making sure that our troops were safe, and my guiding approach continues to be that we've got to make sure that our troops are safe and that Iraq is stable.

MR. GREGORY: You write in the book that Obama will be torn between what his supporters expect and what his generals advise.

MR. RICKS: I think that's right, and I think we may see a confrontation between Obama and the generals by the end of this year. American voters, many of them think we're going to be out of Iraq in 16 months. When he talks about having combat troops out of Iraq that somehow no more American troops will die.

Well, the news flash for Obama here is there are no such thing as non-combat troops. We don't have a pacifist wing of the U.S. military. All our troops are ready for combat.

We're going to have American troops fighting and dying there for many years to come. What General Odierno says in the book is he would like to see 35,000 American troops there in 2015.

MR. GREGORY: In 2015?

MR. RICKS: Yeah. So, which means that Obama's war in Iraq may be longer than Bush's war in Iraq. So the bottom line here -- I think Iraq is going to change Obama more than Obama changes Iraq.

MR. GREGORY: Where are troop levels now?

MR. RICKS: We're about 155,000.

MR. GREGORY: And when do we get to that bottom-out level of 30,000, 35,000 that Odierno is talking about?

MR. RICKS: Well, that's going to be fight all year long. When do you come down, how fast do you come down, do you come down a brigade a month, as Obama indicated on the campaign trail, or do you plateau it out this year and then bring it down early 2010? No matter when you do it, though, you're going to come to a point when the generals are going to say, you know, "This is not something I really want to do here. This is dangerous. We're taking troops out of a place where things are going to start breaking loose."

MR. GREGORY: But that's the question, which is how much danger do Americans face? Because what you write in the book about the surge is that it was the first time that Iraqis took the lead in this war effort. If U.S. troops are there, but they are not in harm's way in the same manner that they have been before, perhaps Americans can live with that long-term commitment. Do you expect that will be the case?

MR. RICKS: If you are in Iraq, you're in harm's way, first of all. The second thing is, I think people here -- and this is a major theme of the book -- people here don't understand quite how tough the surge was. Those first six months of 2007 were the hardest six months of the war, and it was a near-wrong thing. The general who were there were not confident it was going to succeed. There were several months there -- April, May, June 2007 where U.S. casualties are increasing, no signs of success.

So one of the last things they want to do is roll the dice again and say, "Sure, you know, it might blow up in our faces, but let's try it." Now, they feel they have made huge sacrifices; that they have had friends die and sons bleed and that they don't want to throw that all away on the, you know, because some guy sat on the campaign trail, "We're going to get all these guys out."

MR. GREGORY: Let's talk about the legacy of this war as best we can determine it now. This is what you write about the outcome: "Nor at the end of many more years of struggle is the outcome likely to be something Americans recognize as victory. Instead, these additional years of sacrifice promise to be made from markedly limited objectives. A senior intelligence officer in Iraq describes the long- term American goal as 'A stable Iraq that is unified, at peace with its neighbors, and is able to policy its internal affairs so it isn't a sanctuary for al Qaeda. Preferably, a friend to us, but it doesn't have to be.' He paused, then pointedly noted that his list doesn't include democracy or the observation of human rights."

MR. RICKS: This is an opinion you'll find the closer you get to Baghdad. Nobody there really -- nobody -- Americans that I see really expect this place to be a stable democracy any time soon.

MR. GREGORY: And yet this was the major rationale for this war. After weapons of mass destruction, which were not found.

MR. RICKS: But don't forget that what happened when Petraeus and the people around him were put in, essentially, the dissidents were put in charge of the war. Ambassador Crocker reveals in this book that he was essentially opposed to the American invasion of Iraq. A lot of the people who have been running the war for the last two years really thought this was a bad idea or have been badly executed.

MR. GREGORY: And yet President Bush, during exit interviews, stood by the war, stood by the surge, but he also said this about the rationale for removing Saddam Hussein: "You put in the middle of the Middle East demand rich with oil who sponsored terror, who had the capacity to make a nuclear weapon combined with Iran, it's conceivable you would have a nuclear arms race in the Middle East now. I argue vociferously that the Middle East is better off without Saddam Hussein."

MR. RICKS: Let me tell you my worry about that. We have a bunch of Iraqi generals out there who are not, in any way, people who subscribe to our values. The fewer American troops we have there, the more they can behave the way they want to, and what you're going to see is a lot of new little Saddams. The difference is there are Saddams.

You are going to see situations probably where Iraqi forces don't like a village, and so they just shoot artillery into it. These are not things the American military does, but if you don't have American military around to stop it, that's going to happen. You're going to have Iraqi generals try to use American air power, calling air strikes on people they don't like. You're going to see politics wage violently, but we're going to have less control of the situation.

So my worries at the end of all this -- you have a bunch of new little strongmen. The difference is we trained and armed them.

MR. GREGORY: You talk about that relationship with the military, and this is going to be important -- when it was back in July of '08 when Senator Obama went with a couple of other senators for his first meeting with General Petraeus in Iraq, and here he is, he's getting off the helicopter, and we're seeing him. This was a rather contentious exchange, wasn't it?

MR. RICKS: It is, and this is one of my favorite moments in the book. Here you have Petraeus and Obama who are, in many ways, very similar guys -- lean, smart, tough, ambitious, more reserved than a lot of their peers, and they actually agree on a lot of -- where Iraq should be, lowering our sights there and our goals. But the meeting in Baghdad was surprisingly contentious. It goes on for about 90 minutes and essentially the general lectures Obama. And his feeling was, "I've been to your hearings, you guys have beat up on me. You kept on asking me questions and didn't give me time to answer. Now you're on my turf," and what should have been, really, a general with a candidate conversation, became a 90-minute lecture by Petraeus, "Let me tell you about Iraq, fella."

MR. GREGORY: Interesting. Who, in the region, won the war in Iraq, do you think?

MR. RICKS: If you had to call the ball right now, Iran, I think is probably the biggest winner. You're seeing an extension of Iranian influence into Iraq that you haven't had in the past. Iran has become a much greater power since the American invasion of Iraq. Iran has its fingers throughout the Iraqi government. This is something General Odierno mentioned several months ago and got in some trouble for, for talking about so publicy. Iran really does worry me in this situation.

MR. GREGORY: Let me talk about Afghanistan. This is the other big leadership test for this new president and his national security team. He's talked about a surge in Afghanistan going from 30,000 to 60,000 troops. Vice President Biden was at a security conference in Munich over the weekend, talked about a new plan for Afghanistan. Here is portion of what he said:

VICE PRESIDENT JOE BIDEN (D-RI): (From videotape.) The result must be a comprehensive strategy for which we all take responsibility; that brings together our civilian and military resources; that prevents terrorists a safe haven; that helps the Afghan people develop the capacity to secure their own future.

MR. GREGORY: So what are the biggest challenges he faces now in Afghanistan?

MR. RICKS: Well, I think the first thing is to recognize that it's not really a war in Afghanistan. It's a war in Afghanistan and Pakistan. As a friend of mine said, "It's hard to win a war in Afghanistan when the enemy wants to hide it in the next country over, Pakistan."

MR. GREGORY: Right, and that's the Taliban fighting and winning battles in Pakistan. This is where we went to war to take them out of power.

MR. RICKS: And that's very scary, and our supply lines through Pakistan are being challenged. Bridges are being blown up, American convoys are being attacked. So I think the first thing that Obama will do is begin to look at it as an Afghan-Pakistan war, in which Pakistan is really the more important factor.

We could lose in Afghanistan. It would be unhappy but not, you know, terrible for us. If you lose Pakistan, you end up having the mujahideen, Islamic extremists, with nuclear weapons, and that was a major al Qaeda goal that we really do not want to see happen.

I don't think that Newsweek got it quite right the other day when they referred to Afghanistan as potentially Obama's Vietnam. I think potentially Obama's Vietnam is Pakistan.

MR. GREGORY: And what should he consider doing about that?

MR. RICKS: I think it's the problem from hell. It's a nightmare, and I have no idea how you actually solve it. I think what you might try to do for several years is contain it, manage it.

MR. GREGORY: With U.S. troops in the border areas going into Pakistan at times, if necessary?

MR. RICKS: U.S. troops on Pakistan ground is a really difficult problem. We've had some people go in and out quietly but, large, no, you don't want to do that. You've got to wind up using the Pakistani military in some way to solve this problem, but the Pakistani military, in many cases, is the problem. You have a lot of al Qaeda and Taliban sympathizers wearing Pakistani military uniforms.

MR. GREGORY: One of the things that was done reasonably successfully in Iraq under General Petraeus was actually negotiating with some insurgents in Western Iraq. Should the U.S. consider talking, having some contact with the Taliban?

MR. RICKS: It's funny you should mention that, because I think what people in this country don't recognize is Petraeus basically put the Sunni insurgency on the American payroll. And I think it's a great idea. If you can pay somebody not to kill you -- fine. Baghdad government didn't much like it because they felt we were basically arriving at a separate peace with their enemies.

So, yeah, I think you'll see Petraeus trying to talk to the Taliban to find more reconcilable, more moderate elements, and also to empower tribes against the extremists -- to go to sheikhs and say, "Look, these extremists are going after you, too. Isn't there some way we could find of living together?"

The other thing I think you'll see is less emphasis on Karzai and the Kabul government and more emphasis on the promises on the tribes, and so on.

MR. GREGORY: All right. Tom Ricks -- the book is "The Gamble." Good luck with it. Thank you for being here and sharing your views.

MR. RICKS: You're welcome.

MR. GREGORY: We will leave it there, but we'll continue our discussion and ask some of your questions that you submitted online in our "Meet the Press Take Two" Web extra. It's going to be posted on our website this afternoon. You can also read excerpts of "The Gamble" -- all online at We'll be right back.


MR. GREGORY: That's all for today. Watch NBC and MSNBC tomorrow for full coverage of President Obama's first primetime news conference. It's at 8 p.m. Eastern time. We'll be back next week. If it's Sunday, it's "Meet the Press."

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