What follows is the transcript of my conversation earlier today with Sen. John McCain.
LARRY KUDLOW, host:
Senator John McCain, welcome back to KUDLOW & COMPANY, sir.
Senator JOHN McCAIN: Thank you, Larry. It's nice to be back.
KUDLOW: Let me begin, in your speech today, and also in recent speeches, you're really blasting corporate greed and reckless corporate conduct. It sounds a little bit like the business attacks by Senator Clinton and Senator Obama. Can you tell us, what do you mean by these criticisms? What are you driving at?
Sen. McCAIN: I'm driving at the people who get compensation which is not approved of by the stockholders, even a nonbinding fashion. I'm talking about people like Mr. Cayne, who the day--right around the time the government took over Bear Stearns--or bailed out, excuse me, bail--Bear Stearns--who went to the market and got $11 a share rather than $10 a share. I'm talking about people that when their corporation has losses, that they are rewarded with exorbitantly high pay packages. And it gives Wall Street a bad name, Larry. And that's--and that's pure and simple. I do not believe in government intervention, I do not believe in government control, I do not believe that. But I do believe we should take steps to increase transparency and also
shareholder input into the compensation of CEOs. After all, that's who the CEOs work for. And I also think CEOs and chairmen should have--be different people.
KUDLOW: OK. Well, do you support the say on pay bill? That's a key point. And would you make that mandatory?
Sen. McCAIN: In a nonbinding. I would--I believe in say on pay. I believe that Aflac is--supposedly on May 5th they're going to vote on that. I don't think that stock--shareholders should be prevented from voicing their opinion on it, but I do not believe it should be binding. I think nonbinding is just fine. I think that sends enough of a signal to corporate executives.
KUDLOW: When you are criticizing these corporations, I mean, there's 140 million Americans work for corporations, in rough numbers. Companies are the ones who create jobs in America, they're the ones who really generate the family incomes, and of course companies need capital investment. Do you ever worry that you're sending a very tough anti-business message to the firms, to the work force and to investors?
Sen. McCAIN: Larry, in all due respect, don't you think that when corporate executives take exorbitant pay packages that are not justified by the--by the performance of the corporations that they have stewardship of and millions of--and 250,000 Americans in the last short period of time have lost their jobs, that that gives corporate America a bad name and then increases the
influence of those who are basically anti-business? Don't you think that is also one of the--one of the spillovers here? We expect corporate America to be transparent, honest, accountable, and I don't care how much executive compensation is as long as it's justified by corporate performance. And you know and I know there are many of them that that's not the case. Not the majority, but there's enough of them that it gives Wall Street and corporate America a bad name, the strength and basis of America's economy. You and I are not in that much disagreement. But just like there are bad politicians that--who need to be punished, there are bad corporate executives and corporate greed that has to be checked, as well.
KUDLOW: Why? In the case of James Cayne--I mean, I don't want to get too deep into this...
Sen. McCAIN: Yeah.
KUDLOW: ...because neither of us are securities analysts.
Sen. McCAIN: Yeah. Yeah. Yeah.
KUDLOW: But he didn't do anything that broke the law. He worked there for 40 years.
Sen. McCAIN: Of course not.
KUDLOW: He collected stock over that whole period of time. And you yourself supported the JPMorgan/Bear Stearns deal. So I'm not sure where the issue is here, because he didn't do anything illegal.
Sen. McCAIN: Yeah. Well, when a politician gets corporate contributions and then writes an earmark for that corporation, which is not competed or any other virtue that I know of, that's not illegal, either. OK? But it ain't right. I'm saying that there are corporate executives--I'm sorry to waste our--I mean, to spend so much of our time together on this particular issue,
because we're not that much in disagreement. I want accountability and transparency, and I know that you do, too. And there are bad corporate heads just as there have been bad politicians and there have been bad everything, unfortunately, in America. And transparency and accountability to shareholders is the best way to check it. And you and I are not in that much
of disagreement of it.
KUDLOW: Yeah.
Sen. McCAIN: But I cringe when I hear--when I hear my constituents saying, `Wait, I just lost my job and that corporate CEO just cashed in X,' OK?
KUDLOW: All right. So as someone once said, let us move on, sir.
Recently...
Sen. McCAIN: OK, sure.
KUDLOW: Recently, you've talked--you've said pretty clearly that the US economy is in recession. In terms of your speech today, can you tick off your major recovery points?
Sen. McCAIN: Bring spending, obviously, under control. That is very obvious. Have a balanced budget. Reduce corporate taxes from 35 to 25. Allow expensing in the first year of new equipment. Job retraining and education programs that work, that give us qualified workers into the work force. Let's have a gas tax holiday and maybe just give everyday Americans some relief this summer. Become--make it a national priority to--for energy independence. We're sending, as you know, $400 billion a year, half of our trade deficit, to countries that don't like us very much, and some of that money ends up in the hands of terrorist organizations. We--spending and spending and spending. In other words, we need to have a year pause, a year pause on discretionary spending, except for veterans and defense. And let's scrutinize every agency of government. You could--and by the way, how do you pay for it? Just the $35 billion in pork barrel projects that parents sign--the president signed into law the last two years, plus the 60 billion in pork barrel projects that are already in the pipeline. And let's get the spending under control so that we can give Americans real and meaningful tax relief, which they need, because--and we cannot make the tax--present tax cuts--we can't repeal the present tax cuts and we have to take a--many other measures. But I would argue with you that if we're going to really restore our confidence and trust, we cannot increase the tax burden on American families and businesses. It is not taxes that are insufficient, it's spending that's out of control. And one of the areas I would go after first and hardest is defense acquisition.
KUDLOW: On the corporate tax--on the corporate tax cut...
Sen. McCAIN: Yeah.
KUDLOW: ...which you've talked about pretty much all year, in order to help finance it, you mention you want to close some loopholes in corporate welfare. Would you raise the...(unintelligible)...interest tax on buyout funds and private partnerships as a means of financing your reduction in the corporate tax rate overall?
Sen. McCAIN: No. I would--no. But I'll tell you what, I would eliminate ethanol subsidies. I would eliminate the tariff on imported ethanol. I think our market is being very badly distorted as far as food prices are concerned. I know you know food prices skyrocketed 17 percent in a very short period of time. That's because we're distorting the market. I'm for biofuels, I'm for
all that stuff, but let's let the market play. Let's not subsidize ethanol or any other alternate form of energy. Let's go ahead and take away the imports. Let's eliminate sugar protection. My God, it's amazing, still, the power of some of the sections of agriculture in America. And let's eliminate loopholes that are specially targeted, rifle-shotted to specific industries and--both agriculture and business, and let's let them all compete.
KUDLOW: Come back to this summer gas tax holiday that you unveiled in your speech today. It's a pretty interesting point. I don't think anybody's talked about anything like that. Let me just ask you, though, you've been very tough on the issue of carbon emissions, for example. Now, if you waive the gas tax...
Sen. McCAIN: Yeah.
KUDLOW: ...for motorists, isn't that going to actually spur gasoline consumption and increase carbon emissions?
Sen. McCAIN: Look, I'd love to tell you that would happen. We're talking about 18 cents a gallon for regular fuel and 24 percent--24 cents for diesel. I'm not sure that it stimulates it. I think it eases the burden. The people that drive the furthest in America are the lowest income people. You spent enough time in Washington, DC, to know that the wealthiest live in Georgetown and can almost walk to work; the least wealthy live the furthest away and drive many, many miles. I think that there--that it is a disproportionate burden on low income Americans that don't have access to mass transportation, that have to go a long way to work. But I'd like to see Americans get some relief this summer and maybe feel a little better. That's--and I think it'd be a nice thing to do, a good thing to do, including suspending further purchases of oil--of gas and oil for--of oil for the Strategic Petroleum Reserve.
KUDLOW: Well, some people have looked at this proposal this morning, which I said is a novel proposal, and they said, `Well, OK, but...'
Sen. McCAIN: Mm-hmm.
KUDLOW: `...isn't this going to provide, ultimately, more revenues for Saudi Arabia and OPEC, which is the reverse of what you have argued for in the past?'
Sen. McCAIN: No, I don't--look, I do not believe that we can continue our efforts to alternate fuels and alternate energy sources, including nuclear, which is vital, and still give Americans a little bit of relief and let them afford a vacation this summer. So all I can tell you is I'd like to give Americans some relief and it will have little or no impact of any kind on our overall effort that we must mount to become energy independent, and that has to do with a lot of alternate energy, again, and I emphasize nuclear.
KUDLOW: All right. A month ago on the housing and the mortgage issue, you gave a strong speech and you said one of your core principles--it is not the duty of government to bail out and reward those who act irresponsibly.
Sen. McCAIN: Yep.
KUDLOW: Last week in Brooklyn, New York, you unveiled your home plan...
Sen. McCAIN: Mm-hmm.
KUDLOW: ...which is essentially a widespread FHA assistance program not unlike what Obama and Hillary are saying. Why the switch?
Sen. McCAIN: Well, actually, I said that we should not reward people who have--who have acted in an unscrupulous fashion, and this doesn't--this is targeted at as many as 400,000 homeowners who had a legitimate home mortgage, they--it's their primary residence and all the--all of a sudden they find themselves unable to make the payments. These people are not the ones I was talking about then. There has been no switch. I said at that time I wanted to help people who need the help, who are deserving of it. And these people are deserving of it, who are in their primary residences, who are eligible to have a mortgage that they can afford. And it's in the lender's interest as well as the borrower's interest; otherwise, that home becomes vacant. And in the event--by the way, in the event of sale of that home, over time with appreciation, one third would go to the lender, one third to the FHA and one third to the homeowner. So I think it's a--it's a very badly needed relief to honest, legitimate, home-owning Americans who find themselves trapped in this terrible problem of owning--of realizing--not being able to realize the
American dream.
KUDLOW: Does your version of this differ from the Democratic version?
Sen. McCAIN: I haven't read their version, but from what I understand theirs is very massive and very expensive. But I haven't read theirs.
KUDLOW: Would you consider, by the way, rolling back the Community Reinvestment Act, which a lot of people say triggered this, mandating banks and other lenders to make substandard loans in the first place, and the creator of the subprime mortgages back in the middle '90s? Is it time to take a look at the Community Reinvestment Act?
Sen. McCAIN: Absolutely, Larry. There were people who predicted that the Community Reinvestment Act might lead to reckless and unsound lending practices just to sort of fill a--you know, a amount of--I don't like to use the word "quota," but certain percentages of a--of a home--of the bank's lending practices. Yes, it has to be re-examined, it has to be judged by its
effect, and we need to find out how this particular system affected the overall insolvency of the subprime lending issue. And I think it--I'm not saying it needs to be repealed, but it certainly needs to be re-examined and what its effects have been. And we'll be able to figure that out.
KUDLOW: Just one last one, sir. This morning's wholesale inflation report for the month of March, headline inflation, 7 percent year on year. Consumer prices, as you know, up 4 percent, probably on the way to 5 percent. Former Fed Chairman Paul Volcker the other day in New York said we are in a dollar crisis. Would you support or would you recommend a Fed/Treasury/G7 action to defend the dollar and to strengthen the dollar as a way of holding down these inflationary pressures?
Sen. McCAIN: I certainly would give it every consideration, but you and I both know that a weak dollar is a symptom of fundamental problems, such as our trade deficit, half of it being accounted for by our need to import foreign oil, our debt to the--to the Chinese, the spending practices--our continuing burgeoning out of control behavior in Washington which then has given us an unsound economy, reflected in the weakening dollar. The best way we can--in my view, to strengthen the dollar over time, let's have free trade, let's exchange goods and services with every nation in the world, let's have--reduce our deficit, let's lower taxes, let's give the American people a sound basis for economy and hope and optimism for the future. And I'm confident--I am confident that the fundamentals of our economy are strong and we will recover and America will be stronger over time. But right now, we are facing very serious challenges. I see you talk about them every single day.
KUDLOW: Senator John McCain, thank you, sir, for coming back on KUDLOW & COMPANY. We appreciate it very much.
Sen. McCAIN: Thank you, Larry.
LARRY KUDLOW, host:
Senator John McCain, welcome back to KUDLOW & COMPANY, sir.
Senator JOHN McCAIN: Thank you, Larry. It's nice to be back.
KUDLOW: Let me begin, in your speech today, and also in recent speeches, you're really blasting corporate greed and reckless corporate conduct. It sounds a little bit like the business attacks by Senator Clinton and Senator Obama. Can you tell us, what do you mean by these criticisms? What are you driving at?
Sen. McCAIN: I'm driving at the people who get compensation which is not approved of by the stockholders, even a nonbinding fashion. I'm talking about people like Mr. Cayne, who the day--right around the time the government took over Bear Stearns--or bailed out, excuse me, bail--Bear Stearns--who went to the market and got $11 a share rather than $10 a share. I'm talking about people that when their corporation has losses, that they are rewarded with exorbitantly high pay packages. And it gives Wall Street a bad name, Larry. And that's--and that's pure and simple. I do not believe in government intervention, I do not believe in government control, I do not believe that. But I do believe we should take steps to increase transparency and also
shareholder input into the compensation of CEOs. After all, that's who the CEOs work for. And I also think CEOs and chairmen should have--be different people.
KUDLOW: OK. Well, do you support the say on pay bill? That's a key point. And would you make that mandatory?
Sen. McCAIN: In a nonbinding. I would--I believe in say on pay. I believe that Aflac is--supposedly on May 5th they're going to vote on that. I don't think that stock--shareholders should be prevented from voicing their opinion on it, but I do not believe it should be binding. I think nonbinding is just fine. I think that sends enough of a signal to corporate executives.
KUDLOW: When you are criticizing these corporations, I mean, there's 140 million Americans work for corporations, in rough numbers. Companies are the ones who create jobs in America, they're the ones who really generate the family incomes, and of course companies need capital investment. Do you ever worry that you're sending a very tough anti-business message to the firms, to the work force and to investors?
Sen. McCAIN: Larry, in all due respect, don't you think that when corporate executives take exorbitant pay packages that are not justified by the--by the performance of the corporations that they have stewardship of and millions of--and 250,000 Americans in the last short period of time have lost their jobs, that that gives corporate America a bad name and then increases the
influence of those who are basically anti-business? Don't you think that is also one of the--one of the spillovers here? We expect corporate America to be transparent, honest, accountable, and I don't care how much executive compensation is as long as it's justified by corporate performance. And you know and I know there are many of them that that's not the case. Not the majority, but there's enough of them that it gives Wall Street and corporate America a bad name, the strength and basis of America's economy. You and I are not in that much disagreement. But just like there are bad politicians that--who need to be punished, there are bad corporate executives and corporate greed that has to be checked, as well.
KUDLOW: Why? In the case of James Cayne--I mean, I don't want to get too deep into this...
Sen. McCAIN: Yeah.
KUDLOW: ...because neither of us are securities analysts.
Sen. McCAIN: Yeah. Yeah. Yeah.
KUDLOW: But he didn't do anything that broke the law. He worked there for 40 years.
Sen. McCAIN: Of course not.
KUDLOW: He collected stock over that whole period of time. And you yourself supported the JPMorgan/Bear Stearns deal. So I'm not sure where the issue is here, because he didn't do anything illegal.
Sen. McCAIN: Yeah. Well, when a politician gets corporate contributions and then writes an earmark for that corporation, which is not competed or any other virtue that I know of, that's not illegal, either. OK? But it ain't right. I'm saying that there are corporate executives--I'm sorry to waste our--I mean, to spend so much of our time together on this particular issue,
because we're not that much in disagreement. I want accountability and transparency, and I know that you do, too. And there are bad corporate heads just as there have been bad politicians and there have been bad everything, unfortunately, in America. And transparency and accountability to shareholders is the best way to check it. And you and I are not in that much
of disagreement of it.
KUDLOW: Yeah.
Sen. McCAIN: But I cringe when I hear--when I hear my constituents saying, `Wait, I just lost my job and that corporate CEO just cashed in X,' OK?
KUDLOW: All right. So as someone once said, let us move on, sir.
Recently...
Sen. McCAIN: OK, sure.
KUDLOW: Recently, you've talked--you've said pretty clearly that the US economy is in recession. In terms of your speech today, can you tick off your major recovery points?
Sen. McCAIN: Bring spending, obviously, under control. That is very obvious. Have a balanced budget. Reduce corporate taxes from 35 to 25. Allow expensing in the first year of new equipment. Job retraining and education programs that work, that give us qualified workers into the work force. Let's have a gas tax holiday and maybe just give everyday Americans some relief this summer. Become--make it a national priority to--for energy independence. We're sending, as you know, $400 billion a year, half of our trade deficit, to countries that don't like us very much, and some of that money ends up in the hands of terrorist organizations. We--spending and spending and spending. In other words, we need to have a year pause, a year pause on discretionary spending, except for veterans and defense. And let's scrutinize every agency of government. You could--and by the way, how do you pay for it? Just the $35 billion in pork barrel projects that parents sign--the president signed into law the last two years, plus the 60 billion in pork barrel projects that are already in the pipeline. And let's get the spending under control so that we can give Americans real and meaningful tax relief, which they need, because--and we cannot make the tax--present tax cuts--we can't repeal the present tax cuts and we have to take a--many other measures. But I would argue with you that if we're going to really restore our confidence and trust, we cannot increase the tax burden on American families and businesses. It is not taxes that are insufficient, it's spending that's out of control. And one of the areas I would go after first and hardest is defense acquisition.
KUDLOW: On the corporate tax--on the corporate tax cut...
Sen. McCAIN: Yeah.
KUDLOW: ...which you've talked about pretty much all year, in order to help finance it, you mention you want to close some loopholes in corporate welfare. Would you raise the...(unintelligible)...interest tax on buyout funds and private partnerships as a means of financing your reduction in the corporate tax rate overall?
Sen. McCAIN: No. I would--no. But I'll tell you what, I would eliminate ethanol subsidies. I would eliminate the tariff on imported ethanol. I think our market is being very badly distorted as far as food prices are concerned. I know you know food prices skyrocketed 17 percent in a very short period of time. That's because we're distorting the market. I'm for biofuels, I'm for
all that stuff, but let's let the market play. Let's not subsidize ethanol or any other alternate form of energy. Let's go ahead and take away the imports. Let's eliminate sugar protection. My God, it's amazing, still, the power of some of the sections of agriculture in America. And let's eliminate loopholes that are specially targeted, rifle-shotted to specific industries and--both agriculture and business, and let's let them all compete.
KUDLOW: Come back to this summer gas tax holiday that you unveiled in your speech today. It's a pretty interesting point. I don't think anybody's talked about anything like that. Let me just ask you, though, you've been very tough on the issue of carbon emissions, for example. Now, if you waive the gas tax...
Sen. McCAIN: Yeah.
KUDLOW: ...for motorists, isn't that going to actually spur gasoline consumption and increase carbon emissions?
Sen. McCAIN: Look, I'd love to tell you that would happen. We're talking about 18 cents a gallon for regular fuel and 24 percent--24 cents for diesel. I'm not sure that it stimulates it. I think it eases the burden. The people that drive the furthest in America are the lowest income people. You spent enough time in Washington, DC, to know that the wealthiest live in Georgetown and can almost walk to work; the least wealthy live the furthest away and drive many, many miles. I think that there--that it is a disproportionate burden on low income Americans that don't have access to mass transportation, that have to go a long way to work. But I'd like to see Americans get some relief this summer and maybe feel a little better. That's--and I think it'd be a nice thing to do, a good thing to do, including suspending further purchases of oil--of gas and oil for--of oil for the Strategic Petroleum Reserve.
KUDLOW: Well, some people have looked at this proposal this morning, which I said is a novel proposal, and they said, `Well, OK, but...'
Sen. McCAIN: Mm-hmm.
KUDLOW: `...isn't this going to provide, ultimately, more revenues for Saudi Arabia and OPEC, which is the reverse of what you have argued for in the past?'
Sen. McCAIN: No, I don't--look, I do not believe that we can continue our efforts to alternate fuels and alternate energy sources, including nuclear, which is vital, and still give Americans a little bit of relief and let them afford a vacation this summer. So all I can tell you is I'd like to give Americans some relief and it will have little or no impact of any kind on our overall effort that we must mount to become energy independent, and that has to do with a lot of alternate energy, again, and I emphasize nuclear.
KUDLOW: All right. A month ago on the housing and the mortgage issue, you gave a strong speech and you said one of your core principles--it is not the duty of government to bail out and reward those who act irresponsibly.
Sen. McCAIN: Yep.
KUDLOW: Last week in Brooklyn, New York, you unveiled your home plan...
Sen. McCAIN: Mm-hmm.
KUDLOW: ...which is essentially a widespread FHA assistance program not unlike what Obama and Hillary are saying. Why the switch?
Sen. McCAIN: Well, actually, I said that we should not reward people who have--who have acted in an unscrupulous fashion, and this doesn't--this is targeted at as many as 400,000 homeowners who had a legitimate home mortgage, they--it's their primary residence and all the--all of a sudden they find themselves unable to make the payments. These people are not the ones I was talking about then. There has been no switch. I said at that time I wanted to help people who need the help, who are deserving of it. And these people are deserving of it, who are in their primary residences, who are eligible to have a mortgage that they can afford. And it's in the lender's interest as well as the borrower's interest; otherwise, that home becomes vacant. And in the event--by the way, in the event of sale of that home, over time with appreciation, one third would go to the lender, one third to the FHA and one third to the homeowner. So I think it's a--it's a very badly needed relief to honest, legitimate, home-owning Americans who find themselves trapped in this terrible problem of owning--of realizing--not being able to realize the
American dream.
KUDLOW: Does your version of this differ from the Democratic version?
Sen. McCAIN: I haven't read their version, but from what I understand theirs is very massive and very expensive. But I haven't read theirs.
KUDLOW: Would you consider, by the way, rolling back the Community Reinvestment Act, which a lot of people say triggered this, mandating banks and other lenders to make substandard loans in the first place, and the creator of the subprime mortgages back in the middle '90s? Is it time to take a look at the Community Reinvestment Act?
Sen. McCAIN: Absolutely, Larry. There were people who predicted that the Community Reinvestment Act might lead to reckless and unsound lending practices just to sort of fill a--you know, a amount of--I don't like to use the word "quota," but certain percentages of a--of a home--of the bank's lending practices. Yes, it has to be re-examined, it has to be judged by its
effect, and we need to find out how this particular system affected the overall insolvency of the subprime lending issue. And I think it--I'm not saying it needs to be repealed, but it certainly needs to be re-examined and what its effects have been. And we'll be able to figure that out.
KUDLOW: Just one last one, sir. This morning's wholesale inflation report for the month of March, headline inflation, 7 percent year on year. Consumer prices, as you know, up 4 percent, probably on the way to 5 percent. Former Fed Chairman Paul Volcker the other day in New York said we are in a dollar crisis. Would you support or would you recommend a Fed/Treasury/G7 action to defend the dollar and to strengthen the dollar as a way of holding down these inflationary pressures?
Sen. McCAIN: I certainly would give it every consideration, but you and I both know that a weak dollar is a symptom of fundamental problems, such as our trade deficit, half of it being accounted for by our need to import foreign oil, our debt to the--to the Chinese, the spending practices--our continuing burgeoning out of control behavior in Washington which then has given us an unsound economy, reflected in the weakening dollar. The best way we can--in my view, to strengthen the dollar over time, let's have free trade, let's exchange goods and services with every nation in the world, let's have--reduce our deficit, let's lower taxes, let's give the American people a sound basis for economy and hope and optimism for the future. And I'm confident--I am confident that the fundamentals of our economy are strong and we will recover and America will be stronger over time. But right now, we are facing very serious challenges. I see you talk about them every single day.
KUDLOW: Senator John McCain, thank you, sir, for coming back on KUDLOW & COMPANY. We appreciate it very much.
Sen. McCAIN: Thank you, Larry.
