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."

"I don't think it's exactly the same when you start looking at the banks," Donohue pointed out. "The senator's right in the long term. We have to take some of these really toxic banks and straighten them out. This senator is exactly right that 90 percent of the banks in the country are doing a great job. The only thing is, 25 million small businesses can't get their money from banks. We have to get the asset back -- lenders back in business. We have to put individuals in the position to do what they've always done, is to lend to small companies. Those guys create the jobs," he said.

McCaskill, a member of the Commerce Committee, said the president's plan for the banks needs time to work. "A plan has been laid out. I think -- and now they're -- what they're doing is they're doing this evaluation to look at the strength and the weaknesses of each of these banks so we know what's there, and then they're going to have those capital asset funds available to help them stay liquid, the big banks," she said. "But I think this is a matter of continuing to look aggressively at how we can help without wasting taxpayer money."

But McCaskill said it is important to distinguish between these big banks and the smaller, commercial banks, which she argued are continuing to lend just fine. "The commercial banks, the small, local banks, they're fine, and people need to realize that. Your local bank is loaning money; it is operating as it always had. It may be suffering in its stock prices because of what's going on in the stock market, but they are doing a great job. In fact, most of the commercial banks, the local banks, have loaned more money in the fourth quarter of last year than they had the fourth quarter the previous year."

But reviving America's banking system is not the only item on the Obama agenda. In addition to the $787-billion stimulus package the president has proposed sweeping changes to reform health care, a cap-and-trade system to cut global warming, and further improvements in information technology. This morning's panelists responded to criticisms that Obama is taking on too much, too fast.

"I think the American people fundamentally understand that he's focusing on the economy first and foremost," McCaskill argued. "On the other hand ... he's a great communicator. And I think the American people know that if we keep delaying the health care discussion, if we keep delaying the cap-and-trade discussion and -- and the discussion about our environment and global warming, that that is a very, very bad thing for our grandchildren. And, also, we have to keep focused on deficit reduction.

"What you're seeing is a president that's not afraid to take on all these issues that he knows the American people want reform, they want reform on this. So it's tough. We've got to communicate clearly. We've got to make sure that we bring the American people with us, but I think we've got the right communicator to do it."

Bayh agreed. "He's got to try and do two things simultaneously...first, be an idealist, look at the problems that face the country and propose bold changes to deal with those. He's doing that. But at the end of the day, he also has to be a pragmatist, and you can't insist on more than the system can deliver, although you push for all that it can deliver. ... My sense of this president is that he's a very practical person. He wants results. And at the end of the day, that's what we'll deliver.

"I think the president is confronted with a lot of these simultaneously because the world has confronted him with them. He didn't ask to have to deal with the recession and the global warming and the health care crisis. He's been confronted with that, so he has to deal with a lot of these things."

But Shelby warned lawmakers to be careful to not "overload" the economy. "Our thrust should be turning the economy around, and we do that through banks, getting people back to work," he said.

Despite the growing number of job losses, McCaskill and Bayh 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. "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.

"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."

Also on the Congressional agenda is the continuing debate over the omnibus spending bill and its more than 8,000 earmarks.

Bayh, one of two Democrats who has come out unequivocally against the bill, said he believed ultimately Democrats will get the votes to pass the bill. "I think there are substantive and perceptional problems with this bill. Substantively, the deficit is over $1 trillion. Our national debt is going up more than $1 million per minute. We have to borrow most of this money from abroad, which weakens our country. I think this is a time to show that we can economize, do better than across-the-board increases that are many times the rate of inflation."

"The perceptual problem, which I think is just as great, is that, at a time when many Americans are having to tighten their belts, many businesses are having to make tough decisions, it looks as if Congress is just on auto pilot, immune -- immune from the problems that most people face. That undermines confidence in the system. I think we need to keep faith with the American people and show we can do what they do everyday."

Shelby, one of a few Republicans who supports the spending bill, disagreed. "This is -- these are a compilation of nine appropriations bills. A lot of people voted for a stimulus bill, a TARP. That's $1.5 trillion. Now they say, 'Oh, we'd better not vote for a $400 billion bill to fund the government.' I think we ought to fund the government and move on. Are there some things in this bill that I don't like, I wouldn't vote for if I could? I voted for amendments, you know, to knock things out of it, sure. But, overall, I think it's -- it's -- we need to get it behind us, and I think we will."

McCaskill, a staunch opponent of earmarks, explained why she is backing the bill. "I have done everything I can possibly do to reject the process of funding -- funding projects through earmarks. I vote against earmarks when I get the chance, as long as we're voting against all of them, and I've dropped another bill to reform the process even further this week," she said.

"But I don't think I can sit on the sidelines on every budget, though, because I've got to tell you, George, you talk about a habit that's deeply ingrained and a culture that's very hard to get rid of, these guys love these earmarks. They love the ability to have the power, you know, to pick out projects to fund," she told Stephanopoulos.

Shelby, who ranks as the senator with the 9th most earmarks in a list recently published by the group Taxpayers for Common Sense, defended his support of earmark spending.

"I can defend every earmark," Shelby said. "Every one of my earmarks have been released to the press. Every one has -- has, I think, been vetted in the committee and publicly in my state. I don't want an earmark that has no merit, but I do believe that we ought to have the power to appropriate things with merit. And that's what I -- that's one of the reasons I'm voting for this bill."

In response McCaskill jokingly called Shelby a "loyal appropriator" for consistently supporting earmarks and the spending bill.

"I think it's important to point out that a lot of the senators that stood up with righteous indignation on the stimulus bill, talking about earmarks in the bill and earmarks in the bill, are back two weeks later for a huge chunk of earmarks. And this is an equal-opportunity sin...every single member of Republican leadership is participating fully in the earmark process. So what I hope people quit doing is using earmarks as a partisan fight, because it is not partisan," she added.