Shields and Brooks
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RAY SUAREZ: That brings us to Shields and Brooks– syndicated columnist Mark Shields, and David Brooks of The Weekly Standard. Well, earlier this week the President shared his thoughts on recent corporate many scandals with the rest of the country. What did you make of what he had to say?
DAVID BROOKS: It was the first speech President Bush has given that did not change the direction of the conversation and it has been overrun over the last two days. So it was a political misreading not a political success. I would like to defend the part that has been most dismissed, that is the talk of the morality of Wall Street, the stuff on the morality and ethics.
One of the things that happened over the past two decades is that standards of behavior just changed not legalities, not illegalities but things that were not done in 1980 were done in the year 2000 as the stock market rose– treating corporate money as part of your own personal pool of goodie sharing, giving $60 million bonuses to CEO’s as opposed to $6 million, as if somebody does a better job with $6 million. That’s not a question of legality. That’s a question of just what is socially acceptable. I think Bush was absolutely right to say we have to have a change of manners and mores. Now, the legality stuff aside, that got so dismissed as just words but I thought it was part of what has to be part of the real change in what’s happened.
RAY SUAREZ: Mark?
MARK SHIELDS: Ray, I think you can’t take the President’s speech without considering the press conference the day before, which, to some degree was a disabling prelude to the speech, because what the President essentially was saying was do as I say, not as I did. He called for outlawing practices, which he himself had benefited from in the private sector. So in a strange way, without disabling or crippling him, it certainly did not make him the believable and credible sheriff that he wanted to be.
RAY SUAREZ: However, rightly it burns, did he put out the fire? Did he douse it by saying, look, this is old business than all the message people went out and said this is old business. I had it dealt with by the SEC ten years ago. It’s over. Is it over?
MARK SHIELDS: I think the Harken part of it is over. The Washington Post in the lead editorial Friday said in their judgment, hardly accused of being a Bush house organ, the Post said that they thought it was. But the problem is the practices. I mean not that they were illegal, but he was part of the sort of crony capitalism, this chumminess that if you need a few bucks, take it out of the till and all of the rest of it. I think that was a problem.
The other problem is something David has talked about on George W. Bush. He gave up the bold colors of moral clarity for sort of a pale pastel on nuance gray of ambiguity when he started– you don’t understand accounting. It’s in the gray area. That’s not where the President wanted to be on this issue. So when the New York Daily News again, a paper very friendly to President Bush leads with its headline “Bush Talks, Market Tanks,” that’s tough. That’s a tough commentary.
RAY SUAREZ: Let’s very briefly remind people of what we are talking about — really two issues: Loans by the Harken Corporation, of which he was a director, and also sales under favorable terms of stock, which he then sold in advance of that stock price declining and in advance of the company going in into severe losses. Has he cut his own losses this week?
DAVID BROOKS: I agree with Mark, Harken will not expand. Paul Krezin of the New York Times has tried to blow it up but I think once you look at the broad spectrum of the issue, it has never been a big issue. When you look at how the SEC investigated him and found him clean, then I don’t think Harken will be a big scandal. The issue for Bush is broader and some ways more challenging. It’s not like a little political scandal, it’s not a Whitewater.
The problem is that the American people after September 11 had great faith in American institutions, great faith in the direction the company was headed in. And that was just shown in the polls. It just skyrocketed. Now we’ve had the Catholic Church, the FBI, the CIA, and now the financial markets. What we’ve seen is a sharp drop in faith in institutions and a sharp drop in is the country on the right track. When the people feel their country is on the wrong track, they want to take it out on somebody and Bush faces another set of questions, which is, can you get it back on the right track? And they take it out on incumbents. That’s the danger.
RAY SUAREZ: Well, the House and Senate tried to take some of that thunder and noise to its own bosom this week, a lot of debate, a lot of news conferences. John McCain rode into battle trying to get the granting of options; that is, the ability to buy stock at a preferable price at specific times, listed on corporate earnings and loss reports as part of what their business costs are. He lost. He lost with people coming up to oppose him from both sides of the aisle. Was this just another John McCain tilting at windmills deal? He said this is coming back for a vote, don’t you worry.
DAVID BROOKS: This is John McCain tilting at Silicon Valley where the salaries come from stock options and both parties are beholden to Silicon Valley and they crushed him and Carl Levin. What happened on Capitol Hill was remarkable this week there. There were so many proposals out there it was coming out of the wood work, it was like a frenzy. And a lot of the emphasis was on throwing these guys in jail, you know, hanging them over a mosquito pond naked just to torture these guys, which to me is the wrong focus.
There has been so little coherence but it seems to me one of the things we’ve learned over the past seven months — and Paul has brought this out in his reports — is the central problem here is conflict of interest. The auditors have to please their firms so they don’t give honest information because they want to win the clients. The stock analysts are partners with the investment bankers so they don’t give honest buy and sell recommendations. There should be some clarity brought to the Capitol Hill debate, which is just chaos. And the clarity should be, let’s get that people are supposed to be gatekeepers in the financial markets, let’s get it so their incentives are correct to give honest information, because right now their incentives are screwed up, but there has been not that kind of clarity. Instead, it’s let’s send him to jail for five years.
RAY SUAREZ: Barney Ebbers was in the stock with his hands and feet sticking out. He said he wasn’t going to say anything but they kept pummeling him for the rest of the day and into the night.
MARK SHIELDS: There were two central political arenas this week. One was Wall Street where stocks fell and fell precipitously. They fell because there were more sellers than there were buyers. That’s why stocks go down. Why there are more sellers is central. These are not people, investors who understand that there are risks. These are not people who say that this is a bull market and therefore I’m getting out. These are investors, Ray, who are absolutely convinced, what they suspect is that the thing is rigged; that it is a three card Monty game, that the rich guys, the big guys, the powerful guys are playing with fast information, that they’re treating them like rubes who just walked into the carnival or the county fair and are being taken advantage of at the Kupee doll show. That’s one.
The second thing is the Congress. I think you have to say all opposition to the Sarbanes bill, which was considerable, organized lobby, Phil Gramm, Rick Santorum, former Republican, melted. I mean, they’re all now — they’re all reformers, they’re all born again reformers. Why? Because they’re terrified; they’re terrified that Republicans prided themselves on being the corporate party. They brought a corporate style to the White House. They brought corporate press. They brought corporate operations; they brought — meetings began on time. They had an agenda. It wasn’t like Bill Clinton’s late night bull sessions, people walking around in Levi’s. This was corporate. And now it’s corporate and they’re trying to distance themselves and separate themselves from that tag.
For three successive elections Republicans have kept the House by making one argument, and that is, by raising a lot of corporate money, they say, you want Chairman Charlie Rangel, Democrat from New York, as chairman of – John Dingell of Michigan, a formidable anti-tough guy, or do you want Henry Waxman of California in charge of health? All of a sudden there’s a sense of gee, maybe people say, maybe we do; maybe we do want someone who’s going to keep an eye on these folks. And I think that’s why you saw Republicans stampede.
DAVID BROOKS: You know, there used to be a distinction between being conservative and believing in markets and honest competition and being corporate. Over the past five years, ever since Newt Gingrich left, that distinction has gone away. And the danger here for the Republicans is they don’t have– we don’t have honest competition in the markets in part because of the crooked behavior but in part because of this price fix here or of crooked behavior but in part because government responds by saying let’s blanket the financial markets with government oversight. Let’s have some government body going through the books of every company in the land. Let’s have tort lawyers suing everybody for every little precept. That would be just as bad as the disease. That’s why I think it’s really important for the Republicans to get order on the debate and say let’s get–.
RAY SUAREZ: Didn’t there used to be more regulation on this stuff than there is now? I mean are we talking about returning not to some place where we’ve never been, but to a place where until just the recent past we used to be, in the oversight, in the vetting?
DAVID BROOKS: There’s tremendous difference between the state attorneys and district attorneys on who gets prosecuted which district attorneys are likely to present a case because it is so difficult to prosecute somebody for this sort of corporate crime. But listen, the real problem is simply that the people within the financial markets who should have an incentive to keep the markets honest so people want to invest in the markets and make money, they were allowed to stray and allowed just pad their short-term interests as against their long-term interests. So the Republicans really have to rearrange the incentives. which means splitting up these firms.
RAY SUAREZ: Mark was spinning this off until later in the year, approaching mid summer. Mid-term elections aren’t that far away. Nobody is talking about Jalalabad and Kandahar right now. They’re talking about getting their statement, quarterly statement in the mail and they’re not looking very pretty.
DAVID BROOKS: I’m a little curious though in terms of how this will play out in terms of the mid-year election. One Republican consultant says, what is the ad the Democrats are going to run against the Republicans? Do you say they’re corporate, they wear ties? That doesn’t seem like a persuasive ad why you should unelect a Republican incumbent. That will be a problem for the Democrats.
MARK SHIELDS: I don’t see it as a problem right now. The problem is if you are going to do a campaign and you’re debating those who cheat on welfare or crime in the streets, Democrats by definition are on the defensive in that kind of a debate. When you’re talking about guys who are cheating people out of their retirement, are robbing widows and orphans of their future, then you’re not talking– you’re talking about not that the Democrats have been that tough but that the Republicans have been too chummy. And I think that is the problem for the Republicans — that there is a widespread perception that they are very too close, too chummy, almost subservient to the Republicans.
How much has the climate changed? I’ll tell you how much the climate has changed. You have Republican members of the House Ways and Means Committee openly saying on the record it is George Bush’s tax proposal before the committee today, it could not pass the Congress of the United States. I mean, that’s how much it has changed.
RAY SUAREZ: So, I mean is this something that’s over in a month a couple of months? It feels like the sand under our feet here in Washington has shifted a little bit. But it’s hard to know–.
DAVID BROOKS: In earlier discussions with the CEO’s, they were self-flat waiting themselves as CEO’s should these days. This was the whole country. When the stock market was going up and up, you could not put Bill Gates’ face on enough magazines because Bill Gates sold, any CEO sold. Those were the heroes that were making people money. And that could come back when the market shoots up again.
RAY SUAREZ: David, Mark, thanks a lot.