Transcript: Joint Chiefs of Staff Chairman Adm. Mike Mullen

BROOKS: Once you start there, believe me there are 49 other states or at least -- 30 some or Democratic states, let's be more explicit about this. The problem is as George pointed out in a column way in front of us on this story, spending on the public employees has been exploding. What is it twice the cost to house an inmate?

And then when you concentrate revenue on getting the top one percent that gives you incredible volatile revenue streams. But stock options one year but no stock options the next year and you get these crashes and if we bailed them out that would be addressing none of the structural issues.

STEPHANOPOULOS: That may be but one of the suggestions people have made is that, okay, there should be conditions. I know George Will wouldn't like them but you should do away with the two-thirds plus one, you should do away with the constitution ...

WILL: Californians wouldn't like it. This is federalism. People have a right to the laws they want.

DIONNE: Two-thirds plus one is not a democratic system. It requires -- it gives a minority the power to write the state budget. But I think what you're going to see is not a direct bailout of California. There wasn't enough money put in the stimulus package to help enough states that are in trouble. If it was in normal times where one was in trouble he might be able to do a bailout but you have so many states are facing trouble if they help they'll have to do something more general. I don't think they can't just help California.

BROOKS: Gray Davis, we had the last California iteration. Now we have this one. If we don't ...

DIONNE: And the system in California is broken. Exactly.

STEPHANOPOULOS: Meanwhile, the president does face a real political problem and a real economic problem. He can't allow California to go under. So what do they do?

BROOKS: Well, I would hope they would hope they would reduce -- some of the public employee unions that have gotten huge increases without doing the draconian things that Donna talked about, that's got to be possible. Because if they kept spending at a reasonable rate over the past 20 years they wouldn't be having this problem. So there must be a way to cut and do structural reforms without the equivalent of closing the Washington Monument. BRAZILE: This is not just an attack on unions and their pay as we saw in the whole conversation about General Motors and Chrysler. This is structural problems that must be addressed and many of these states are having a hard time selling their bonds on the market. And I think the federal government maybe with the TARP money, whatever, can help these states get these bonds on the market to help them with their little credit crunch.

WILL: Well, good. Let the administration go to Congress and say, we want a law passed to bail out California. The problem with this is, generally, it interrupts all the feedback loops by which people learn. California has to learn. The other 49 states have to learn. And they are to some extent not mere appendages of the federal government.

BRAZILE: Who is the image here? The federal government? Who are they going to learn from, George? We're in a recession and they're having a hard time getting money and they have all of this -- the needs -- the budget needs but we're in a recession. And that's money not coming in.

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