McCaskill, Bayh: 'Too Soon' to Talk of Second Stimulus

March 8, 2009 -- Despite the growing number of job losses, Democratic Sens. Claire McCaskill of Missouri and Evan Bayh of Indiana said it is too soon to say whether the government may have to intervene further with a second stimulus package.

"I think it's too early for that," McCaskill said on "This Week with George Stephanopoulos."

"Job loss is always a lagging indicator. It's not a leading indicator in a recession. And we've said all along in the stimulus, besides the tax cuts, which people forget to mention, a huge chunk of tax cuts, money going right back into the pockets of the American people, we're trying to keep job losses from being as great," she said.

"Even when we were debating the stimulus, we kept saying over and over again there was going to continue to be significant job loss. It's a matter of whether or not we can keep from that job loss being as severe as it could be had we not done the stimulus."

Bayh said it was "a little too soon" to conclude that President Obama's stimulus will not be able to save $3.5 million jobs as he previously claimed. "We may need to have to recalibrate what we do as we go along as the facts change. He did inherit one heck of a mess, and it's gotten worse over the last couple of months."

"Let's give this a little time," Bayh added. "I was with Ben Bernanke a couple of times this week. He does think that some things in the credit markets are beginning to get better, but there is a lag between when you put policy into effect and when it actually starts having an effect in the real world. ... It does take some time before things -- before people realize that the substance is actually getting better. My guess is that'll start later this year or the first part of next year, and we're moving aggressively to make sure that it does."

During the economic debate this morning, Sen. Richard Shelby, R-Ala., the ranking member of the Banking Committee, said the government should let troubled banks fail.

"I don't want to nationalize them. I think we need to close them," he said.

"Close them down, get them out of business. If they're dead, they ought to be buried. We bury the small banks; we've got to bury some big ones and send a strong message to the market. And I believe that people will start investing in banks," he said.

"I believe if we can straighten out the banking system and get banks lending again and get confidence in our banking system -- the American people don't trust the banks. They know -- they're not investing in the banks. The banks aren't lending. And without lending, this -- this country's economy is based on credit, you know, credit to small business, medium-sized business, and that's not happening today."

Asked specifically about struggling bank Citigroup, which received roughly $45 billion in government bailout money under the federal Troubled Asset Relief Program (TARP), Shelby said: "Citi's always been a problem child ... We've got to do it right. TARP certainly didn't do it. I opposed that; a lot of people didn't. But we can't go down that road again. And what I fear is...TARP II or TARP III."

Thomas Donohue, head of the U.S. Commerce Committee, disagreed with Shelby. "It's not practical to talk about closing a bank that is integrated throughout the whole global economy," he said. "It is practical to talk about buying some of those assets away from those banks and holding them in an institution that would have both public and private money."

As for TARP, Donohue supported using the federal bailout funds for the banks. "I believe that the TARP thing had a very important value, and that is, it put liquidity in the banks that let them meet their requirements. Otherwise, they would have to be put out of business. And they're holding that money. They haven't spent it. They're waiting to find out where the floor is. And when they get to the floor... then we'll be able to figure out how to put more money back in the economy," he said.

Bayh, a member of the Banking Committee, also disagreed with Shelby, arguing there would be too much "collateral damage" if the big banks were allowed to fail. "The real problem here is this whole concept of too big to fail," said Bayh. "Some of these institutions -- and you can put some of the big three automotive companies in the same category -- if they were to go down, the problem is, it's not just them. They take -- it's called, you know, collateral damage, a whole lot, hundreds of thousands of blue-collar working men and women, other smaller financial institutions who were not involved in these bad decision-makings, they'd all pay the price, too," he explained.

"What we have to do is stabilize them for the time being to avoid the collateral damage, put into effect regulation to make sure that this does not happen again, and if institutions are going to get, quote, 'too big to fail' so that the taxpayers will have to come in, maybe they have to operate under a different set of rules."

But Shelby countered, arguing that government bailouts do not work in the long-term. "Subsidization of anything for very long never works," he said. "You don't stop. The automobile business, those companies, Chrysler, Ford and General Motors, they're in deep trouble. We know that. I've suggested they go into Chapter 11. That's where they belong. And they could reorganize. We could get, you know, money in place for them. We could do it if they did it and did it right. Short of that, the UAW will run those companies and run them into the ground."